IBM Global Business Services
IBM Institute for Business Value
Globally
Integrated
Supply Chain
China perspective
Supply Chain
Management
IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior business executives around
critical industry-specific and cross-industry issues. This executive brief is
based on an in-depth study by the Institute’s research team. It is part of an
ongoing commitment by IBM Global Business Services to provide analysis
and viewpoints that help companies realize business value. You may contact
the authors or send an e-mail to ibvchina@cn.ibm.com for more information.
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Globally Integrated Supply Chain
China perspective
By Sean Ryu, Michelle Kam, Zhan Ying, Jiang Yi Wei, Yang Chao
CONTENT
Executive summary
Globally integrated supply chain is a trend
The road leading to the globally integrated supply chain is not “flat”
Operating in China: opportunities and supply chain challenges
Seek further growth in the global market
Building up core competencies for a globally integrated supply chain Adapting the globally integrated supply chain to china specific challenges Conclusion
01
03
04
06
10
14
15
24
Executive Summary
Globalization has significantly changed
the international market landscape. As
a result, the traditional supply chain is
evolving towards a Globally Integrated
Supply Chain-one that operates as a more
integrated, optimized and collaborative
network across functions, geographies
and business partners. Companies that
globalize in this landscape face various
external obstacles such as local market
differences and protectionism, as well
as internal hurdles such as organization
structure and immature collaboration
mechanism.
Multinational companies no longer
position China as just a source of
cheap manufacturing. Increasingly
companies are relocating or opening
research and development, procurement
and other core functions to China.
Moreover, China’s critical role in global
supply chain has been increasingly
recognized by multinational companies.
However, due to underdeveloped supply
chain infrastructure and a lag in core
competency buildup in the supply
chain, companies are facing a range of
supply chain challenges in China: multiple layer
distribution system with limited sales visibility; lag
in real time information sharing; long logistics lead
time and high logistics cost; shortage of qualified
suppliers and inadequate supplier management.
China is becoming increasingly integrated into
the global economy, through trade, foreign direct
investment and cross-border M&A. China’s
economic growth and integration into the global
system has fostered an increase in Chinese
companies that expanded their operation overseas,
including production, sales and marketing,
distribution and customer services. However, most
Chinese companies are still in the early market
entry stage of globalization and therefore face a
number of supply chain challenges. These supply
chain challenges include: low end product image,
difficulty in understanding overseas markets,
lack of management expertise in building up the
logistics and distribution networks overseas, and
complex post M&A supply chain global integration.
All of these supply chain challenges are major
obstacles which hinder the growth of both Chinese
and multinational enterprises within and outside of
China’s marketplace.
In order to capture growth in a globally connected
world, we believe that building a “Globally
Integrated Supply Chain” is fundamental to
success. In order to successfully participate in a
Globally Integrated Supply Chain, companies must
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build up the following areas of core competencies:
leveraging global assets for peak performance
and effectiveness; differentiating capabilities for
local markets; synchronizing supply and demand;
incorporating sustainability in strategies and
processes; managing risk with global partners and
enabling collaboration and supply chain visibility.
Both multinationals operating in China as well as
Chinese companies are facing various supply chain
challenges and risks. To successfully integrate
into the China supply chain and the global supply
chain, companies need to implement specific
actions to address China-specific challenges as
well as build up core competencies targeted at
operating in a Globally Integrated Supply Chain.
These actions include, but are not limited to: taking
a holistic view for improvement and optimizing
the network; developing flexible and scalable
operations; removing obstacles to collaboration;
conducting a supply chain due diligence study
prior to cross-border M&A; and proactively
mitigating supply chain risks.
The ability of a company to successfully integrate
the China supply chain with the global supply
chain will decide whether they are going to win
in the China and global marketplace. Companies
should take early actions to set their supply chain
improvement agenda, continuously prioritize it and
align it with their global and business strategies.
Globally Integrated Supply Chain
China perspective
Globally Integrated Supply Chain is a Trend
During the last two decades, “globalization” has
significantly changed the world and contributed
to its “flattening”. With the exponential growth in
international trade and cross-border investments,
companies are no longer focusing on individual
country markets but the global market, just as Lee
Scott, President and CEO of Wal-Mart Stores, said,
“Wal-Mart’s marketplace is clearly the world.”1 In
the meantime, the collaboration among different
geographies and companies is significantly
increasing. The increasing openness in business
and system standards has enabled work to flow
to place where it could be best done. In this
highly connected world, traditional multinational
companies are becoming more integrated
globally. By doing so, they can explore the new
opportunities globally and tap into new sources
of growth with optimized global deployment of
resources and workforce.
As companies globalize, they have to manage
the much more complex cross-border logistics
and distribution. As a result, supply chain in the
traditional sense is stretched, and supply chain
lead time prolonged. Moreover, companies face
challenges in handling new business partners
amid language and culture barriers, as well as in
understanding customer preferences of unique
local markets. Consequently, the costs of logistics,
supply chain operation and product development
for new markets are increasing significantly and
profit margin is declining.
Companies are responding to the challenges
by building supply chains which are globally
integrated. In traditional supply chains, business
partners and functional departments are isolated
with little collaboration and information exchange.
By contrast, Globally Integrated Supply Chains
operate as integrated, optimized and collaborative
networks across functions, geographies and
business partners.(Figure 1) They fully leverage the
competitive advantages in resource, technology
and skillsets across different geographies. This
new model brings extensive strategic collaboration
among supply chain partners from customers
to suppliers and service providers, as well as
increased information sharing within organizations
and across the entire business ecosystem. Firms,
through collaboration with business partners, can
more quickly identify and respond to new business
opportunities around the world, be more flexible
to address the specifics of local markets, and
optimize their supply chains globally for cost and
service improvement.
“The ultimate competency of organization
is supply chain design”
– Charles F. Fine, Clock speed
Globally Integrated Supply Chain: China perspective
Figure 1.
Globally Integrated Supply Chain
Suppliers
Vendors
Customer
alignment
OEMs
Outsourcing
partners
Mfg.design /
engineering
Customer order
management
R&D /
product
design
Procurement
Logistics
Other partners
Manufacturing
Other 3rd parties
Source: IBM GBS
The Road Leading to the Globally
Integrated Supply Chain is not “flat”
Most companies have embarked on their
globalization journeys, having set up procurement
centers, manufacturing centers and research and
development centers outside of their home countries
to serve regional or even global markets. Yet,
their supply chains are still far from being globally
integrated due to various external obstacles such as
local market differences and protectionism, as well
as internal hurdles such as organization structure
and immature collaboration mechanism.
Local market differences
Despite globalization, differences in economic
development, culture, and demographics in
different countries and markets remain, and cause
IBM Global Business Services
vastly differing consumer preferences. 45% of
CEOs around the world considered “understanding
customers in multiple territories” as the number one
challenge to run a successful global business. 2
In this highly diversified global market, products
and supply chains can no longer be the simple
“fit for all” global model which could be applied
ubiquitously. Enterprises have to be closer to
local markets to understand the local needs
and customize products as well as their sales
and distribution system and after-sale services
accordingly. Ensuring a flexible supply chain to
cater to local market requirements while preserving
the high level of efficiency and global control of a
Globally Integrated Supply Chain becomes a top
imperative for most companies.
New protectionism
Major importing countries have been increasingly
imposing new protectionist measures against
emerging economies including China and India.
While tariffs have been reduced under WTO
agreements, some countries have resorted
to non-tariff measures such as anti-dumping,
countervailing duties, technical standards and
government procurement restrictions.
New protectionism measures present real barriers
in an otherwise open market. It not only impacts the
trade and economic growth of emerging markets
but also hinders global supply chain integration.
Global companies now need to incur extra costs,
time and resources to address the trade barriers.
More importantly, protectionism can prevent
companies from achieving a most optimized global
supply chain as its impacts must be incorporated
into location decisions for sourcing, manufacturing
and other supply chain functions.
Traditional organization structure
The traditional multinational organization is
characterized by having many regional branches
which are “replicas” of each other in terms of
business activities and organization functions.
Individual branches report directly to headquarters
and are isolated from each other. For example, in
terms of procurement, each country may source
independently from its respective supplier base,
and miss the opportunity to leverage the scale
of the global company. On the other hand, some
traditional multinationals tend to centralize select
decisions in the headquarters, and keep certain
functions which are viewed as more “strategic”,
such as R&D, in their home countries.
However, in globalization, the traditional multinational
structure will hinder global integration of the supply
chain. First, the centralized planning and decision
making result in process inefficiency which in turns
leads to lack of agility and flexibility to respond to the
fast changing demands in the local markets. Second,
duplicate functions in each regional branch result
in extraneous resources and prevent the optimal
leverage of assets and skills. An exclusively in-house
model also implies that non-core business activities
are being performed in-house without leveraging
the expertise and service of external partners. And
last but not the least, layers of reporting mechanism
hinder effective communication and collaboration
among the different global locations, which are key to
global supply chain integration.
Immature collaboration
An effective Globally Integrated Supply Chain
requires close collaboration among supply chain
partners. However, many companies have not set
up effective framework or mechanism to facilitate
collaboration, nor have they developed sufficient
trust among supply chain partners. In many cases,
collaboration is project-based and lacks the longterm commitment of top management. Companies
are also missing well defined agendas aimed to
further deepen collaboration and measures to track
the effectiveness of collaboration. More importantly,
companies have yet to set up standardized data
and processes as well as integrated IT infrastructure
which are fundamental to effective collaboration.
“ Our supply chain planning is centralized
in the headquarters and we do not have
the flexibility to adjust production according
to the changes of local market.”
– A multinational cell phone manufacturer
Globally Integrated Supply Chain: China perspective
Operating in China: Opportunities and
Supply Chain Challenges
China’s economic growth has been phenomenal
in the last two decades. China is increasingly
positioned as a highly vigorous economic entity
in the world and is integrating more tightly into the
global economy. China has maintained impressive
GDP growth at over 9% per annum in the last five
years. In virtually all industries, the growth in China
outpaces that of most developed countries. For
example, China’s automotive market grew four
times that of the global rate while retail consumer
spending grew at three times the rate of the US. 3
China: an attractive market and a critical component
of global supply chain
Increasingly, China accounts for a significant share of
global revenue, and in many cases China is a leading
market of many multinational companies (MNC).
Besides revenue contribution, many MNC’s also enjoy
higher profit levels in China than in their respective
home or other more mature markets. (Figure 2)
Figure 2.
Profit levels in China and globally for selected multinationals, 2006
25%
Net Profit (% of revenues)
China
Global
20%
15%
10%
5%
0%
Consumer Auto Consumer Auto Electronics Retail
Packaged （US） Electronics （Korea）（French）（French）
Goods（US）
（US）
Source: Company annual reports, IBV analysis, 2006 AmCham Member
Company Attitudes Survey
IBM Global Business Services
China is the top market for Nokia, whose revenue from
China far surpassed that from the US, its second largest
market, by 24% and 75% in 2005 and 2006 respectively.4
(Figure 3)
Figure 3.
China accounts for a significant share of many MNCs
global revenue
Nokia 10 major markets, net sales, EURm
2006
2005
China
4913
3403
USA
2815
2743
India
2713
2022
UK
2425
2405
Germany
2060
1982
Russia
1518
1410
Italy
1394
1160
Spain
1139
923
Indonesia
1069
727
Brazil
1044
614
Sources: 2006 Nokia financial report
Volkswagen Group’s sales in China, at 268,000 units
in the first quarter in 2008, exceeded that in Germany
at 241,000 units, making China the largest market in
terms of sales volume.5
As ABB CEO and CFO Michel Demar stated, “ABB’s
business in China hit a milestone last year and is now
the largest within the group by most measures. China
has been the most important market for ABB in all
aspects.” In 2007, ABB China accounted for 12% of the
Group’s total orders of $34 billion, ahead of Germany
and the US.6
China is without question an attractive market
but also plays a critical role in the global supply
chain. As of 2007, 480 of Fortune 500 companies
had set up branches in China and more than 30
of them established their regional headquarters
in China.7 Nearly 980 MNC’s established research
and development centers in China. 8 A recent
study forecasts that China will overtake the US
to become the world’s largest manufacturer by
2020. 9 China’s importance as a procurement center
has been increasingly recognized by MNC’s.
Coca Cola, world’s largest beverage producer, sources
98% of its raw materials from China. As of year-end
2006, Sony Ericsson had 140 suppliers in China and
total procurement from China exceeded 26 billion RMB
(USD 3.22 billion).10 Peter Carlson, VP of Procurement
at Sony Ericsson, announced that, in the near future,
50% of its global procurement will be from China. For
products selling in China, 80% of raw materials will be
sourced locally.11
As China is quickly becoming a highly important
supply base and manufacturing location and at the
same time one of the largest consumer markets, it
is necessary to build up a much more responsive
and effective supply chain from raw materials to
manufacturing to the end market at optimal cost.
Supply chain challenges in China
In contrast to the economic “hyper-growth”,
the supply chain infrastructure, supporting
services and supply chain partners in China lag
in sophistication. On top of the complexity to
understand customer needs in a highly fragmented
and dynamic market, companies in China must
address a wide range of supply chain challenges.
Furthermore, most companies’ tremendous
business growths have not been accompanied
by commensurate growths in their competency in
supply chain management.
Highly fragmented market and multi-layered
distribution network
Due to the significant regional differences in
economic development, demographics and
culture, consumers from different provinces or
cities in China show huge differences in terms
of purchasing power, preferences and buying
behavior. The highly fragmented consumer markets
bring great challenges in customer understanding
and hence product development and sales and
marketing planning.
China has a complex distribution system where
most products need to go through multiple
layers of sales channel before reaching the end
consumer. MNCs report that 22% of their revenues
flow through three or more layers of sales channel
for automotive products while the figure is 42% for
consumer product groups.12 However, only 10% of
MNCs have detailed sales visibility of individual
retail stores and 36% of them have sales visibility at
only the national distributor level.13 This has resulted
in significant disconnect between manufacturers
and distributors and retailers, leading to longer
order cycle time, frequent stock outage, and poor
forecasting and product cycle planning.
Globally Integrated Supply Chain: China perspective
Limited information sharing
Information sharing is key to effective collaboration
and achieving integration across different supply
chain functions and among supply chain partners.
Within a company, this entails the sharing of
information on the status of product R&D, raw
materials procurement, production line allocation
and logistics cycle, whereas across the supply
chain, information shared include price, order
details, product specifications, inventory levels and
customer profiles.
different information systems across functional
departments or with their business partners. A lack
of collaboration culture and trust among supply
chain partners, and an immature data exchange
infrastructure, are also barriers to information
sharing. The challenges are exacerbated by the
higher requirements of a global supply chain, as
the global information sharing platform will need
to accommodate differences in time, language,
currency and other standards and practices across
countries.
Many enterprises in China have not realized
the importance of information sharing. Chinese
companies lag in terms of real time information
sharing, with only 12% of companies having
widely adopted real time information sharing, far
behind their counterparts in North America (60%),
EU (70%) and India (50%). (Figure 4) Also, many
enterprises remain highly reliant on paper-based
records. For the few who have digitized information,
they have not yet established consistent
processes to guide the proper data input and
information management, nor have they integrated
Without adequate and timely information sharing,
supply chain improvement initiatives such as
proactive procurement, just-in-time delivery and
replenishment, and on-demand forecasting and
flexible market-based adjustment present real
implementation challenges.
Long logistics lead time and high logistics cost
Limited by the underdeveloped transportation
infrastructure and immature logistics and distribution
networks, companies have been faced with much
longer logistics lead time in China. A recent survey
Figure 4.
Limited information sharing between business partners in China
To what extent has "Real-time" information
sharing been adopted at your site?
(Percent respondents)
12%
24%
To what extent has "Real-time" information
sharing been widely adopted ?
(Percent respondents)
14%
A/NZ
Japan
50%
Europe
North America
64%
Widely adopted
36%
Somewhat adopted
Not adopted
Source: 2007 China Value Chain Study, 2005 Global Value Chain Study, IBM IBV
IBM Global Business Services
0%
20%
40%
60%
80%
finds that the average order cycle time for over half
of the companies in China is over 20 days, four
times more than the 0 to 5 days for companies in
most developed countries.14 (Figure 5)
The lengthy logistics lead time has indirectly
resulted in the high inventory cost for companies
in China, as higher inventory levels are used to
mitigate the risk of delivery delay. In 2006, China’s
logistics costs amounted to 6 trillion RMB (18.3%
of GDP), double of that in Western countries, which
was only 10% of GDP.15 The enormous logistics and
inventory costs have largely offset the cost saving
from procurement. This potentially threatens China’s
competitiveness as a sourcing and manufacturing
base, especially as prices of raw materials, land
and labor in China have been rising rapidly.
However, many companies do not have the
capability to optimize their logistics network
design, nor are they able to employ the services of
third party logistics service providers (3PL).
Though 3PLs could effectively reduce the cost
of logistics and enhance efficiency, only 18% of
companies in China use such service, compared
to 58% in US and 76% in Europe, according to
a 2005 survey.16 This is mainly due to the highly
underdeveloped state of the logistics industry. With
only 13% of 3PLs having more than 500 employees
and the top 10 3PLs account for no more than 13%
of market share in 2005, the industry is fragmented
with no apparent, mature players.17 Moreover, only
5% of 3PLs have adopted international standards
in water and highway transportation, 20% adopted
international standards in railway transportation, and
there is not yet any nation-wide standard for 3PLs.18
Qualified suppliers shortage
Despite the fact that China is becoming an
important procurement centre, many MNCs (34%
of respondents surveyed) believe finding qualified
suppliers to be the most serious challenge in
procurement operation.19
Figure 5.
Order cycle time in China is longer than in other countries
For primary products, what is the average customer
order cycle time in days? (Percent respondents)
100%
21%
10%
Percent respo
80%
53%
60%
28%
22%
21%
19%
13%
11%
11%
5%
13%
15%
10%
14%
20%
19%
35%
15%
14%
40%
0%
14%
55%
54%
69%
61%
38%
14%
37%
14%
China
India
North America
0 - 5 days6 - 10 days
Europe
11 - 20 days
Japan
Australia/NZ
Taiwan
> 20 days
Source: 2007 China Value Chain Study , IBM IBV
Globally Integrated Supply Chain: China perspective
In the 2007 United Nations Industrial Development
summit, VDA (German Association of the Automotive
Industry) China President Wolfgang R. Wagner
reported that among FAW, BMW and Benz’s China
suppliers, only 25% were A-level suppliers and the
rest were B or C-level suppliers. The evaluation was
based on how well suppliers met the quality management standards, i.e., meeting more than 91% of the
standards begotten an A-level classification, 82% to
91% B level, and below 82% C level.20
However, faced with the shortage of qualified
suppliers, few companies are aware of the
importance of developing long-term, strategic
partnerships with suppliers and conducting
strategic supplier management. Many of them
do not have supplier differentiation and key
supplier identification, but rather keep switching
suppliers based on price. This does not contribute
to suppliers’ capability enhancement but will
eventually break the sustainability of supply
chain. Incidentally, it is a positive trend that
some companies are starting to consider offering
investment and technology support to suppliers
in order to enhance their capability in quality
control, production procedure and production line
improvement.
Seek Further Growth in the Global Market
Chinese companies extending their supply chains
overseas
China has become increasingly integrated into
the global economy, not only through export but
through foreign direct investments, including crossborder M&As. Many Chinese companies have
10
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expanded their operations overseas, including
production, sales and marketing, distribution and
customer services.
Between 2001 and 2006, overseas direct investment
by Chinese companies more than doubled, reaching
16.1 billion USD in 2006. Between 1994 and
2006, cross-border M&As by Chinese companies
amounted to 28.1 billion USD, with average
transaction size increasing by fifteen-fold. 21
Lenovo, China’s largest personal computer
manufacturer, acquired IBM’s PC division in 2004,
thereby achieving 13 billion USD in annual sales
and becoming the third largest personal computer
manufacturer in the world. Two years after the
acquisition, Lenovo’s 2006 revenue grew 10
percent (from 2005) to 14.6 billion USD, while its
PC sales volume increased by 12%, exceeding the
10% average market growth. 22
However, most Chinese enterprises are at the early
market entry stage of globalization (Figure 6) and
will need to establish the necessary infrastructure
and acquire the appropriate expertise for market
penetration and managing their global operations.
In particular, they face a number of supply chain
challenges in their globalization journey.
Supply chain challenges for globalizing Chinese enterprises
Low-end brand image
Chinese products have long been associated with
low-end images in terms of price and product
quality. The long entrenched low-end perception
places Chinese brands at an inferior position when
competing with foreign established brands.
Figure 6.
Chinese enterprises reap bigger profit by extending global operation
High
Global Integration
Profit margin
Set up overseas S&D
Export brand product
OEM
• Local sourcing;
• Local manufacturing;
• Export to overseas
distributor;
• No brand ownership.
Low
• Local sourcing;
• Local manufacturing;
• Export to overseas
distributor;
• Brand ownership.
• Local sourcing;
• Local manufacturing;
• Global logistics
• Overseas sales and
distribution network
ownership;
• Brand ownership.
Extend of global operation
• Global sourcing;
• Global manufacturing;
• Global logistics
• Global sales and
distribution network;
• Brand ownership
• Global service delivery.
High
Source: IBV analysis
For a long time, the low-end market entry strategy
was prevalent among Chinese companies entering
into the global market, and even became an
“inevitable choice” for them. The reason behind
was obvious: as China enjoyed the lower costs of
labor and raw material, it was easier for companies
to compete on price in the overseas market.
However, cost advantages of Chinese enterprises are
unlikely to sustain. Between 2005 and 2007, labor cost
in the Pearl River Delta, among China’s largest export
oriented manufacturing bases, increased by 20%. 23
China is losing its low labor cost advantage to other
emerging countries. Since 2004, American and
European multinationals have been increasingly
building manufacturing bases outside of China.
Motorola, General Electric, Siemens, Intel, Kodak,
Tetra Pak, Cisco, GE, Philips, Nokia, Ericsson
and many others have announced investments in
India, Vietnam and other countries. The announced
investments of these companies have exceeded
500 million USD. 24
Besides the labor cost increase, since 2005, the rapid
RMB appreciation against USD has added to Chinese
companies’ challenges, by eroding the paper thin
profit of many export-oriented Chinese players.
A strong brand is also critical in competing in the
overseas market. However, most Chinese brands
have poor recognition in the overseas market, not
to mention that many Chinese companies are still
at the OEM stage. This is due to the fact that most
Chinese enterprises lack the necessary capabilities
in product innovation and, as most have been
exporters, have little first-hand information about the
Globally Integrated Supply Chain: China perspective
11
end customer’s requirements. According to IBM’s
2006 Global CEO Study, a much lower percentage
of CEOs of Chinese companies as compared to
global respondents rated themselves as product/
service innovation leaders in their respective
industries. (Figure 7) Furthermore, Chinese
companies are also relatively inexperienced in the
building and marketing of global brands.
Difficulty in understanding the overseas markets
Understanding the overseas market is critical for
the success of Chinese enterprises’ globalization
efforts. It entails grasping an array of elements
including overseas consumer needs, sales and
distribution channels, market regulations, and the
competitive landscape. A good understanding
of overseas consumer needs will enable Chinese
enterprises to transcend price competition and
offer differentiated products/services catering to
these needs. Understanding overseas sales and
distribution channels will facilitate the more effective
and efficient access of target customers. Similarly,
improved understanding of the market regulations
can help mitigate compliance risks, and better
understanding of the competitive landscape can
allow companies to better position their markets/
products and develop the winning strategies.
However, insightful identification of consumer
needs is seen as the most significant challenge for
globalizing Chinese enterprises. The fact is that
it’s difficult for Chinese enterprises to understand
Figure 7.
Chinese enterprises are less competitive in product innovation
Would you say your organization leads or follows your industry in innovating in Products, Services and Markets?
Global
China
43
Clear Innovation Leader
Fast Follower
26
Source: IBM Global and China CEO study, 2006
IBM Global Business Services
10
Follow long after Peers
2
10
35
Follows Peers
7
50403020
Percentage
17
Moves with Peers
22
12
31
0
8
0
10203040
Percentage
consumer preferences in the overseas market due to
culture barriers. Adding to the complication are the
significant differences even within individual foreign
markets, e.g., individual countries within the EU differ
significantly from each other in terms of maturity,
competitive landscape, tax levels, consumer
preferences, culture, and trade regulations.
Lack of management expertise in building
logistics and distribution networks overseas
Most Chinese companies are in early stages
of globalization and do not have sufficient
management expertise on global operation. A
survey of globalizing Chinese companies found that
“talent shortage” was among the top concerns. 25
Transforming from exporter to global operator,
Chinese companies face primary supply chain
challenges in the building and managing of logistics
and distribution networks including physical
networks, business processes, and IT infrastructure.
Physical networks consist of overseas sales and
distribution channels, storage, transportation and
delivery facilities, manpower and service providers.
Business processes refer to the activities which
process and move the products along the supply
chain and the controlling mechanism. The IT
infrastructure facilitates management and control of
the business processes.
Chinese enterprises face major barriers in
establishing the overseas logistics and distribution
networks. First, they don’t have sufficient market
understanding to determine the best mix and
design of distribution channels and logistics
networks. They are also challenged to identify and
manage the appropriate channel partners. In terms
of business process and IT infrastructure, Chinese
enterprises have not developed standardized
processes and IT infrastructure in their home
country, let alone those required for managing
a global operation. The culture differences and
language barriers further exacerbate the issues.
Last but not the least, they lack the needed
resources with the right expertise to develop the
overseas logistic and distribution networks.
Complex post M&A supply chain global
integration
Many Chinese companies choose to globalize through
M&As. However, the cross border M&A is a double
edged sword which speeds up globalization on one
hand and, brings about complex post-M&A integration
issues, including supply chain issues, on the other.
Parties involved in M&As have their respective,
differing supply chain physical networks, business
processes and IT systems. The supply chain of
two given parties may not fit into each other’s
business model. The new merged entity may suffer
from post-M&A “supply chain syndrome”, which is
characterized by inconsistent distribution networks,
disparate logistics operations, disconnected
information systems and insufficient resources,
causing a series of problems such as longer leadtimes, higher inventory costs, lower order fill-rates,
disgruntled employees and less satisfied customers.
Globally Integrated Supply Chain: China perspective
13
Making it worse, post M&A, many Chinese
companies choose to focus on business growth
while putting post-M&A integration at a lower
priority. As a result, postponing supply chain
integration leads to higher levels of uncertainty as
supply chains gain complexity commensurate with
business growth.
While business integration is unquestionably
critical to reaping the synergy M&A, it’s also
important to ensure that the integration process will
not adversely impact the supply chain operation.
After all, supply chain performance does have
the power to “make” or “break” the efficiency and
growth objectives sought from the M&A.
Building up Core Competencies for a
Globally Integrated Supply Chain
Differentiating capabilities for local markets
Globalization results in commoditization of products
and services, but differences in local markets
require market segmentation be coupled with
differentiation in products and services, this is the
only way to beat competition. Differentiation requires
companies to develop and leverage a global
network of supply chain partners, enabling them to
deliver customized solutions.
Synchronizing supply and demand
As mentioned at the beginning of this report,
building a "Globally Integrated Supply Chain"
is fundamental to the success in this closely
connected, yet highly competitive global
marketplace with rapidly changing customer
demand and significant local differences.
To become part of the Globally Integrated
Supply Chain, companies must build up core
competencies in following areas:
As the supply chain becomes longer and more
complex, suppliers and customers need to
synchronize supply and demand to ensure continuous
availability of products at minimal costs. Suppliers
should be able to collaborate with customers to
develop effective and continuous demand planning,
forecasting and replenishment programs, and
conduct inventory planning and deployment at
customer sites. On the other hand, customers should
be able to share real time electronic data of demand
and inventory with their suppliers.
Leveraging global assets to optimize performance and
maximize effectiveness
Incorporating sustainability in strategies and processes
Companies need to take advantage of the
differences in cost, resources, capabilities,
regulations and infrastructure in different countries
and regions. They should design the best mix
of their global assets and continuously update
14
the mix as business environment changes. They
should locate specific supply chain functions and
processes to fit in various locations, and optimize
networks to achieve the best flow of products,
information, money and human resources.
IBM Global Business Services
Companies operating in a Globally Integrated
Supply Chain are subject to different environmental
regulations and expectations from supply chain
partners in various markets. At the same time, a
Globally Integrated Supply Chain inevitably increases
environmental impact due to increased requirements
from global logistic operations. To meet stakeholders’
requirements, companies should carry out
appropriate environmental practices in each step on
their supply chain. They should also leverage assets
at different locations to achieve the trade-off between
environmental impact and supply chain objectives in
cost, quality and responsiveness.
Managing risk with global partners
As companies expand their global reach, they are
exposed to increasing risks from the diversified and
sophisticated marketplace. To identify the risks as
early as possible is the first step companies take to
prevent and mitigate risk impacts. Outsourcing can
be an effective strategy, while advanced IT tools
and streamlined processes can also facilitate risk
mitigation and prevention.
Leading companies have utilized advanced software
applications to control and manage their supply chain.
A typical application system consists of three modules:
demand hub, supply hub and logistics hub, which are
all built into one single portal. The system gathers,
processes, analyzes, and displays real-time data,
providing companies with visibility and control over
inventory, demand, order fulfillment, and transportation.
Through consolidating and synchronizing data from the
three modules, the system creates a “virtual” supply
chain environment in which it generates optimal simulation results to help companies make strategic decisions
on exception management, risk mitigation, inventory
planning and asset deployment; and enables web-based
collaboration with supply chain partners. The application not only brings about higher supply chain efficiency
and customer retention, but also results in significant
cost savings.26
Enabling collaboration and supply chain visibility
Companies need to share information such as
sales, order details, product specifications,
inventory in order to respond to changing local
market and customer requirements fast; mobilize
and redeploy global assets quickly; synchronize
supply and demand flexibly, and make right
decisions timely. The objective of information
sharing is to ensure end-to-end visibility on
supply chain so that all parties can collaboratively
manage supply chain performance across all
functions and countries. Advanced IT tools and
streamlined processes again play an important
role in helping companies achieve the objective.
Adapting the Globally Integrated Supply
Chain to China Specific Challenges
As discussed earlier, both multinationals
operating in China and Chinese globalizing
companies are facing various supply chain
challenges and risks. To successfully integrate
their China supply chain with their global
supply chain, companies need to develop
China-specific strategies and implement
China-specific solutions on top of building up
core competencies for a Globally Integrated
Supply Chain.
Globally Integrated Supply Chain: China perspective
15
Take a holistic view for improvement and optimize the
network
The challenges facing companies operating in
China are interrelated with each other. To tackle
the myriads of problems and issues correctly
and efficiently, companies in China should take a
holistic view on their supply chain, because single
issue handling often distracts their focus and blinds
their judgment on the root cause. However, taking
A leading retailer in China frequently received defective
products in its stores. It considered this a manufacturer
issue and imposed penalties against its manufacturers.
However, the defective product issue kept recurring while
its relationship with manufacturers worsened because of
the penalties. Only when the retailer began to examine
its entire supply chain did it find the root cause of the
problem, being poor handling during delivery. The retailer
then replaced its transportation provider and implemented track and trace technology to monitor shipment
status en route. As a result, defective rate reduced significantly from 10% to 2%, leading to more cost-savings and
increased order fill rate.27
a holistic view does not necessarily mean initiating
a holistic change on the supply chain. The purpose
of looking at the supply chain holistically is to be
able to narrow down and locate the specific issues,
thus resolving them as correctly and completely as
possible.
To form a holistic view on their supply chain,
companies should obtain two prerequisites.
First, they need to understand what composes
their China supply chain. On the upstream part,
they should focus on procurement and production,
knowing who their suppliers are and how long the
16
IBM Global Business Services
production cycle is; on the downstream part, they
should concentrate on distribution and delivery,
finding out what the sales channels are, and
how much the total landed costs are, and so on.
Surprisingly, many business executives have very
limited knowledge about their supply chain in China.
Without such knowledge, should supply chain
issues take place, they do not know where to begin
with, not even to mention finding the root causes.
Second, they should establish Chief Supply Chain
Officer’s (CSO) position in their organizations,
(noting that most Chinese companies or even
leading multinationals do not have a dedicated
CSO or any equivalent position). To a large
extend, executives limited knowledge on supply
chain is due to the role of supply chain has been
traditionally downplayed, resulting in not enough
A CSO can act as a focal point to enable and
encourage communication within the organization,
because the CSO not only cascades business
decisions from the top but also escalates supply
chain issues onto the Boardroom agenda. Through
such an organization structure, supply chain issues
will be reviewed in a holistic way, hence handled
and resolved in a timely manner.
Develop flexible and scalable operations
A globally integrated supply chain would improve
efficiency and enable fast response. In China,
however, an overly integrated supply chain might
actually prevent companies from responding
timely and effectively to local differences arising
from China’s huge yet highly fragmented and
constantly changing market. Thus injecting local
features into their supply chain would benefit
companies by allowing them to be more flexible to
local differences, such as customer preferences,
distribution channels and infrastructural conditions.
Companies operating in China should also customize
their supply chain strategies for different parts of
China which are at different stages of economic and
infrastructural development. (Figure 8)
Prosperous China, the most affluent and
industrialized part of China (typically tier 1 cities
such as Beijing, Shanghai, Guangzhou and
Tianjin), where transport infrastructure such as
rail, air, port, and road are better developed, and
consumers are better educated and conscious of
quality, price and speed. Companies operating
in this segment should focus on overall supply
chain efficiency and logistics network optimization
to ensure quick response to customer demand.
Lead-time, total landed cost and order fill rate
should be the key performance indicators of their
supply chain.
One of the world’s largest furniture retailers attributes
its success in China to a very customer-centric and
tightly integrated supply chain model. Knowing that
customers, especially city dwellers, prefer to select,
assemble and pick up furniture items by themselves, the
company directs customers to shop in the retail stores
instead of ordering online. All product items are transported from factories directly to warehouses close to
its stores, and orders are measured by item availability
in the warehouse. To speed up delivery, the company
uses its own dedicated fleet for home dispatch within the
city. “Return Windows” are also set up in the stores to
shorten customer wait time for returned items. Such an
optimized distribution, replenishment and delivery model
matches well with the company’s quick response strategy
and greatly strengthens its customer intimacy.28
Figure 8.
Customizing supply chain strategy for different market segments(Illustrative only for reference)
Emerging China
Prosperous China
Rural China
Examples of Supply Chain Model
Supply Chain
Strategy
Operation Model
●
●
●
●
KPI Metrics
●
●
Focus on efficiency
●
Logistics network
optimization
Tightly integrated
supply chain
●
Lead-time
Transportation &
inventory cost
Order fill rate
●
●
Focus on supplier
managem ent & relationship
enhancement
Flexible & decentralised
on top of integration
Raw materials/
product availability
Production downtime
●
Focus on market
identification and
development
●
Outsourcing
●
Incremental revenue
Source: IBM Institute for Business Value, 2007
Globally Integrated Supply Chain: China perspective
17
Emerging China, China’s key manufacturing base
with fast growing consumption power (including
the over 300 tier 2 to 5 cities including Nanjing,
Shijiazhuang, Huizhou and Fushun respectively as
example of each of the tiers). Accordingly, supply
chain strategies should be geared toward ensuring
continuous, uninterrupted flow of raw materials and
semi-finished goods, improving plant productivity
and getting products out of production sites to
end market in a timely and efficient manner. Here,
companies face challenges such as underdeveloped
logistics infrastructure, which reduces response time
and increases supply chain costs, and regionalism
and local regulations, which hampers inter-provincial
purchasing. To circumvent these challenges,
manufacturers should develop more flexibility in
their supply chain, for example, through adopting
a combination of centrally and locally managed
logistics operation.
In order to cut costs, a major auto manufacturer in Henan
province recently consolidated several of its regional
distribution centers into one central distribution center
and required its suppliers nationwide to deliver goods to
this central distribution center. However, due to varying
conditions of roads leading into the central distribution
centre, as well as multiple local rules on tolls, weight
limits and entry permits, many suppliers had difficulties
making the journey to the central distribution center,
which resulted in inventory shortfalls and production
delays. In response, the company decided to supplement
the centrally managed distribution model with several
depots around the central distribution center and allow
suppliers to deliver goods into the depots. This made it
much easier for suppliers who could not truck goods to
the central distribution center. Since these depots are of
smaller size and scale, the gains from continuous flow of
goods and increased productivity were able to offset the
incremental cost of operating the depots.30
18
IBM Global Business Services
Rural China, typically the inland provinces
and cities, some of which could also attract
companies because of their rich natural resources.
Because of the geographical remoteness and
poor infrastructure, it would be impractical to
pursue supply chain integration in Rural China
with the same speed and scale as in Prosperous
and Emerging China. Instead, companies could
consider leveraging inland logistics hubs that
connect China’s inner landmass with its major trade
corridors, and link them with the more integrated
supply chain network in central and coastal China.
Nanning city of Guangxi province is rapidly emerging
as the gateway to both southern China and ASEAN
countries. One French leading cement manufacturer
who recently set up operations in Chongqing, Chengdu,
Guizhou and Yunnan hopes to cash in on new infrastructure development in Nanning. “Our strategy is in line
with the government’s extensive expansion plans for the
southwest region, under its “Go West” policy. By overcoming the logistics difficulties, we can serve the market
wherever we want…”31
In addition, in order to adapt to the fast changing
market environment, companies should also build
up their supply chain based on Service-Oriented
Architecture (SOA) so that their supply chain will
be able to accommodate new business processes
and local features specific to China. (Figure 9)
Figure 9.
Develop flexible and scalable solutions through SOA
Scenario A
China Requirements
• Easily customized or
Scenario B
Scenario C
Scenario D
Sales &
Marketing
localized
• Be componentized, but
R&D
not too much integrated
• Able to outsource
non-core processes
Manufacturing
• Easily plug-in new
businesses
Procurement
Logistics
Source: IBM Institute for Business Value, 2007
Remove obstacles to collaboration
Collaboration with supply chain partners is among
the top priorities in building a Globally Integrated
Supply Chain. In China, however, the challenge
lies not only in how to identify the right supply
chain partners but also in how to work with them
effectively to bring out and leverage their strengths
in full while maximizing cost-savings.
First, companies should be committed to
collaboration and building up strategic partnership
with suppliers. This means developing relationship
with suppliers beyond the transactional level. As
suppliers in China are becoming more mature and
capable, the degree of business inter-dependence
has gone up. Consequently, companies should
abandon the traditional adversarial view on
suppliers of being inferior and being unreliable.
Instead, they should begin to look for areas where
they could collaborate and supplement each other
along the value chain.
Second, companies need to strengthen information
sharing with their supply chain partners. Due
to heavy reliance on manual processes and the
lack of common IT interfaces, the extent and
quality of information sharing in China is far
from being satisfactory. A variety of tools could
improve information sharing, ranging from simple
mobile phone Short Messages Services (SMS) to
sophisticated Enterprise Resource Planning (ERP)
systems. However, for partners to adopt these
tools, the systems and data protocols need to be
user-friendly and offer clear benefits to both sides.
Globally Integrated Supply Chain: China perspective
19
One of the world largest brewing companies successfully convinced its 160 distributors in China to adopt
web-based sales management system which helped their
distributors reduce inventory by offering them more
accurate delivery dates. To the brewing company, the
detailed customer purchase information enabled them to
target their marketing efforts more prudently.32
A high-end Chinese retailer in Beijing was facing challenges to maintain market leadership in China, because
it over-relied on manual processes, and its information
system was built on multiple, disconnected networks,
which prevented real time information tracking and
intelligent business decision support. The result was
high error rates and slow response, leading to low
productivity and reduced competitiveness. In response,
the retailer implemented a data sharing platform based
on Service-Oriented Architecture that linked its ERP
system with supply chain management applications,
and rolled out the platform to its 1,800 plus domestic
and international suppliers. By reducing order lead-time
from 2.5 days to 4.5 hours, improving order acknowledgement rate from 80% to 99%, and cutting order
error rate from 9% to 1%, the retailer transformed the
way it does business with its partners. More streamlined processes and increased information transparency
helped the retailer make timely business decisions,
thereby strengthened its competitiveness.33
20
IBM Global Business Services
Third, companies should develop strategic
partnership with logistics specialists. The rapid
de-regulation of China’s logistics industry
has encouraged 3rd party logistics providers
(3PLs) to redefine their role by offering
comprehensive services from cargo delivery to
shipment consolidation, warehousing, inventory
management, order fulfillment, product tracking
and other value-added services. Outsourcing
logistics functions to 3PLs would result in improved
delivery accuracy, simplified processes, reduced
transportation costs and improved order fill rate.
Working with 3PLs in China is more than just
getting the best contract price; it involves more
about developing collaborative relationship that
would bring about mutual benefits and strategic
value in the long-term such as being able to serve
companies' global logistics needs while offering
localized service excellence.
According to the VP of Logistics of a leading American
audio manufacturer in China, “It is easy to launch a
customer-supplier relationship, it is more difficult to
establish a strategic third-party logistics partnership...
We treat our 3PLs the same way as our own staff, include
them in our daily production meetings, have them attend
vendor workshops, and all these have a lot to do with our
success.” The company has worked with a 3PL to achieve
significant cost savings in inbound logistics by consolidating shipments in free trade zones located between
Hong Kong and Yantian in the Pearl River Delta.34
Conduct supply chain due diligence study prior to
cross-border M&A
To overcome the post-merger “supply chain
syndrome” described earlier, it is critical that the
supply chains of the two merging companies
quickly fit into the new entity’s strategy and business
model. To facilitate supply chain integration, it is
of utmost importance to include supply chain in
the pre-merger due diligence study. The objective
is to identify supply chain synergies, locate
hidden supply chain issues, explore improvement
opportunities and initiate integration planning for the
supply chain of the new entity, so that the integrated
supply chain will align with the new entity’s business
model and strategic imperatives in advance rather
than “after-the-fact”.This ensures that the supply
chain is able to support the business operation of
the new entity within the shortest possible transition
time after the merger, thereby maximizing the value
of the deal. It has proven than substantial cost
savings have been generated through integrating
supply chains of two companies.
In a merger between two leading telecommunication
companies, 70% of total cost savings were from supply
chain; while in a merger between two computer giants,
as much as $1 billion worth of savings were derived from
supply chain integration.35
Proactively mitigate supply chain risks in China
China presents tremendous growth opportunities,
but this vast, complex and fast changing market
and the country's fast pace of globalization bring
along various types of risks on companies' supply
chain. Both companies operating in China and
Chinese globalizing enterprises must be aware
of and capable of managing the following major
categories of risks. (Figure 10)
Geo-political risks – risks impacting China’s
relation with its global trading partners. Typically
includes protectionist measures targeting on
China’s exports, embargoes on imports to China,
Figure 10.
Supply chain risks are high in China
Geo-political
Risks
●
●
●
●
International
relations
Civil instability
Unfair trade
policies
Market entry
barriers
Logistics Risks
●
●
●
Poor
infrastructure
Nonperformance
i.e. 3PL
Interruptions
i.e. natural
emergencies,
strikes
Customer Risks
●
●
●
●
●
●
Understanding
of needs
Acceptability
to China
Quality
Lead-time
Order-fill rate
Satisfaction
i.e. word of mouth
Supplier Risks
Financial Risks
●
Quality
●
Inflation
●
Capacity
●
Import tariffs
●
Collaboration
●
Exchange rate
●
Supplier
●
Freight costs
performance
i.e. ability to
support
Source: IBM IBV analysis
Globally Integrated Supply Chain: China perspective
21
cancellation or delays of business licenses and
project go-ahead in China, and approval of foreign
direct investments in China.
Logistics and infrastructure risks – risks
associated with China's logistics and other
infrastructure, including under-developed
transportation networks causing inaccessibility
to markets; power supply shortage and failure
causing interruptions of production; limited
telecommunication coverage and poor IT network
causing lack of visibility on shipment movements.
All of these will impact the smoothness and
efficiency of supply chain operation in China.
Customer risks – risks associated with customer
default or insolvency on one extreme, and
cancellation of orders by the customer or failure
to retain the customer on the other. Suppliers of
fashion, certain consumer electronics and products
with short product life cycle also face additional
risk of product obsolesces.
Supplier risks – risks related to insolvency or
performance of suppliers and business partners.
Many global manufacturers are concerned
about risks associated with Chinese suppliers’
performance such as their ability to manage
product quality, productivity and timely delivery,
which exert heavy influence on the robustness of
manufacturers’ supply chain in China.
Macroeconomic and financial risks – risks
associated with economic parameters along
the supply chain such as inflation rate, currency
exchange rate, freight rates and interest rates.
Following China’s accession into the WTO in 2001,
these elements are more subject to global market
dynamics. For example, Renminbi’s appreciation
against the dollar has yielded savings on freight rate,
but inflation within China has kept logistics costs high.
22
IBM Global Business Services
Each of the above risk categories could
potentially trigger devastating effects on supply
chain and the repercussion of a supply chain
failure can be extraordinarily severe. As a
matter of fact, companies’ ability to identify and
manage supply chain risks has not kept up with
their pace of supply chain extension in China. A
case in point is the snow storm in Feb 2008 that
hit central and southern China, causing power
outage, transportation paralysis, shipment delays
and production halt. The majority of Chinese
manufacturers were ill prepared and suffered
huge financial losses. Therefore, mitigating
supply chain risks should become a strategic
imperative for building a Globally Integrated
Supply Chain in China.
Under the traditional reactive approach, risk
mitigation in China is often carried out in adhoc manner which does not serve the purpose.
This is because most Chinese companies do not
really and fully understand their supply chain risk
profile, thus resulting in underestimation of the risk
impacts.
Under the proactive approach, the critical initiative
is to understand what composes your supply
chain and how complex and interconnected
are the supply chain activities. By answering
questions such as who your suppliers are; what
types of risks are pertaining to your business and
customers; what types of risks are controllable
or not controllable; how likely their occurrences
are; what the financial, operational, and logistical
consequences are; many supply chain risks can be
predicted, avoided and minimized. An increasing
number of companies are realizing this and are
committing more resources to risk assessment.
In order to proactively manage supply chain risks,
companies can implement certain risk avoidance
and mitigation measures. (Figure 11)
As supply chain integration is increasingly
becoming global, so are the risks. For companies
operating in China, we recommend that risk
mitigation efforts should be focused on high
probability and high impact risks, particularly
risks associated with suppliers and logistics.
According to an AMR study about supply chain risk
management, approximately 30% of the 100 global
companies surveyed considered logistics failure
and supplier failure as the biggest potential threat;
and about the same percentage of respondents also
believed logistics failure and supplier failure are
increasing in China.36
A world leading Aerospace and Defense (A&D) company
was able to mitigate supplier risk through “supplier
mapping”. The company was experiencing an average of
two supplier failures per year, each failure representing a
financial loss of approximately $5 million to the firm. The
company implemented supplier mapping processes to
assess supplier risks. The “mapping” processes involved
identifying key suppliers, suppliers’ suppliers, critical
components sourced, financial metrics (i.e. credit scores)
and key performance indicators of suppliers (e.g. delivery
performance, quality compliance rate, lead-time volatility).
Based on the data, the company classified its suppliers
into three categories, namely, okay, monitor, and act. As
a result, even before the company purchased anything
from any supplier; it would have already obtained a clear
risk profile of a particular supplier, and with a risk mitigation plan to ensure the integrity of product flow from that
supplier. Through this approach, the A&D Company has
been able to eliminate further supplier failures.37
Figure 11.
Proactively mitigate supply chain risks in China
Geo-political Risks
•Prepare contingency plans and purchase insurance for supply
chain events and interruptions in China
•Identify and develop multiple suppliers and partners in China
Logistics Risks
•Build information sharing and IT platform with Chinese partners
and service providers
Customer Risks
•Conduct due diligence study and early integration planning on
supply chain prior to cross-border M&A
Supplier Risks
•Link supply chain with Integrated Product Development (IPD)
processes
Financial Risks
•Monitor China business environment and constantly adjust
supply chain strategies
Source: IBM IBV analysis
Globally Integrated Supply Chain: China perspective
23
The key to minimize logistics risks lies in logistics
network optimization. Leading companies
have turned logistics network optimization
into a continuous process of refinement and
improvement. They have leveraged software tools
such as transportation management suite and
business process modeler to facilitate logistics
network design and risk assessment.
A growing Chinese logistics provider used transportation network design tools to model its distribution
network, test various transportation routes, and
perform frequent what-if analysis. The software also
enabled the company to assess dependencies and
connections between main routes and side routes,
allowing them to configure the best itinerary for
delivery and where to locate distribution centers and
warehouses for a variety of customers through simulation. By continuously reassessing and remodeling its
logistics network, the company was able to develop
a clear understanding of the logistics risks across
different regions in China, which helped them make
strategic decisions on resource deployment to avoid
and mitigate logistics risks. As a result, supply chain
interruptions such as shipment delays, road accidents,
delivery failures and inventory shortage have been
avoided and reduced, and its customers have become
more satisfied.38
Conclusion
Companies operating in China should realize
that the success of supply chain integration both
within China and around the globe will decide
whether they will win China and the global market.
For Chinese companies, it means that they must
rigorously build and improve visibility, collaboration
and flexibility across their entire supply chain,
particularly to support their burgeoning reach to
the overseas market. For multinationals, it means
that they must tailor their global supply chain
operation to the China market and accommodate
local features that would improve efficiency and
scalability. No "One-Size-Fit-All" supply chain will
succeed.
Last but not the least, supply chain integration in
China is a transformation process that takes years
to accomplish. Both Chinese enterprises and
multinationals should prioritize their supply chain
integration upon market dynamics, operation
maturity, organizational readiness, and align
supply chain initiatives with both their global and
China business strategies.
Author
Sean Ryu: Partner and Greater China leader of Supply
Chain Management, IBM Global Business Services
Michelle Kam: Director for Institute for Business Value,
China, IBM Global Business Services
Zhan Ying: Senior Consultant, Institute for Business
Value, China, IBM Global Business Services
Jiang Yi Wei: Consultant, Institute for Business Value,
China, IBM Global Business Services
Yang Chao: Managing Consultant, Supply Chain
Management , IBM Global Business Services
24
IBM Global Business Services
Acknowledgement
Karen Butner: Institute for Business Value (IBV) Global
SCM Leader, IBM Global Business Services
References
1
Wal-Mart Stores, Inc.2006 Annual Report
2
Economic Intelligence Unit, CEO Briefing-Corporate
Dong Bae Park: Associate Partner of Supply Chain
priorities for 2007 and beyond, Participants:1006
Management, IBM Global Business Services
Jae Cheon Lee: Senior Managing Consultant of Supply
global CEOs
3
AC Nielson, 2006; Chinese Association of
Automotive Manufacturers (2006),
Chain Management, IBM Global Business Services
Shen Guo Xiong: Senior Managing Consultant of Supply
4
Nokia annual financial report, 2006, IBV analysis
5
Shanghai Foreign Economic Relation & Trade
Chain Management, IBM Global Business Services
Commission, April 2008
Liu Wen: Senior Managing Consultant, Supply Chain
6
China Daily, 14 th March, 2008
Innovation Center, IBM Global Business Services
7
China Investment Report , Ministry of Commerce of
People’s Republic of China, Department of Foreign
Fan Shun: Managing Consultant of Supply Chain
Trade, January 2008
Management, IBM Global Business Services
Shi Peng: Senior Managing Consultant, IBM Global
Business Services
Xu Xu: Research Assistant, Institute for Business
8
Ibid
9
Financial Times, May 30 th 2007, according to Global
insight study
10
Value, China, IBM Global Business Services
11
About IBM Global Business Services
12
Exchange rate: 31st Dec, 2006, Bank of China
China Enterprise Confederation and China
Enterprise Directors Association, 2007
With consultants and professional experts in more
than 170 countries, IBM Global Business Services
provides clients with deep business process
and industry expertise across 17 industries,
using innovation to identify, create, and deliver
value faster. We draw on the full breadth of IBM
capabilities, standing behind our advice to help
clients implement solutions designed to deliver
business outcomes with far-reaching impact and
sustainable results.
2006 IBM-EIU Survey of MNC’s in China; IBV China
analysis
13
Ibid
14
2007 China Value Chain Study, IBM IBV
15
2006 China logistics development report, National
Development and Reform Commission; Ding Junfa,
Executive Vice President of the China Federation of
Logistics & Procurement, Speech in International
Purchasing Forum in China, 2005
16
The 6th Survey Report on China Logistics Supply
and Demand, China Association of Warehouse and
Storage, 2005
17
Ibid
18
Ailian Zhou, Xuhong Li, Haijun Mao, The
Logistics Standardization in China: Situation and
Recommendation, Economics of Commerce and
Trade, June 2007
Globally Integrated Supply Chain: China perspective
25
19
2006 IBM-EIU Survey of MNC’s in China; IBV China
analysis
20
World Financial Report, Nov 2007
21
World Investment Report 2007, United Nations
Conference on Trade and Development
22
Lenovo Annual Financial Report, 2006/2007
23
Bao, Ming Hua, deputy director of the
Macroeconomic Research Institute, China Renmin
University, “China’s labor cost is gradually
increasing, labor cost advantage will disappear in
five years”
“The investment trends of ‘China +1’ strategy of
24
multinationals enterprises” the Policy Research
Office of the Ministry of Commerce, People’s
Republic of China, April 2007
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IBM Global Services
Route 100
Somers, NY 10589
U.S.A.
Produced in the United States of America
02-07
All Rights Reserved
IBM and the IBM logo are trademarks or
registered trademarks of International Business
Machines Corporation in the United States, other
countries, or both.
Other company, product and service names may
be trademarks or service marks of others.
25
IBV and Fudan Globalization survey, 2005
26
IBM Global Business Services
27
Ibid
28
Ibid
Beijing Office
29
Winning in China’s Mass Market
30
IBM Global Business Services
IBM Tower, Pacific Century Place, 2A Gong
Ti Road, Chao Yang District, Beijing
Post Code: 100027
Te l: (010)63618888
Fax: (010)63618555
31
China Supply Chain News, Issue CN-20 Jan 2007
32
IBM Institute of Business Value-Winning in China’s
Mass Market
33
IBM Global Business Services
34
Inbound Logistics, Jan 2006, Innovation: A Fresh
Eye on the Supply Chain
35
Harvard Business Review, Oct 2005-How Supply
Chains Drive M&A Success
36
AMR Research-Strategies for Managing Supply
Chain Risk
37
Ibid
38
IBM Global Business Services
References in this publication to IBM products
and services do not imply that IBM intends to
make them available in all countries in which
IBM operates.
Shanghai Office
Building 10, 399 Ke Yuan Road, Zhangjiang
Hi-Tech Park, Pudong New District,
Shanghai, China
Post Code: 201203
Te l: (021)60922288
Fax: (021)60922277
Guangzhou Office
40B, Center Plaza 161, Linhexi Road,
Tianhe District, Guangzhou
Post Code: 510620
Te l: (020)85113828
Fax: (020)87550182
G123-0067-00 EN