Challenges in China?s Supply Chain
published: cw 48, 2006 in Emerging markets & outsourcingDoing business in China is an evolving process, as much for Chinese companies as their global counterparts. From the perspective of Western business managers, China still represents compelling lower-cost labor alternatives in the production and assembly areas. But as China?s markets continue to open up to global competition, the potential of the Chinese market itself is driving competition in a number of industry segments.
Automotive is a prime example, with sales of cars and light trucks in China on target to reach nearly 7 million units in 2006. That figure means China will surpass Japan in total car and light truck sales in 2007, trailing only the United States (an estimated 16.7 million units in 2006) in single-country sales. The market in China, however, is very diversified?General Motors and Volkswagen enjoy double-digit shares of the market, followed by a number of Chinese manufacturers?and that makes for serious competition for the hearts and minds of Chinese car buyers.
This kind of growth and competition presents significant challenges for Chinese supply chain managers as they struggle to drive down costs and increase efficiencies. APICS asked Wei Quang Qu, CPIM, CSCP, managing director of Shanghai-based Allied Supply Chain Management Solutions, to share with us her perspective on these evolving challenges
At his moment Chinese companies are focusing more on sales than on the efficiency of their supply chains. Why is that?
A couple of key reasons relate to the size and demand of China?s market. It?s a new, developing, and fast-growing market, so the focus of companies is naturally on how to enter this market and enlarge their market share. And the demand of China?s markets is huge, due to [the country?s] vast population and its need to develop and support a growing infrastructure.
Is that situation starting to change? Are managers now focusing on building long-term relationships with their key suppliers?
The advantages only last so long. As the development of China continues, the market and [a company?s market] share become comparatively stable. The market will mature and therefore saturation will occur. Cheaper labor costs can be found in other places, such as Vietnam and Eastern Europe. As global competitors compete on cost, efficiency, and flexibility, Chinese enterprises will have to compete as well. So, more and more companies are switching their core competencies onto supply chain management. And sustaining long-term partnerships with key suppliers is becoming a top priority.
In your opinion there is a language barrier for Chinese manufacturers implementing enterprise resources planning (ERP) systems that are built on English-language platforms. What other challenges do Chinese managers face in software implementations?
One is the limitations of ERP providers. Foreign providers have standard ERP implementation procedures which may not fit the situations faced by Chinese manufacturers. Chinese ERP providers are familiar with the local environment, but [they tend to fall] short on standard implementation procedures and often lack competency.
Another challenge relates to financial limitations. The cost of ERP is comparatively high, not only on the implementation side, but also in maintenance of the systems in the long run. And Chinese manufacturers often face serious process re-engineering problems. Certain business processes and key activities do not align with ERP processes. Assessing and revising business processes is an important step in the ERP implementation process. For Chinese manufacturers, a lack of awareness of this step is a real pitfall.
Methodologies such as Just-in-Time, total quality management (TQM), lean, and so forth, are starting to be embraced by managers in China. Where are supply chain professionals in China in regards to these tools?
Chinese companies, especially the entities of multi-national corporations, are introducing these tools and philosophies to China. TQM is very common in China now. Some manufacturers have successfully conducted six sigma projects, lean manufacturing initiatives, and theory of constraints projects. The benefits of using these tools have begun to appear and they?re quite convincing, but it has not been ?booming? in most Chinese enterprises yet.
Transitioning supply chain management is not an easy job. Educators in the operations management [field] shoulder heavy responsibilities. China?s supply chain can be advanced through the leadership and support of operations management professionals, and building knowledge and competency. That?s how we?ll meet the challenges of tomorrow.
Wei?s comments on the challenges faced by supply chain managers make it clear that transforming a supply chain requires education and a commitment to applying new skills to existing problems. And new challenges?such as those posed by China?s impending RoHS environmental regulation legislation ( Administrative Measures on the Control of Pollution Caused by Electronic Information Products)?will test the creativity of Chinese operations management professionals as they seek supply chain success in 2007.
Source: APICS Worldwide - VOLUME NO. 1 ? ISSUE NO. 3
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