In sum, China presents some formidable and even unique challenges, which make it imperative that our supply chains are ready in order to perform competitively and stay in tune with the shifting landscape.
In my work with many Western companies, both sourcing from and doing business in China, I have observed a number of attributes that indicate a company's supply chain readiness. While not all inclusive, the items below tend to be important factors that many companies typically overlook. As you consider your own supply chain structure, process, organization and people, determining how you rate on these attributes can be a good index of your readiness level.
A good supply chain begins with clear alignment to corporate strategy. In today's complex global marketplace, supply chain strategy is a core component of a company's financial success — maybe the core component. Too often, management puts structure before strategy, letting legacy systems, old ways of thinking or opportunistic business deals lead their strategy development. Those companies that religiously observe strategy before structure are the clear winners, always keeping supply chain structure subservient to the company's strategic goals. This approach involves forward thinking and often creative solutions, such as partnerships with unlikely players in your value chain, going up- or downstream in your business to capture more value-add or control of the supply chain, changing your organizational structure to incorporate more international management or redesigning reporting relationships and responsibilities. To identify these opportunities and achieve good alignment, supply chain issues must be elevated to the highest level within corporate management.
Given the opaque business environment in China, a lack of full transparency can be a huge liability. It opens the door to financial risk (leaving money on the table); intellectual property risk (stolen technology, piracy or corruption); and even legal risk (customs violations, lack of FTC compliance and, as we have recently experienced with toys, dog food and infant formula, health violations). In short, we require a high level of visibility from our supplier's supplier to our customer's customer. To achieve this level of transparency, we need on-the-ground market intelligence, rigorous information requirements and close cooperation with our supply chain participants. This task requires constant vigilance and is not cheap, but the rewards are significant.
One aspect of particular importance in the area of transparency is the need to understand total delivered cost. Too often, management's cost analysis is incomplete. Too many companies still buy "FOB China port," leaving on the table an unknown and not unsubstantial domestic freight cost. In determining a sourcing decision, management does not consider all the costs, such as management time and travel, legal and financial overheads, and more. A good starting point to achieving full transparency is to expose the total delivered cost. This exercise will force you deeper into the supply chain at all levels, which will also uncover important nonfinancial factors, such as raw material sources, compliance issues and the like.
Pursuit of Partnerships
As sourcing from China has become more difficult and more important to the livelihood of firms in the West, the way companies relate to each other is also changing. Partnerships with key participants in your supply chain can better enable you to streamline your processes and make them more secure while also enhancing transparency. Managers willing to consider new types of partnerships with key suppliers, customers or intermediaries are often more ready to face dynamic challenges in the global marketplace. The goal of partnership is to achieve a more intimate and cooperative relationship with key supply chain players. This closer relationship is designed to: