Are you underestimating the complexity of China trade?

David Hannon -- Purchasing, 1/13/2005

While the manufacturing cost advantage of China is considerable, many businesses (including chemical companies) underestimate the complexity associated with managing China trade.

And that has created a wide disparity in the ultimate value that companies receive from China trade strategies, says a recent report from Aberdeen Research and E2Open.

The report found that 42% of those surveyed had order cycle times of greater than 60 days and the 89% of respondents that had the highest logistics costs also had the longest order leadtimes.

In addition, the survey found that performance problems at China-based manufacturing partners are the biggest issue for effective order fulfillment, indicating that price-based supplier selection is the wrong strategy in China. "With all of the hand-offs that occur from the Chinese manufacturing facility to the domestic facility, it was not surprising that achieving better synchronization across the end-to-end supply chain was the top-rated strategic action by companies," said the report.

"Best-in-class [companies] focus on strategic actions [as opposed] to tactical cost reductions,"says Chris Jones, senior vice president of value chain research at Aberdeen and author of the report. "As a result, best-in-class enterprises are two to seven times more likely to achieve above-average to dramatically better performance in revenue, profit and return on invested capital."

The research also found that companies can improve the effectiveness of their China trade management strategies by following four criteria:

• lowest total delivered cost.
• delivery reliability.
• supply chain flexibility.
• regulatory compliance and risk minimization.

The report also recommended that companies synchronize the flow across the supply chain, deploy visible solutions, incorporate local processes, regulations, and partners into the information chain, and take nontraditional approaches to eliminate the leadtime waste that is rampant in China trade.