lederle__schindler-vitra_

8/2/2019 Lederle__Schindler-Vitra_

1/14

Design, Plan and Implementation of

Supply Chain Activities Based in China

Content

01 Competitive Business Environment, Focus on Asia

02 Preparation for a Venture in China.

03 Possible Implementation Approach.

04 Global Integration


2/14

Competitive Business EnvironmentFocus on Asia

Perceived Environment for Growth

Europe and USA offer long term mediocre prospects:

defined market segments are mostly captured

margin pressure, market volume is limited

Asia is bright, the positive aspects:

increasing new customer potential

migration of existing customers to Asia

long-term saving potential in sourcing

vast HR potential

learnings for future developments in products, services andprocesses: emergence of new competitors


3/14

Perceived Environment for Growth

Imperative to operate in Asia

price level 30 to 60 percent below Europe

FX challenge USD

some regional taste and preferences

compete with local delivery time

Europe China Europe China

Container loading 1 1 1 1

Plant to harbour 3 0 3 3Customs at departure 2 0 2 3

Seafreight/lorry 21 3 27 12

Customs at arrival 3 0 3 3

Harbour to customer 2 0 2 2

Total 32 4 38 24

-88% -37%

improvement of 4 weeks improvement of 2,5 weeks

Customer in China Customer in Australia

Delivery Time to Customers in Days

Location of DepartureLocation of Arrival

Modelled Economics for an Industrial Product:Produced in China and Exported to USA/Europe

Savings Additional costs

Percentage

100 20-25

100

80 5-10

10-15 5 70

5

60 0-5 10

0-5

50

40

20

0

U.S. or Western Labour Depreciation Materials, Scale Special LCC Logistics Other Duties LandedEuropean components, incentives manufacturing costs management cost

manufacturing cost and tooling cost (transportation, cost from LCCadditionalinventory,

and expediting)Bhattacharya, Arindam et al.: Capturing Global Advantage. How Leading Industrial Companies Are Transforming Their Industries bySourcing and Selling in China, India, and Other Low-Cost Countries, The Boston Consulting Group, April 2004


4/14

Business Location

Supply BaseLocation

Mature Markets(Switzerland, UK, USA)

Emerging Markets(China, India, Russia)

Mature Markets(Germany, USA)

Emerging Markets(Poland, China)

ChinaCEE*

SeizeO

pportun

ities

Defend

Existi

ngMar

kets

Global Competition from companies

in Rapidly Developing Economies (RDE)

WesternCompany

CEE* = Central and Eastern Europe

Challenging place to operate: fierce competition

Unpredictable (interpretation of) legal environment, constantly new laws

No slow-down of growth despite governmental wording

Huge amount of FDI, contrary to Japan and Korea

75% of all exports initiated by Non-Chinese companies

Cost-conscious consumers, middle-class USD 5000 to 10000 p.a.

Like branded products, low IPR protection, many counterfeits

Cheap labour force, favourable industrial policy

R&D efforts and results; catch up quickly Best Chinese companies go abroad: winning by quality

Business Environment in China


5/14

Competitive Business Environment forIndustrial and Commercial Products in China

Domestic producer improve quality, diversify with own products,dominate mid/low market

Foreign products only for highest price niche

Fragmented market with locally dominant players that sell direct,high degree of vertical integration

China

Europe

pricelevel

China Leads the World in Making andConsuming Many Products

Hemerling, Jim / Hsu, Hubert / Michael, David C. / Wong, John: China: The Pursuit of Competitive Advantage and Profitable Growth, The Boston

Consulting Group, June 2003


6/14

Chinese Companies deinvent manufacturing:use of cheap capital and simple manual labour

Cowan, Jonathan et al.: Riding the Next Wave of Outsourcing, The Boston Consulting Group July 2004

Preparation for a Venture in China


7/14

China Supply Chain Strategy Options

Testing the water

Recognize Chinas

potential

May source some

products on a trialbasis

Have no formal

China initiatives Are not yet

organized forsourcing in China

Purchasingcomponentsor completeproducts

Focus on reducing

purchasing costs

Obtain valuable

understanding of thesupply base

But gain little defensible

advantage

Developingcomprehensivesourcing

Sourcing plan includes

- parts- products- talent/R&D

Advantage gained from

- supplier relationships- product development

- proprietary tools andprocesses

- market intelligence

Adopting anintegrated Chinastrategy

View China as both a

market and a sourcinglocation

Leverage synergies

between export sourcingand domestic production- integrated capacityplanning

- flexible production Creating global centres of

excellence

Capturing globaladvantage

Exploit global synergies

in:- cost structure- manufacturing strategy- supply chain

Leverage best global

capabilities

Deploy high-cost assets

Level 1 Level 2 Level 3 Level 4 Level 5

Hemerling, Jim / Hsu, Hubert / Michael, David C. / Wong, John: China: The Pursuit of Competitive Advantage and Profitable Growth, The Boston Consulting Group, June 2003

Often Supplier Clusters for an Industry


8/14

Objectives reduced to SCM topics in China

Functional objectives:

Competitive, high quality products for Chinese and Asian market.

Comply with local laws, rules and regulations, respect Company guidelines.

Build a local network with guanxi relationships, integrate local authorities.

A structure to learn from China, to transfer experience to other countries.

Economical objectives

Reduce the total costs of parts, components and products by 20 to 50 percent (TCO).

Be profitable with the Chinese supply chain operation 2 years after launching it.

Reduce customer lead time to local standards in China.

Develop, source and manufacture products that meet local expectations

Ecological objectives

Vendors must comply with the Companys environmental standards.

Strategic OptionsThe Boston Consulting Group, Avoiding Stalemate in China, 2000, p. 3

Protect and leverage leadership

position to improve profitability

- reap rewards from both scale andbrand leadership

Make your brand the reference

for the category (e.g. Kleenexfor facial tissues)

- Accelerate category-definitionprocess among targetconsumers

Invest or acquire to secure leadershipor retrench to your niche

- Base decision on anticipated size,timing, and risk of the ultimate payoff

Build on the momentum

- Become a trend leader

- Perhaps lobby for structuraladvantages

Reevaluate ambitions in China

- Extend portfolio into less definedcategories

- Perhaps lobby for structuraladvantages

- Acquire, find a niche or exit

Alter the playing field

- create a trend in the way yourproduct is used or perceived

- perhaps lobby for structuraladvantages

High Low

Anotherplayer

dominates

No players

havedistinctive

advantages

You are the

nationalleader

Category Definition

CompetitivePosition


9/14

Possible Implementation Approach

Criteria for Supply Chain Design in China

Operational efficiency (efficient production, manage inventory, VAT refund process,minimal administration, total cost of ownership)

Process quality and transparency (robust processes, quality control andenvironmental standards, ease to understand the framework, visibility of events)

Compliance with legal requirements (laws and regulations in China, Companyguidelines)

Time effectiveness (delivery time, setting priorities, direct contacts)

Social factors (understanding with Chinese suppliers, contact to local authorities, retainemployees and management)


10/14

Rational for Optimism to Succeed

Possible to transfer the successful supply chain model

Combined own experience of

outsourced production to suppliers

manage distant production location (USA)

develop supply market in a region of RDE Rapidly Developing Economy(Eastern Europe)

Being able to reduce complexity

(new: personnel, location, language, culture, suppliers, legal/rules, product, ERP)

Possible Selection of Perceived Challengesin the Beginning

Quickly find and develop qualified suppliers takes 1-2 years.

Keep the required quality level of parts.

Major delays during foundation procedure, unforeseeable requirements.

Find and retain crucial personnel in purchasing, quality and logistics.

Build guanxi relationships with local authorities.

Support of key management personnel from Europe.


11/14

Run the production within capacity limits.

Get the ERP system running

Manage liquidity to survive the tedious VAT refund process and artfully balance theDSO for buying/selling terms.

Chinese counterfeits undercut own products drastically in price with good quality.

Own products Made in China will not be accepted.

Possible Selection of Perceived Challengesin the Beginning

Predetermined Scope of Options forSupply Chain Design in China

Location I close to customers close to suppliers close to harbour

Location II industry park local offer free trade zone

Legal WFOE JV M&A

Business Licence production company expanded FIE trade company

Building build buy rent

Production spectrum full product spectrum limit to 1 division core product(s)

Choice of products develop new products modify existing bring in existing

SCM activitiesoutsource all SC activities in

China (involve agents)

reduce to key success

functions in SCMcomplete inhouse

Management Staff only locals mix locals with expats expats only

Product Development at homemix of home and local

supplierscooperation with CN suppliers

Financing with share capital loan (foreign/RMB) prepaymentsQuality domestic Chinese regional Asian corporate standard

Suppliers 2 years ahead 1 year ahead parallel with foundation

IT Software wait and see locally known corporate standard


12/14

The Province Guangdong

Guangdong has ca. 90 million inhabitants, in sq.km. half the size of Germany- Major supplier cluster of the selected industry; 90% of all suppliers within 1-3 hours of location

- Low production cost, also long term

- Foreseeable rule of law, non-corruptive customs in selected location

- Experience with foreign companies in selected location, professional service attitude

Some Learnings for Setting-Upa Company in China

Start simple with focussed objectives.

Involve top management, build success stories

Physical proximity is key, ideally own local personnel.

Existing suppliers need minimum size to quickly relocate to another continent.

Incent R&D to use new suppliers

create successful products Applied Engineering

new cost base offers alternate product offering.

Sales welcomes savings but not delays no frictions during transition.

Savings in production/logistics do not lead to savings in sales. Yes and Yes and No be aware of cultural differences.


13/14

Global Integration

Factory in

Europe

Factory in

the USA

Factory in

China

12

3

4

5

Suppliersabroad

1. National sourcing

2. Suppliers abroad

3. Global expansion

4. Global sourcing

5. Global integration

Trent, R. J. / Monczka, R. M.: International Purchasing and Global Sourcing What are the Differences?, in: The Journal of Supply Chain Management, Vol. 39, No. 3

2003; Kaufmann, Lutz / Hedderich, Fabian: A Novel Framework for International Sourcing Applied to the Emerging Chinese Supply Market, in: Perspektiven des SupplyManagements Konzepte und Anwendungen Festschrift fr Ulli Arnold, Eds. M. Eig, Berlin, Heidelberg 2004

From National Sourcing to Global Integration

4


14/14

Global Activities form the Supply Network:Next Step: Plan and Control

Increase in complexity: products, variants, locations, customers, time zones, languages

Need for global standards in part numbers, supplier evaluation, HR, IT, processes

Facilitate communication, BDPs, mutual learning, know how transfer

Fulfil requirements like VAT, customs, transfer pricing rules, taxes

Complexityof Supply

Chain

time

Global Distribution

Global Distribution

Global Distribution

Global SourcingGlobal Production

Global Sourcing

Global Distribution

Global Production

Global Sourcing

Global Plan

Global Control

lederle__schindler-vitra_

Documents