China Supply Chain Perspective: A New Decade, a New Challenge

Economically, China has had a phenomenally successful decade. According to the International Monetary Fund (IMF), its US$ GDP nominal value in 2000 was just above $ 1trillion, nine times smaller than that of the US. For 2009, the IMF estimates that this has grown to approximately $ 4.7 trillion, which is over a third of the equivalent estimate for the United States. Chinese wealth has risen fourfold, from less than $1,000 per capita in 2000 to almost $4,000 today. In addition, China has the world's largest foreign reserves and is the top trading partner of Japan and the second largest trading partner of the United States and the European Union.
As part of its meteoric growth, China has invested significantly in logistics. Chinese spend in this sector as a percentage of GDP recently stood at 18% (KPMG, 2008) compared to approximately 9% in the US and other Western economies. The industry is growing rapidly, with annual revenue growth of 18.1 percent in 2008 and 15 percent in 2009. Much of the credit for this must go to Chinese Government reform and massive infrastructure investments, such as a stimulus package dedicated to rural infrastructure, electricity and transportation over the next two years, which will help expand local demand both for imports and domestic products.

From a supply chain technology perspective, however, Chinese companies are still riddled with fragmented distribution systems. As in Japan and Korea in the late 80s and early 90s, most of the solutions deployed in China today have been developed in-house and are both difficult to expand and expensive to maintain. In many instances, the scattered supply chain infrastructure is just not flexible enough to adapt to companies rapid business growth. Furthermore, inadequate reporting capabilities restrict companies in their ability to consolidate data and monitor activities in real time.

Chinas challenge for the next ten years lies with the countrys commercial sector. To keep pace with the growing economy and the improving conditions in export markets, private investment in modern technologies will be essential.  Encouragingly, and consistent with the general global trend, Chinese enterprises are already paying attention to the power of technological innovation. A market is developing rapidly in China for industry-standard, flexible and scalable software that is able to optimise logistical processes, manage upstream and downstream activities and improve the flow of goods.

A number of supply chain factors are of particular importance to companies operating in China. The sheer size of the country brings its own challenges, as any national network will depend on a large number of distribution centres.  Visibility the ability to obtain relevant data on purchased materials within a transportation network and on outbound goods as they are manufactured, stored or shipped has become a critical aspect of controlling supply chain flow, especially as global sourcing and fulfilment becomes more complex. According to a December report from the Aberdeen Group titled Supply Chain Visibility Excellence, 57 percent of global supply chain companies considered visibility a high priority for improvement.  China is no exception.

Tingtong Logistics, one of the largest third-party logistics service providers in China, regarded the improvement of visibility as a key target as it enjoyed significant business growth.  With 56 distribution centres across the country, it found that its existing technology was just not flexible enough to cope with widely distributed facilities, making reporting extremely time consuming.  By implementing Manhattan SCALE, Tingtong not only improved its operational efficiency, but gained visibility right down to the level of single orders.

Demand is also increasing in China for industry-specific solutions. Healthcare, for example, has become a high-growth industry following the unveiling last year of a blueprint for healthcare over the next decade, kicking off a reform plan to ensure fair and affordable health services for its 1.3 billion citizens. Lerentang Group, a leading distributor and retailer of pharmaceutical products in the Hebei Province of China, is an example of a company thriving in this sector. The company invested in Manhattan Associates Warehouse Management Solution (WMS) in 2009 largely because of its extensive experience in the sector and its understanding of the special factors affecting the distribution of pharmaceutical products, such as security, temperature control and traceability. 

Retail, too, is booming in China. For this sector, the extended supply chain, including different tiers of supplier, distributors, carriers and retailers, is key. Tools such as Manhattans Extended Enterprise Management solution allow companies to share information up and down this extended chain so that visibility of inventory and data is made available in real-time for fast decision-making. Furthermore, China is increasingly moving to a multi-channel retail model, which brings with it the need to handle picking at a variety of different levels, from individual items to fulfil internet orders to large pallets for stores.

Manhattan is seeing this demand growing not only within large national retailers, but also from regional players with an eye on expansion.  Recent retail customers include BuBuGao, a leading operator of supermarkets and department stores, but also QKL Stores, a regional supermarket in Northeast China.

It is clear that in 2010 Chinese companies are serious about the supply chain.  Whether organisations are operating domestically or globally, they are experiencing the need for higher levels of supply chain flexibility and visibility than can be delivered by older technology. This presents a dual opportunity; both for the technology providers able to offer the tools to achieve this, and for the companies themselves. For all of us in the distribution and logistics business, Chinas next decade will be one to watch. 

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