Supply chain executives in large companies continuously struggle to hire and retain talented, white-collar employees in China, according to SCM World’s annual Chief Supply Chain Officer Report.
A global study of almost 1,400 executives—co-led by Dr. Hau Lee—found that rising labor costs and poaching are the biggest concerns in China.
Almost two-thirds of those surveyed are concerned about the rising cost of knowledge workers in China, with respondents in the hi-tech, industrial, chemicals and retail sectors particularly worried. It’s a similar picture on staff retention, where more than half (55 percent) of supply chain executives say they are concerned about poaching of their most talented employees.
Survey respondents based in the Asia-Pacific region (almost a quarter of the sample) are even more concerned about both issues than their counterparts in the Americas or Europe. On rising costs, 72 percent say this is a problem in China, while on staff retention the figure is 63 percent.
Overall, China was ranked as the riskiest country, by far, to operate in from a human resources standpoint, well ahead of other emerging markets such as India, Brazil and Mexico. And China ranked well behind the U.S. and slightly behind Germany in terms of value for money.
As a result of the findings, the report suggests that companies could be nearing a tipping point, according to Kevin O’Marah, Head of Faculty, SCM World and co-author of the report.
“China is clearly no longer a low-cost country in the traditional sense,” said O’Marah. The implications for talent management in a global supply chain strategy include a need to diversify away from Asia—and China in particular. A move back toward high-wage countries may make sense for organizations working to balance their talent portfolio.”
Digital and ecommerce
The steady growth of online shopping is increasing supply chain complexity at many levels and forcing those closest to the consumer to adapt. Approximately three-quarters of survey respondents expect changes to their manufacturing strategies and distribution networks, while 56 percent expect brands to increase their direct-to-customer fulfillment channels.
By a ratio of 4:1, respondents expect consumers to be increasingly receptive to offers trading price, convenience and selection against each other rather than merely seeking the lowest possible price.
Social media plays little role today in supply chain strategies, as 47 percent see "no effect” today. But survey respondents confirmed that in the future, many see opportunities to get customer feedback (56 percent), inform product innovation (46 percent) or warn of supply disruptions (41 percent).
Additionally, most supply chain professionals shy away from the idea of mining individuals’ private Web data (Facebook pages, Google searches, etc). But other sources of customer insight are seen as fair game.
Social and environmental responsibility
The trend towards Social and environmental responsibility (SER) initiatives seems unstoppable and companies are becoming less tolerant of violations.
Almost a third of companies now give no warning to suppliers when they breach SER standards, and of these, almost half immediately terminate the relationship. Among those that do warn first, those terminating rather than reducing business has grown year on year. In addition, only a quarter of firms believe they have good visibility of SER performance across their extended supply network.
More than half of respondents report good results from SER efforts in complying with government regulations and laws and in improving both supplier relationships and customer satisfaction. But measuring benefits is a challenge for almost six out of 10.
The vast majority of companies have been hit financially by disruptions recently and executives are on high alert when it comes to their suppliers.
Shortages of raw materials and components top the list of risks that respondents are most worried about (a third are “very concerned”). Shipping disruptions, natural disasters and other incidents affect supplier facilities—and the failure of key suppliers is close behind.
More than eight out of 10 companies have been hit by supply- and demand-side disruptions during the past two years. Almost half have suffered a loss of sales/revenue and more than a third have experienced lower profits.
Strategy alignment and value creation
Firms look to their supply chain functions for smarter product launches, greater customer loyalty and higher sales—not just operational excellence.
While almost two-thirds of executives said operating cost reduction was a “very important” driver for their supply chain function, half also said the same about increasing sales revenue and differentiating customer service from that of competitors.
The most significant ways in which supply chain excellence boosts top-line growth, according to survey respondents, are the ability to launch new products on schedule; ramp up production quickly; ensure repeat purchases through greater customer loyalty; and receive priority treatment from suppliers when key materials and components are in short supply.
“Our research shows that more and more companies are using supply chain excellence as a means to create value and competitive advantage,” said Dr. Hau Lee, Chairman of SCM World and Thoma Professor of Operations, Information and Technology at Stanford University. “Those that still view supply chain management as a supporting function, or see it only as a way to reduce operating costs have a lot of catching up to do. They are missing great opportunities.”
And capitalizing on these opportunities demands close alignment between supply chain activities and business objectives, Lee added.
“A value-creation view of supply chain management requires supply chain executives to work closely as an integrated part of the company’s top executive team,” Lee continued. “The supply chain function is not in the background in driving the company’s strategic performance; rather, it becomes part of the steering team in the executive suite.”
For more information regarding “The Chief Supply Chain Officer Report 2012,” visit www.scmworld.com.