china presentation council of supply chain executives
TRANSCRIPT
About Us
Baysource Global is a bridge for small and medium sized companies who want to
capture all possible advantages of working with China as a low cost supplier of manufactured products as well as a
potential market for U.S. branded goods and
services.
Talking Points
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Why China?1
A Paradigm Shift: Sourcing Goes To China
Looking Ahead: Global Supply Chain Trends
Today’s Global Sourcing Environment
Why China?
• Low cost labor• Low Start up costs• A decade of gov’t
stimulus• Advanced
Infrastructure• Innovation
The Rise of China
1949 1958 1966 1976 1978 1997 2001 2008
Accession into WTO
Founding of the PRC
Beijing Olympics
Hong Kong Handover
Open Door
Policy
The Great Leap
Forward
Cultural Revolution
Begins
Cultural Revolution
Ends
Why China?
China as a strategic manufacturing destination
Low Costs Ideal location for start up projects
Profits
Why Not India or Other Developing Nations?
India rate of investment not as high
Less Politically StableLack of infrastructure
Southeast Asia rate of investment not as high
Geographical limitations
Eastern Europe high inflation
Higher Labor costsTried it
Latin America high inflation
Higher labor costs
The Walmart Effect
"Wal-Mart is one of the key forces that propelled global outsourcing -- off-shoring of U.S. jobs -- precisely because it
controls so much of the purchasing power of the U.S. economy."
Calling the shots in the Global Economy
• ~1990 became most aggressive U.S. company in pursuing a global sourcing strategy
• Setting price points and forcing suppliers to meet targets
• Shifting the balance of power: Big-box retailers call the shots vs. brands
An Empire built on Bargains
• Retail leverage increases as dependence on American brand share reduced by Private-label programs
• PL as market share in Europe near 50% by early 2000s• US Retailers following wave now augment their category
management; develop National Brand Equivalent (NBE) quality standards
• Move to offshore sourcing for (low hanging fruit) categories such as socks (Fruit of the Loom) and food storage (Rubbermaid)
• Sourcing & Supply Chain become fixtures in Org Charts
The Trend Continues…
• Brands hop on the bandwagon
• Industrial and commercial industries follow
• Traditional Purchasing & Supply Chain Evolve
Cost – Below the Line Hidden Costs
Cost
Materials
Inventory Management
Plant, Property, and Equipment
China Factories
China &New Product Development
• Lowest Start up costs
• China stimulates investment
• Multitude of manufacturers and industries
• Flexible manufacturing
What China Has Become
• Greater emphasis on innovation• Improved technology• Advanced infrastructure development• Economic development zone hub (SEZs)
So What?
• Evolution of the Supply Chain Strategy• New Era & sophistication for Senior Supply Chain Professionals• Dawn of the CPO – Chief Procurement Officer – Proficiency in
– Carrying cost of capital– Sourcing – International freight, 3PL, – Quality, testing & Standards accountability– Personnel
• New balance of re-shoring and offshoring – Global balance strategy
• Total Landed Cost!
Striking a balance
• Supply chain analysis of what makes sense
• No longer a wholesale move to mfg offshore
• Re-Analysis of Total Landed Cost
Labor costscost of labor is rising so sharply in Asia that pay for senior management executives is on par with, or exceeds, that of their American counterparts. manufacturing wages in the United States have in the face of the economic crisis declined 2.2 percent since 2005.
AutomationSophisticated equipment, such as robotics and automated guided vehicles (AGVs), also require a more skilled workforce, which is in greater supply in America.
Intellectual property protectionThe protection of intellectual property is haphazard at best in China and other low-cost manufacturing nations
Onshoring of Manufacturing
Onshoring of Manufacturing
Transparency Revelations of child labor and environmental destruction in China has resulted in negative publicity for some companies and calls for improved transparency of the supply chain.
Risk managementfluctuating price of oil, labor disputes, freight costs, safety issues -- to name a few -- have added a layer of costs and bureaucracy that some companies concluded they could do without.
Closer to customersProximity also creates a better environment for innovation, keeping manufacturers and designers together.
Onshoring of Manufacturing
Quality controlOffshoring often means giving up some aspects of control and as many companies have discovered, quality may suffer as a result.
Ease of doing businessLanguage barriers and different business cultures aside, keeping the suppliers close makes financial sense as transit times are reduced and quality issues can be addressed more quickly.
Reduce supply chain disruptions Civil unrest, port closures, and natural disasters add uncertainty and unanticipated costs to doing business overseas.
Future & Trends
• Companies that procure goods from China must keep up with country's evolving challenges to take full advantage of the opportunities.
• Pursue China as both a growth market (Top line) and a market for lower cost labor and sources (Bottom line); Integration into long-term model & strategy
• China’s rising labor costs and currency structure have shifted, forcing companies to rethink how they structure their Chinese operations and how they perceive China in their overall global strategy.
Factory Asia: Other Low Cost Countries?
Bangladesh
Thailand
Singapore
Vietnam
Myanmar
PhilippinesIndonesia
Malaysia
Is Sourcing in China Still Competitive?
Manufacturing has traditionally taken place within coastal provinces
As wages on rise on the east coast manufacturing is moving into central and
western provinces
Is Sourcing In China Still Competitive?
Infrastructure
Stable Gov’t High Population
Factory Conditions
Stable Industrial Chain
Natural Deep Sea Ports
Low Cost Labor
Although an important factor, wages are only one brick in the wall
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