ASIA SUPPLY CHAINS & SOURCING PERSPECTIVES

Transcription

1 20122 Supply Chain Leadership Forum Denver, CO ASIA SUPPLY CHAINS & SOURCING PERSPECTIVES Steve Ganster, EVP, Asia, Tompkins International Gene Tyndall, EVP, Tompkins International

2 Topics China Context U.S. Company Performance in China Tompkins Survey Result Highlights Sourcing Best Practices SupplyChain Trends Summary & Discussion 2

3 China Outlook GDP will increase more than $5 trillion by Disposable income will more than double by Real GDP at 2009 Prices (US$Bn) Today Annual Growth = 8.8% = 10.0% = 9.9% F = 7.3% Take-off! -----The Gold Rush Source: Various government and economic forecasts: Tompkins analysis 3

4 U.S. Companies Are Faring Well 2011 was a strong year for U.S. companies in China but showed some decline from a record in % 80% 60% 40% 20% 70% 65% 87% 79% 78% 77% 77% 47% % Profitable Revenue up from Previous Year Source: Amcham Shanghai 2011 China Business Report; Technomic Asia 4

5 U.S. Companies Are Faring Well Companies forecast continued revenue and investment growth in 2012 over China among top three priorities for half of companies. China is the #1 global priority for ~20%. 100% 80% 60% 40% 20% 0% 86% 77% 86% Forecast Increased Forecast Increased Optimistic Five Year Revenue Investment Business Outlook Source: Amcham Shanghai 2011 China Business Report; Technomic Asia 5

6 China Operations Many companies have a long history of experience in China and are becoming accustomed to the business environment. The China operation is taking on an increasing role both regionally and globally for many companies often broken out of the Asia operation as its own entity. China Office Role in Company's Global Operations Legal Presense in China Global Headquarters Regional Headquarters China Headquarters China Regional Office Other 3.4% 23.7% 22.0% 32.2% 33.9% 12.5% 14.3% 12.5% 32.1% More Than 20 Years 10 to 20 Years 5 to 10 Years 2 to 5 Years Less Than 2 Years 0% 10% 20% 30% 40% 50% 28.6% Percentage of Respondents 6

7 Primary Objectives Most companies are in China to grow their business and increase market share. Two other key objectives are boosting service levels and reducing logistics costs. Primary Objective of Company's Supply Chain Organization With Respect to China Grow Business Grow Market Share Reduce Logistics Costs Decrease Inventory Increase Service Levels Other 23.7% 22.0% 40.7% 44.1% 52.5% 71.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Respondents 7

8 China Supply Chain Capabilities With only 20% of operations containing advanced capabilities, supply chain planning is not a particular strength in China. Planning systems are rudimentary. Buyer supplier relationships lack cooperation so information is not adequately shared. China Supply Chain Capabilities: PLAN 20.5% 31.8% Advanced 47.7% Average 8

9 China Supply Chain Capabilities Conversely, the BUY (sourcing) function is considered a strength of many companies in China, reflecting the longer experience level and maturity of operations. It is becoming very difficult to improve first costs without getting involved more deeply with the China sources to help improve productivity. China basedinternational international procurement offices are beginning to source globally, not just within China. China Supply Chain Capabilities: BUY (Sourcing) 11.1% 44.4% Advanced Average 44.4% Basic 9

10 China Supply Chain Capabilities Similarly, companies view manufacturing as generally an advanced strength, also reflecting a longer term experience. China Supply Chain Capabilities: MAKE (Manufacturing) 26.2% 33.3% 40.5% Advanced Average Basic 10

11 China Supply Chain Capabilities Nearly two thirds of companies view their transportation capabilities as average, and movement of goods in China is still seen as a challenge. Local trucking is highly fragmented and relatively unsophisticated. Cold chain is undeveloped. China Supply Chain Capabilities: MOVE (Transportation) 13.6% 20.5% Advanced Average 65.9% Basic 11

12 China Supply Chain Capabilities Generally, companies in China feel that their capabilities for storing or distribution are average or basic. This is a great area of opportunity for most companies in China. Distribution is uneven: Coastal cities are well developed, but the west is poorly developed. DCs are very manual due to low cost of labor. China Supply Chain Capabilities: STORE (Distribution) 27.9% 16.3% Advanced Average Basic 55.8% 12

13 Global Sourcing More than two thirds of respondents who source internationally are doing so out of China. 56.3% of respondents source products internationally. 38.2% source products in China. China is a major location for sourcing activity. International Sourcing China Sourcing age of dents Percent Respon Percenta age of Respon dents

14 Global Manufacturing Trends New end markets and manufacturing centers have emerged in an increasingly flat world, which introduces complexity in managing sourcing and supply chain activities. Stricter customs document requirements Traditional Consumer Market Traditional Manufacturing Hotspots Emerging Manufacturing Hotspots Key Consumer Markets Key Manufacturing Hotspots Raw Materials Flow Finished Product Flow Source: APL Traditional Consumer Market Traditional Manufacturing Hotspots The world today complex Emerging Manufacturing Hotspots Emerging Consumer Market Emerging Manufacturing Hotspots Emerging Manufacturing Hotspots Emerging Consumer Market Emerging Manufacturing Hotspots Cultural and language differences Emerging Consumer Market Growing Manufacturing Hotspots Numerous parties required to coordinate a shipment Growing Manufacturing Hotspots Traditional Consumer Market Huge combinations of origin destination pairs to manage Traditional Consumer Market 14

15 China Sourcing Despite rising labor and operating costs, over 85% of respondents anticipate equal or more growth of sourcing from China over the next year. This does not include companies that are beginning to source products from China. This stability reflects China s level of industrial scale and internal supply chain strengths across many industry sectors. China's Percentage of Total Sourcing over the Next Year Percentage e of Responden nts 50% 40% 30% 20% 10% 0% 35.6% 31.1% 17.8% 8.9% 4.4% Stay About The Grow Meaningfully Grow Somewhat Shrink Meaningfully Shrink Somewhat Same (>10% Increase) (<10% Increase) (>10% Decrease) (<10% Decrease) 2.2% Other 15

16 China Sourcing Major drivers of sourcing competitiveness are manufacturing cost, availability of quality shippers and efficiency of supply chain. These points reinforce China s relative power and maturity as a source of supply. China's Primary Pi Points of Sourcing Competitiveness i Manufactured Cost Availability of Quality Shippers Government Support Efficiency of Supply Chain Technical Support Transportation Network Other 10.9% 6.5% 15.2% 13.0% 28.3% 45.7% 80.4% 0% 20% 40% 60% 80% 100% Percentage of Respondents 16

17 China Sourcing Providing Good & Consistent Quality Communicating With Suppliers Effectively Keeping Costs Competitive Internal Transportation to a China Port Managing Supply Chain Outside of China to End dmarket Meeting Delivery Requirements Overcoming Long Lead Times New Product Development Warehousing in China Other Key Challenges in Company Sourcing Activity in China 20.9% 27.9% 18.6% 16.3% 9.3% 34.9% 55.8% 46.5% 51.2% 62.8% 0% 20% 40% 60% 80% 100% Percentage of Respondents The top four challenges of sourcing in China are familiar, including keeping costs competitive, providing good and consistent quality, overcoming long leadtimes, and meeting delivery requirements. 17

18 Pitfalls in China Sourcing Typical Pitfalls Poor communication Weak HR Execution leakage Lack of real time market intelligence Imbalanced structure Poor supplier management Ineffective cost controls Bribery/corruption Example Causes Culture/language Sloppy processes Lack of face time Wrong people Turnover Don t follow process Weak local management Introverted organization Right people not in right place Not growth enabled Outdated supplier portfolio Lack of or Ineffective process No centralized buying Maverick spending Weak cost data/process Lack of governance Likely Outcomes Missed deadlines Quality problems Cost overruns Organizational disruption in China Lack of product differentiation Lost IP Supplier desertion Out of sync with market (missed opportunities & threats) Excessive travel 18

19 Sourcing Best Practices Combination of good tools and people to manage order execution Proper balance a between ee corporate and local responsibilities/authority: s es/aut o ty Manage supplier relationships on the ground with corporate KPIs Place product development support in China Active cross training programs (e.g., provide technical production assistance to suppliers) Rigorous, in China (at factory) inspection process Develop strategic supplier relationships and continuous improvement programs Centralized buying where possible Harmonized technology and processes between U.S. and China Simple but effective scorecards Ongoing Voice of Supplier programs Functional extensions in Asia (e.g., in product development) Active external benchmarking 19

20 Pitfalls in China Logistics Typical Pitfalls Example Causes Processes not WMS/ERP not thoroughly implemented Likely Outcomes controlled WMS mismatched Inability to meet peak demand Unreliable transportation Lack of rigorous financial analysis of assets Lack of standardization Poor location of warehouses High operator turnover Weak management skills IT selection process not well defined Local work culture not understood Unanticipated market growth Poor demand planning Over reliance on manual fulfillment Lack of contingency planning Poor selection of 3PL Infrequent routing analysis Under investment: reliance on low cost manual labor Over investment: excessive automation Standards often do not exist (e.g., pallet sizes) or they vary between cities or provinces. Lack of real estate options Failure to understand China geography High logistics cost Disruptions in service Fil Failure to meet peak demand Poor accuracy/low customer satisfaction Inefficiency Poor data/low visibility for management 20

21 Logistics Best Practices Thorough implementation of processes Strong management training programs and KPI measurement Employee retention programs Defined IT selection process Detailed3PLselection process Rigorous financial analysis to support investment in equipment Develop a strong government relations function Extensiveresearch onlocationofwarehouses of 21

22 Summary Most companies have been in China for many years and are on their third or fourth operational strategy/approach. While companies are still active in China, in order to provide low cost sourcing and manufacturing for the U.S., the in China for China intent is strengthening. China sourcing and manufacturing have become a significant portion of companies overall international operations, and they are maturing. However, in the areas of distribution and transportation, operation capabilities are still improving and have a long way to go before they are equal to U.S. domestic supply chains. Companies distribution networks in China are rapidly changing, making them less than optimal for all products and channels. A large percentage of companies are planning investment in China supply chains to improve supply chain efficiency and service to the domestic China market, decrease costs, and better serve international markets. 22

23 Discussion