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The path towards successful importing from China is surrounded with broken dreams, misplaced trust and suppliers with questionable integrity. Henry Ford rightly pointed out that coming together is a beginning; keeping together is progress; working together is a success. This same maxim applies aptly to sourcing products from China.
To be successful in sourcing from China, it is essential to have a strategy, collaboration and well-documented expectations. Success is not a destination but rather a journey. The journey of converting pain into gain is a long drawn-out process heavily dependent on trust, commitment and the integrity of both parties.

China is still a default supplier to the world

STATISTICS: On examining the numbers it is evident that China plays a dominant role in supplying a wide variety of merchandise globally. The total global merchandise in 2014 was US$18.494 trillion; China alone exported worldwide an estimated US$2.282 trillion in 2015 and this was down by 2.6% compared to 2014.[1] If we summarise these numbers based on estimated conversions, 13% of the world trade was exporting from China. This proves that China is still a default supplier to the world with Australia importing $52.0b[2] from China in 2014 – this contributed 21% to our total imports and $57.105b in 2014–2015.[3]

No Strategic Management of China Supply = FAILURE & PAIN

TRAPS: Some of the fundamental mistakes committed by importers include lack of strategy, research and benchmarking, and failing to set and achieve targeted product quality. When cost is the main driver of strategy, quality takes the back seat. Rick Frasch identified eight common mistakes that US companies make during the sourcing process from China;[4] these include:
1. Lack of a well-defined strategy
2. No well-defined standards for suppliers
3. Inadequate due diligence performed on suppliers
4. Lack of protection for payment and quality issues
5. No written contracts
6. Written contracts not reviewed by attorneys
7. Ignorance of the U.S. Foreign Corrupt Practices Act (FCPA)
8. Not having a Mandarin speaker on the team.

Manage Sourcing as a Core Competency = GAIN

PROCESS: Strategy is critical to sourcing with the first point to ponder is the make or buy decision; once that is addressed the second point to reckon is whether to source from a low-cost country (LCC) or a low-cost product (LCP). The third important point to be considered is the cost impact on all facets of the supply chain that delivers effective operating profit after the capital charge (OPACC).
Once the sourcing strategy is finalised, the second strategy that needs organisational attention is the core competency strategy. Core competency is described as “a harmonised combination of multiple resources and skills that distinguish a firm in the marketplace.[5]” Some organisations may not consider sourcing as a core competency and instead focus on managing KPIs instead of transactions.
The outsourced activities include the decision whether to source from LCC or LCP, managing cultural barriers – including working at the micro level, maintaining quality standards, and meeting the organisational goals with regard to cost, velocity and quality. China is considered as an LCC and Australia imports anything and everything.

China Sourcing Best Practice is Critical = GAIN
BEST PRACTICE: Best practice differs from insourcing and outsourcing from China. There are also differences related to complete goods sourcing and component sourcing. As outsourcing is out of context, the best practice discussed is insourcing practice.

Critical elements to be considered in sourcing from China include, but are not limited to:
• Product life cycle
• Timing of new product introduction
• Product cost to the market
• Inventory carrying costs
• Cultural issues
• Supplier’s integrity reflected in the quality
• Commitment to delivery time.

Sourcing from China does not mean there is no responsibility attached to the sourcing organisation. The onus is on the sourcing organisation in the form of due diligence in identifying the right supplier, negotiating a watertight contract with well-defined payment and delivery terms, owning the product quality before it is shipped and, last but not least, the collaboration with the supplier. It is also critical to develop a well-conceived exit strategy.

Conclusion

A 2010 survey conducted using case studies and the survey found that the total cost of sourcing from China is usually under-estimated in practice.[6] Sourcing from China will be a success story if importers follow a well-structured process and use a well-developed strategy with clarity about the outcome of the decision/strategy. This process will eliminate surprises and business risks. To summarise, if the quality, supplier relationships and cultural issues are well addressed, then sourcing can be a success story rather than a painful process often ending with bitter experience and negative financial impact.

References:
[1] WTO – International Trade Statistics 2014
[2] Australian Bureau of Statistics
[3] Department of Foreign Affairs and Trade – https://dfat.gov.au/trade/resources/Documents/chin.pdf
[4] 8 Common Mistakes U.S. Companies Make When Sourcing Goods and Suppliers In China – Forbes
[5] Concept in management theory introduced by C. K. Prahalad and Gary Hamel
[6] The total cost of sourcing from China by K.W. Platts and N. Song University of Cambridge, Cambridge, UK


Source: https://cheezburger.com

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Today’s customer-driven markets environment is becoming increasingly complex, unpredictable and uncertain for companies that operate in highly globalised markets. The grown pressure to create competitive advantages is driving shorter product life cycles combined with faster technological leaps. This situation results in the effect that a continuously growing number of entities faces an ambivalent challenge of trying to cut costs further while being more responsive and flexible towards changing customer requirements. A survey executed by McKinsey in 2011 (The challenges ahead for supply chains) revealed the biggest challenges nowadays that companies in cyclic industries have to cope with are uncertainty and market demand volatility.

A static supply chain fails to flex as customer needs change and will be known as the “one-size-fits-all” approach of the organisation and the supply chain remains insensitive to customer ever-changing needs and demands.

Flexibility

“The measure of intelligence is the ability to change.” ― Albert Einstein

According to SCOR (supply chain operations reference) supply chain flexibility is divided into two segments. The first segment deals with Customer-facing metrics and the second segment deals with Internal-facing metrics. The success of flexibility is to satisfy both metrics within any organisation that intends to be flexible. Let us test this with an example.

Supplier One – Carries red, blue, black and white cars of the same model in order to meet the customer needs instantaneously. Based on customer-facing supply chain metrics, supplier one scores high marks because they are flexible and meet customer needs. Whereas by carrying all above-mentioned colours, the supplier inventory carrying costs are high and scores low marks when assessed based on internal facing metrics.

Supplier Two – Carries one popular colour per model in the showroom. And based on customer’s requirements sources different colour car from the dealership network across the country with an assured delivery date. Customers are willing to wait in case of capital investments. This supplier will score high both on customer-facing metrics and internal facing metrics.

The global and dynamic markets demand better quality, more product variances and extended services including higher reliability and faster deliveries. Each of those requirements can be a crucial differentiator that decide whether a company sustains on the market or not. Besides that, customized products with short lead times characterize the current situation in various industries. Flexibility is not all about customer-centric objectives and ending up with financial losses. It is all about being flexible to meet customer needs by able influencing customer requirements.

Collaboration and flexibility

Collaboration increases flexibility and makes it easier for organisations to meet customer needs. The stakeholders (both internal and external) within the supply chain start embracing change rather than fearing it and learn to turn a potentially challenging situation into an opportunity. In fact, this type of teamwork and collaboration are the very foundations of agile work methodologies, which allow teams to be more flexible and thus, responsive.

Change Drivers

In any flexible supply chain change is the way of life. The drivers will be there in every organisation exerting force for a change that’s not recognised within the organisation. Some companies will be slow in recognising the drivers that initiates flexibility and collaboration through the change process and that ultimately leads to customer satisfaction. But the need for coming to grips with change is inevitable. Flexibility with a collaborative approach and willingness to change is the ultimate mantra for business success.


Source:Alamy stock photo

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“The brain controls our thoughts, memory and speech, movement of the arms and legs, and the function of many organs within our body. The central nervous system (CNS) is composed of the brain and spinal cord. The theory is that people are either left-brained or right-brained, meaning that one side of their brain is dominant. If you’re mostly analytical and methodical in your thinking, you’re said to be left-brained. If you tend to be more creative or artistic, you’re thought to be right-brained.”

The supply chain professionals are left-brained. To know why? watch the below video.

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“Be the change that you wish to see in the world.” ― Mahatma Gandhi

Why Change (the storey behind the change)?

“Global growth is projected to reach 3.9 percent in 2018 and 2019, in line with the forecast of the April 2018 World Economic Outlook (WEO), but the expansion is becoming less even, and risks to the outlook are mounting.
The rate of expansion appears to have peaked in some major economies and growth has become less synchronized. In the United States, near-term momentum is strengthening in line with the April WEO forecast, and the US dollar has appreciated by around 5 percent in recent weeks.

Growth projections have been revised down for the euro area, Japan, and the United Kingdom, reflecting negative surprises to activity in early 2018. Among emerging market and developing economies, growth prospects are also becoming more uneven, amid rising oil prices, higher yields in the United States, escalating trade tensions, and market pressures on the currencies of some economies with weaker fundamentals.

Growth projections have been revised down for Argentina, Brazil, and India, while the outlook for some oil exporters has strengthened”. – Source: International Monetary Fund.

The advanced economies growth rate is not anywhere near the emerging economies or the global economy projected rate. When things are not moving in the right direction, what is required is to initiate a change to propel the growth.

The Change Process – Kotter’s theory

Change Management – Kotter’s theory of change management explains that the change process goes through eight phases as explained above. Business transformation or innovation is driven by three forces and they are people, process and technology. However, people are a critical part as they drive process improvement and they use and optimise the technology. However, people are apprehensive about change mainly because of fear of failure. Fear as two options, the first option is to forget everything and run or face everything and rise. However, we are all human and when we are drawn out of comfort zone we go through four phases as shown below.

The first phase is a comfort zone, the second one is fear zone and the third one is the learning zone and finally, when we conquer fear we enter the growth zone.  Unless one comes out of the comfort zone, nothing changes.

“You never change your life until you step out of your comfort zone; change begins at the end of your comfort zone.” 
― Roy T. Bennett

Change management is the process, tools and techniques to manage the people side of change to achieve the required business outcome in order to align with organisational goals and objectives. Change management is the process of incorporating the organizational tools that can be utilized to help individuals make successful personal transitions resulting in the adoption and realization of change.

The Reality

“The only thing that is constant is change.” – Heraclitus

The survey conducted by Deloitte indicated that “Change is a transition from one state to another. Change is continuous and embraces all areas of life and activity of a single person, organisation or society at large.” And 68% of survey participants agreed to this conclusion.

Change Management is meant to support the organisation in its transition from the current to the target state of the organisation and people are a critical part of the change process and any change should be managed from stage to stage, the process of change needs controlled approach, the objective of the change management is the targeted future state of the organisation.

The Resistance

The biggest hurdle to any change management is resistance. This theory was substantiated by the findings of the Deloitte survey as explained below:

When we talk about organizational change we need to mention that this process isn’t simply a journey from point A to point B. You will need to pass many barriers if you want to succeed in your intentions to improve your organisational performance. One of the biggest barriers is resistance to change as an integral part of each change process. Few of the reasons for resistance are listed below:

1. Lack of Clarity
2. Losing the control
3. Threat to comfort
4. Job’s security
5. Implications on personal plans
6. Misunderstanding the process
7. Mistrust – Lack of confidence in the proposed change
8. Fear of unknown – Fear of failure?
9. Lack of communication and transparency
10. Peer pressure.

Overcoming resistance to change

“Leadership is an organizational imperative when managing change, and leaders who inspire a cultural shift in their staff have the greatest success in managing change. In a PwC survey, nearly two-thirds of staff surveyed felt that a top leader is in charge of change management, and almost half felt that top leaders should be in charge of cultural change. The good news here is that the same number of people felt that cultural change is also their responsibility.” The biggest problem we face today is the cultural change and which is in today’s world is being outsourced. The main reason for that is fear of failure. Today’s leaders have to recognise the grit the power of passion revealed by Angela Duckworth. Her theory reveals that effort * tallet = skill and skill * Effort = Achievement. Leaders are not brave enough to take up the challenge and they expect their colleagues to go through the cultural change driven by an outside agency who do not understand the emotional and cultural intricacies of the organisation.

The simple answer to tackle the resistance is to address the resistance to change. My recommendation in tackling the resistance to change is as follows:

1. Show empathy and not sympathy with the affected people.
2. Educate the people involved in the change about the change and the outcome.
3. Be transparent, share both positive and negative outcomes of the change.
4. Communicate effectively (walk the talk), both verbal and written.
5. Identify change agents and drive through the change agents.
6. It is not a top-down process, it is bottom-up engagement.
7. Be a leader and lead the change from the front and be accountable.
8. Understand the cultural and emotional challenges of the team and take initiatives to address them.

Let me end this article with wise words of Kelly A Morgan – “Changes are inevitable and not always controllable. What can be controlled is how you manage, react to and work through the change process.”


Source: Cartoon Image Copyright Fotolia – by cartoonresource

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The core idea of lean manufacturing is actually quite simple and that is to work on eliminating Muda (wastefulness) from the manufacturing process. Every manufacturing process will experience some kind of waste, it could be time, it could be material or it could be productivity.

So what is a waste? Waste is defined as any activity that does not add value from the customer’s perspective. According to research conducted by the Lean Enterprise Research Centre (LERC), fully 60% of production activities in a typical manufacturing operation are waste – they add no value at all for the customer. The core objective of any business process is to add value and realise the value (through tangible outcomes)

The good news is that through lean six sigma tools every company has a tremendous opportunity to improve, and other manufacturing best practices. Techniques that enable you to deliver higher quality products at significantly lower costs. The competitive advantage in the market place is differentiating the organisations. Lean manufacturing techniques help us to minimise waste and improve productivity.

Graphic by NEWCASTLE Systems

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“Business must have an appetite for category management…and procurement must create that appetite” – CPO, FTSE 100 Engineering Company, UK

We often hear the word category management, what is it? And is it different to procurement? These questions are quite common in the minds of non-supply chain professionals. We also hear sourcing, is it procurement? It is not complicated, let clear the clutter.

Category Management

Let us establish clarity about category management first. It is an organisational strategic tactic to organise the procurement function to focus on specific areas of spend. It is a silo approach to procurement. Each category is considered as a profit centre and to ensure value addition and value realisation is achieved. This approach enables the category managers to conduct in-depth market analysis to fully leverage competitive product differentiation. In summary, it is a silo approach to procurement to focus on a specific category and it could be a direct or an indirect category.

Sourcing

Sourcing, as the name implies, is a finding a source from where the goods and services can be procured. It is a subsection of the procurement, where, procurement is a function and concerned with acquiring of goods and services, sourcing is proactive activity in finding the least expensive supplier for those goods or services. Since the business profits heavily rely on finding the best source of suppliers it is considered to be the first step taken by the business before its first sale.

One can observe from the graphic that the steps involved in identifying a new component or product or service as the first step starts with requirements definition and ends with supplier management. This is very popular in the NPI (new product introduction) process.
Graphic Source:http://www.tendersinfo.com

Procurement

Finally, what is procurement, as mentioned earlier, it is a function of acquisition of the products or services identified either through category management or sourcing function. It is time to discuss a myth that one of the procurement function is to identify the need for goods and services. In the ERP/MRP era, it is the MRP that defines what product and quantity to be purchased from the selected vendors based on demand forecasting input. Whereas services are procured based on procurement requisitions. Apart from the function of purchasing, procurement function also takes care of vendor selection (in the absence of category management and sourcing function), negotiating contracts, regulatory compliance and the critical aspect of the procurement function is the total cost of ownership (TCO). What is the total cost of ownership should be explained if not this article will not be incomplete and people have to go back to google?

“Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs.”

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Michael Eugene Porter is an American academic known for his theories on economics, business strategy, and social causes. He is the Bishop William Lawrence University Professor at Harvard Business School. Michael Porter coined the term ‘Value Chain’ was first used in his book “Competitive Advantage: Creating and Sustaining Superior Performance” (1985). The value chain is a process of translating organisational activities and its performances to gain a competitive position in the market place.
In any process, we find Core activities and Support activities that collectively deliver performance outcomes in the form of margins. Here margin refers to the profits earned for a product or service through sales revenue which is more than the sum of the cost of all activities in the value chain. Porter’s basic model as shown below identifies direct and indirect activities in any organisation which drives margins.

Porter’s value chain emphasizes on the process of how inputs change the outputs purchased by consumers which delivers competitive advantage and targeted margins of the organisation.

Core Activities (Primary Activities)
The core activities relate directly to the manufacturing, service, sale, maintenance and support of a product or service. And they consist
o Inbound logistics
o Operations
o Outbound logistics
o Marketing and Sales
o Service

Support Activities
These activities support the core functions identified above. In the above diagram. For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities.

• Procurement (purchasing)
• Human resource management
• Technology
• Infrastructure

My Perspective

In my opinion, the fundamental difference between supply chain and value chain is the element of “margin” part of Porter’s value chain. Supply Chin never deals with margins, it deals with SMART Goals, KPIs, deliverables – Quantitative and qualitative. The supply chain cannot assure margins which largely depends upon sales and sales is outside the purview of supply chain and whereas Porter’s value chain the core activities include Marketing and sales which could drive improved margins with other elements such as inbound logistics, Operations and Service supporting the improved margins.

My concept of the value chain bit different from Porter’s version. I firmly believe that People, Process and Technology is the support functions and the core functions are Supply Chain, Operations, Marketing and Sales and I firmly believe that customer service is part of Marketing and sales. If we integrate these functions and work towards organisational goal effectively we can achieve targeted margins. I am not critical about Porter’s view, but I am presenting my views as a Supply Chain professional.
Today’s world is collaborative in nature. No function is superior and no function can attain organisational goals independently. It’s a team approach. In my theory, people, process and technology enable supply chain, operations and marketing and sales to achieve competitive advantage in the market place. One more point is that the communication channel between support functions and core functions is two-way. Listen, Respond and React is the communication strategy for achieving targeted goals.

“Synergy – the bonus that is achieved when things work together harmoniously.” – Mark Twain

My value chain model:

I appreciate your views and comments.

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