Purchasing

Costs, time to market and intellectual-property protection are some of the normal considerations when thinking of an Asian market as a manufacturing source. But there are other ‘basic’ factors to consider.

Understanding the government human resources laws, culture, holiday restrictions and retention problems are key for building a professional staff in a low-cost country. See www.purchasing.com/article/CA6343472.html

Some countries teach English, but few have moved into providing graduates with practical English-language skills that apply to manufacturing and supply chain operations.

The idea of working and then starting your own company is popular, and rising housing costs are also factor in motivation and personnel management. People have not worked for 30years in...Read More

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As I have said before, manufacturing costs in China are rising. As a result many companies are employing tools and techniques to lessen the blow of rising costs.

For example some companies are doing more stocking in Asia, and then exporting when the forecast is better or more firm. This is a way of controlling the supply chain pipeline inventory.

Reverse auction software tools are getting more popular, although many suppliers need a significant amount of training if the auction is conducted in English.

Some companies are seeing benefits in supplier enablement systems for electronic-RFx, and other electronic transmission systems for POs and invoices. Cycle time reduction can result in some overhead savings.

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Costs are rising as much as 20% along the coastal cities of China where most of the manufacturing is located. The purchasing price index (PPI) has increased 7% recently.

China will be raising interest rates, and the RMB is already quoted at lower that 7.1 to the U.S. dollar (4 years ago it was 8.1). The consumer price index (CPI) is up much higher due to food costs but when the PPI catches up, other prices will rise, causing more inflation for the consumer. The M1 rate is again increasing, partially due to the money coming out of the stock markets, but also due to people watching the rise in prices, and not wanting to do any discretionary spending. That then cuts the domestic spending part of the GDP.

The trade deficit with the US has gone down, while the deficit with the European Union is higher, some quoting as much as 42%. This is bound to cause some protection...Read More

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Manufacturing costs in China are increasing, but as I have said before, it is the place many companies need to be for manufacturing.

Wages are going up along with other costs, so the low-cost country sourcing idea may go out the window soon. However, China is now an established manufacturing locale for high tech-equipment and other goods as well as pharmaceuticals. Food and beverage and companies are enjoying healthy sales in China including Starbucks, Frito-Lay, Coke/Pepsi, Nestle, Coffee Bean and Tea Leaf.

China’s economy is facing some of the same issues as the U.S. economy. Besides rising wage expectations, both countries’ consumer price indexes are up and energy pries are rising. Interest rates are low enough to acquire capital for expansion and China is using interest rates to hold inflation. China has been using price controls, but that will backfire in the long run.

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Companies in China are feeling the impact of rising manufacturing costs and higher taxes and energy costs, especially along the coastal cities of Shenzhen, Shanghai and Xiamen. 

Companies are being required to come up with a larger down payment for importing raw materials. In addition, the rebate on value added taxes for exports has been reduced and is cutting into companies’ profits. As a result some companies are closely examining their low-cost country strategies. 

More companies are looking at Vietnam as a location to build products for export. 

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Things here in China now have been hit by devastating storms and the transportation system has had big delays. People have been delayed going home for the biggest holiday of the year, and some workers may extend their holidays because of the weather. Some have not been able to go home at all, which could morale in the workplace, and could cause them to take vacations later. The May holiday has been reduced and more three-day-weekend holidays have been added. That could affect morale too because workers are used to longer holidays. I would expect that deliveries will start up slower this year, more in later February, and ramping up company workload will be more difficult.

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New Year delays.

China and other areas here in Asia are getting set for the New Year holiday beginning in early February. This means things are a rush to get out the door before the end of the month, causing major port problems at many places, and of course a line up at major receiving ports. The holiday varies from a few days to some taking 2 weeks. This means that things will not start up until in Mid February, causing some possible delays in goods needed in March. Planning around this holiday is a nightmare. With consumers having more money, Asian travel will increase throughout the area. Hotel rooms will be filled—and prices will be higher. Even if you are visiting on business areas that are not directly celebrating this New Year holiday, costs, rooms, and flights will be higher.

On another subject, many companies use a global/regional policy ...Read More

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Things are becoming a little bit of a problem here in China. First, the inflation rate has jumped to nearly 7%, unheard of here, and it will have a growing effect on the general workforce. For example, food prices from one year ago have risen 18%. The US-China trade deficit has been reduced, but China’s overall trade deficit has risen, caused by more exports to the EU and Africa. Government controls are not adequate, so there is pressure to make more changes in the laws. Of course the revaluation of the RMB could be a consideration (now hitting nearly 7.3 to the US Dollar), though the government is still reluctant to expand the band. Expectations of 7 or less is possible, but then there is the Olympics here, and that would raise the visitors’ costs. Consumer spending in China is not expanding at a rate to help with the production capacity.

Sourcing profession...Read More

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China is changing rapidly, but the government controls the currency and seemingly no matter what the pressure, the RMB currency may not change much until after the Olympics. Many things may change then including taxes and interest rates against stock accounts to slow down the market. As a macro view though, the large oil companies, insurance companies, well-run banks, and construction companies will boom for a while. Energy, autos, and metals will be up and down on demand. But one thing shows a constant growth, and that is the idea that there is a viable Chinese consumer, and he or she will spend money on goods and services, especially in the booming travel industry. Asia travel for the Chinese is in high-growth mode. The Airline industry, hamstrung by the government’s ‘flight level altitude’ policy that dictates spacing between aircraft, will chang soon and more pla...Read More

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I hate to keep talking about communications but it really seems to be a key element in getting good products from Low-cost-countries. Whether it is for a quote, or the contract, it needs to be clear. I find that especially in Asia people who have learned English are shy to tell you they do not completely understand what you have said. Even emails can be misunderstood if you use a lot of jargon, or their definition of the jargon is different from yours. Face to face you may get a smile or nod, but that does not mean that the individual understands what you mean. Clearly, in any B-to-B transaction, both parties need to ask questions if they are not sure, but in Asia people may not ask questions. Not always bad to repeat, or ask a question about what you have just communicated, in order to see if the answer matches what you imagine it should be.

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I was the Chairman of the Excellence in Sourcing and International Procurement Organization Management conference in Shanghai on October 25/26.  From the attendance, speakers and ideas, many new Sourcing offices are still opening in China. This conference had many French, German, and other EU countries. Companies in the truck, train, and other vehicles markets were there in abundance, as was cosmetics, medical suppliers, food processing, and other equipment companies. Many had both localization sourcing and export sourcing, in as well as supporting China operations with indirect spend procurement. Interesting in that many MNC’s have also created sourcing commodity managers for marketing and media, with Asia sourcing offices, namely in China.

So what was it all about… first and foremost was RETENTION of personnel. This has ...Read More

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I recently visited Manila for a Procurement Excellence day sponsored by the PASIA organization (www.pasia.org)and TransProcure. The programs focused on the latest supply chain software tools, including Contiki’s Contract Management and SAP’s up coming new software available in Asia. The use of these IT technology solutions are another step to improve efficiencies in Asia for procurement and spend management.

I learned that there are efforts to have the Philippines as a back office provider for purchasing services. There are some reasonable factors that support this effort: In the Philippines English is the second language, and the literacy rate is high per capita. The cost of the labor is still one of the lowest in Asia, and it’s proximity to other Asian countries is convenient. Even the Visa policy is favorable to western visitors (no visa is require...Read More

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