The growth of China’s domestic market (and the impact on Supply Chain Networks)

China’s industrial output grew by 16.1% in October compared with a year earlier, according to the National Bureau of Statistics -its annualized GDP growth for Q3 was 8.7%, compared to the large European nations who are barely out of the recession. France grew by 0.3% and Germany by 0.6% and let’s not mention the UK, which still is in a recession. I don’t want to be all doom and gloom; I am sure the UK will be out of its recession in Q4 and France, Germany and the other main EU brethren will strengthen their growth. But it does make you wonder what the future world economic balance will be like.

If there was a competition for” winner of a global recession”, China would surely be a pretty strong contender. Not only are its factories producing and its people buying, the Chinese government didn’t have to go into endless amount of debt to finance its economic stimulus package, which means that future growth will not be jeopardized by increases in taxation, as it is likely to be in the western world.

It will not have gone unnoticed that over the last 20 years China has become the workshop to the world and growth during this time has been mostly export driven. But this is changing; China’s new confidence and the drop in export demand has ensured that China is looking towards domestic demand as the main driver for future growth.

This means that the existing Supply Chain models of make-in-China and sell-in-Europe and US will have to be extended to include a stronger sell-in-china component. Some companies are already very active in china’s domestic market, but with the balance of future demand growth moving eastwards all organizations would do well to reanalyze existing and future supply chain investments. Companies will have to address the balance of their Supply Chain network to ensure the lowest Cost-to-Serve in the coming 5 to 10 years.

Amongst the solutions for this trend, one is already at our fingertips. For years organizations have been using advanced Network and Inventory optimization tools to model the impact of changes to their supply chains. From identification of synergies after mergers to implementation of postponement strategies, these tools and processes continue to play an essential role in optimizing supply chains. Now we should call upon these tools and processes once again to analyze the impact of a new opportunity; the growth of China’s domestic market.

All the best
Richard van der Meulen

Weathering the Storm; Panel Discussion (Dutch)

Manhattan Associates organiseerde aan de vooravond van de Logistica een evenement met enkele van haar partners om klanten en prospects bij te praten over de ontwikkelingen in de markt waar de softwareleverancier actief is. Ook zag Manhattan het evenement als een mooie gelegenheid om te discussiëren met de aanwezigen. De dag werd afgesloten met een paneldiscussie over supply chain excellence, waarbij Richard van der Meulen van Trueconomy gespreksleider was.

http://www.logistiek.nl/supply-chain/supply-chain-management/nid9125-via-evolve-extend-en-compete-naar-de-toekomst.html

Apologies for all the none Dutch speakers out there...

All the best
Richard van der Meulen

Can we have it a little bit quicker? (Real-Time Supply Chain Planning)

Recently a friend told me about his visit to his local hospital. While he was waiting to be seen by the Doctor, a nurse walked up to him to inform him that they had not yet received the test results, which the Doctor was going to discuss with him during this meeting. Now this might not have come as such a big surprise to my friend if it wasn’t for the fact that it had been more than 6 months since he had taken the test. The interesting thing is that the clinic that did the test 6 months earlier is a mere 200m from the Doctors office where my friend was now waiting to be seen, making the test result travel at a earth shattering 0.00008 km/hr…. Now, I am sure, and sincerely hope, that this is a one off incident rather than a systematic problem.

While listening to this story I thought about the importance of the speed of information in Supply Chain Management. And, I am sure it won’t shock you if I say it is very important…. Let’s take Demand information; we all know that sharing information between the multiple partners in a supply chain helps tackle the infamous Bull whip effect. But how useful is it to find out about new customer demand changes after you have committed to production volumes?

Imagine a supply chain with 3 supply chain partners and every one of them updating their forecast once a month; it would take 3 months for the third, most upstream player, to see a change in customer demand. This might not leave enough time for this Supply Chain partner to adjust his production and procurements plans, resulting in having to find expensive additional capacity in case of an increase in demand or find additional last minute orders elsewhere to keep up capacity utilization in case of a sudden drop in demand.

A solution would be to turn the supply chain from make-to-stock into make-to-order, which would mean that you care less about forecast information. But few supply chains can simply be changed like this and in every supply chain there is always going to be an element of make-to-stock, if you go upstream far enough.

So what else can we do? Well, increasing planning frequency would be a good start. If every supply chain party would update their forecast weekly, and importantly relay this new forecast to the upstream partners weekly as well, they would reduce the time it takes information to travel through the supply chain from 3 months to 3 weeks. And why stop there…. why not increase the frequency even further and work toward the holy grail of real-time Supply Chain optimization?

A good place to start looking for inspiration on this subject is the retail industry. Here partners have been sharing information by applying CPFR. (Collaborative Planning, Forecasting, and Replenishment) for many years. They have been using point-of-sale data to give the most accurate, real-time, customer demand information to upstream partners. This process (Real-Time Supply Chain Planning) is not easy and requires commitment from all partners to work, but surely the rewards are worth the effort?

Oh, and for those interested, my friend will live to see many more days.

All the best
Richard van der Meulen