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Think Global

The emergence of China as an electronics manufacturing powerhouse has changed the supply chain forever. As China continues to evolve, the next step for innovative companies will be determining what's next.

There is no longer a single supply chain to and from China, explained Jonathan Wright, a managing partner at Accenture, in a Webinar sponsored by the Harvard Business Review entitled “How Can Businesses Navigate Asia's Increasingly Complex Supply Chain Systems?” There are actually four supply chains: East to West (exports from China to ROW); West to East (China as a demand point for Western products); intra-Asia (exports from China to regions such as India); and intra-regional (China to China or India to India).

Just as there is no single supply chain, there is no single solution.

Different regions in Asia/Pacific are developing at different rates, experts point out, which has affected supply chain evolution. Australia has followed a Western model and has developed an infrastructure that enables same-day shipping. In other parts of Asia, the infrastructure can't support expedited logistics.

“We have figured out the China-to-America supply chain,” said Hau Lee, a professor at the Stanford University's School of Business, during the Webinar, “but less is known about the intra-country flow between Asian countries. It's not just transit costs: Getting signed approvals to ship between countries is a real bottleneck.” The minimal cross-border approval requires two signatures; the maximum is 48, he said.

Companies are beginning to recognize there is no one China or one Asia supply chain model — there are an infinite number of possibilities.

Panelist Tom Linton, chief procurement officer for EMS provider Flextronics, said he expects companies to increasingly adopt control tower models to keep on top of the Asian supply chain. IT infrastructure and tools have improved to the degree that many companies can utilize the model. The cloud not only enables control towers, but makes them cost effective, he said. Countries that have a good IT infrastructure will be able to adopt these tools better, and will have an advantage.

The varying development rates of the Asia region is one challenge to overcome. “Many companies have control towers, but few are building what I'd call the 'airports' yet,” said Linton. “There will be airports or hubs where companies can integrate their information, and those that do will have an advantage.”

Companies will have to make better use of data that is available to the supply chain, said Stanford's Lee. The supply chain needs people with analytical experience to make sense of all these demand signals. Companies are always looking for new sources of data — mobility solutions, social media — that will give insight into who the customers are.

“With the diverse population you have in China and other parts of Asia, the data is valuable, but currently not part of the typical operating mode,” Lee added.

Lee suggests a lot more information can be extracted from existing supply chains. He shared an anecdote about how Nike wanted to develop a wrinkle-free golf shirt. Nike had no experience in fibers or making cloth, but one of its Asian supply chain partners did. The partner was vertically integrated, and understood everything from the kind of cotton to use, to the ginning of the cotton. Nike was able to leverage its supply base and get the product to market within months.

Lee pointed out that innovation will be increasingly coming out of China. There are businesses that have developed a deep expertise in niche areas. The challenge will be getting these experts to work together in cross functional teams, and that will take a cultural change, he said.

“Asian companies understand Asia,” said Lee. “They can leverage this to become leaders rather than followers.”

However, Asian companies will have to adapt to what Western companies have discovered: There is no Asian supply chain or North or South American supply chain — the supply chain is global. “The more global it becomes, the more Asian companies have to look at how they manage other markets,” Lee said.

The panel didn't rule out the possibility of onshoring or reshoring in the US as part of the development trend. Because supply chains will require a mixed strategy, some level of reshoring would make sense. Companies will increasingly customize products closer to demand. Linton pointed out that global labor costs are leveling out, so low cost is no longer the competitive difference. That, he said, will come from innovation.

9 comments on “Think Global

  1. Taimoor Zubar
    November 30, 2012

    I think a common problem that most global companies face is the decision between what strategy should they go for when it comes to serving global markets. Should they consolidate their operations together to take advantage of economies of scale or should they diversify into different markets and serve the local market better from those local operations.

  2. Mr. Roques
    November 30, 2012

    What aspects of the global supply chain are easier to move back to the US? 

    Also, are those companies creating different products based on the market their will be selling or do they sell the same one? It would require a different supply chain (or at least, some changes).

  3. Taimoor Zubar
    November 30, 2012

    “What aspects of the global supply chain are easier to move back to the US”

    @Mr Roques: I guess it differs from industry to industry. In some industries you may be able to move the entire supply chain operations back to the US. This may not involve considerable labor or manufacturing costs. In any case, it's better to move one operation at a time rather than the entire supply chain.

  4. itguyphil
    November 30, 2012

    What's the risk/reward for doing so?

    In most industries, now that the election is over, what would motivate the manufacturers to bring operations back on-shore now?

  5. Houngbo_Hospice
    November 30, 2012

    @TaimoorZ,

    “it's better to move one operation at a time rather than the entire supply chain.”

    That makes sense. But won't this delay the whole “relocation” process? Some companies would like to move their operation plants faster to save time. But it depends on each company's goal or business vision.

  6. Houngbo_Hospice
    November 30, 2012

    @pocharles,

    As president Obama said: “There Are Some Jobs that Are Not Going to Come Back”. But he will have to keep his promisses and make sure that his administration devise strategic plans to motivate manufacturers to bring operations back to the US. The improvement of the economy also depends on that.

  7. itguyphil
    November 30, 2012

    I understand that but it's mostly jsut words.
    What is actually going to make companies WANT to bring those jobs back?

  8. Barbara Jorgensen
    December 3, 2012

    The impression I get is the jobs that come back onshore will be final-assembly-type jobs that deliver a finished product to the end-market. These might be as high-value as auto assembly or as simple as boxing and shipping. Whether or not people want these jobs depends on how bad things get: but taking a wage cut must be better than no wages at all.

  9. kjosefschmidt
    December 4, 2012

    Western companies are learning that offshoring jobs en masse, while the cost savings looks favorable on the financial statements, isn't always the optimum solution when productivity, time zone, language and cultural barriers are taken into account. As wages in China continue to rise, and as search for overseas talent becomes more difficult, we can expect jobs to trickle back to the US on a case-by-case basis, but not in significant volumes.

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