China Sourcing — In the Logistical Trenches

The January issue of European Leaders in Procurement featured a great analysis of the logistical and infrastructure issues companies face when sourcing from China. Penned by Christopher Jones, a Professor and Executive Director at the Supply Management Institute at the European Business School, International University, and Roger Moser, a Co-Ordinator at The Supply Management Institute, the article digs far deeper than its high level, clichéd-sounding title "The Secrets of Value-Added Sourcing" would imply.

One of the lessons the article cites is from a natural food products provider in Europe. In their experience sourcing from China, "a Chinese partner supplied excellent quality goods for six months then, suddenly, large portions of the deliveries arrived spoilt. Following an investigation, the customer discovered that it wasn't the supplier's fault, but the logistics provider -- the goods weren't refrigerated. During the winter, this hadn't been revealed as a problem but come summer and the goods spoiled." Stories like this, while almost hard to believe, are commonplace on the Chinese logistical stage.

What is the advice the authors have to offer to companies sourcing from China? Namely that it is critical to look beyond just the sourcing and supplier identification function in building out a team. To wit, "a company requires skills on two fronts for low-cost country sourcing: purchasing and logistics. Both competencies either have to be developed and co-ordinated on their own or be integrated via a partnership." In addition to these two areas, I would also suggest the importance of having supplier quality /supplier development feet on the street as well.

Especially within a rapidly emerging market environment, these functions are critical (and they should not be outsourced if at all possible). As I've written about before, the Chinese are incredibly anxious to learn and improve -- they take supplier development very seriously. But it can't be done over the phone from an IPO in Shanghai. It must be done on the ground, at the factory level. In addition, companies also need a strong trade / customs capability in dealing with China as well (there's one Spend Matters reader from North Carolina who has a lot to say on this subject).

In any event, the main focus of the article is on the challenges of Chinese logistics -- not the sourcing, supplier development or customs / trade side of global sourcing. And in this area, the authors absolutely shine and are very entertaining. While I strongly encourage you to register and read the entire article on the European Leaders site, I'll leave you with this entertaining and informative snippet: "Chinese logistical risks are numerous and formidable -- which should not be interpreted as an accusation. Anyone expecting eight-lane motorways in Chin, shouldn't complain about the Chinese infrastructure, but question their own delusions. Adequate infrastructure exists in and around the large cities, such as Shanghai or Bejiing, however, elsewhere the infrastructure is generally insufficient. Furthermore, the logistics market is extremely fragmented and the equipment of the local service providers can often seem to be "remnants of the Ming-Dynasty", as one exasperated French CPO exclaimed in a fit of desperation."

Jason Busch

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