Best supply chain must be systematic, complete, and timely

Gasgoo.com: Can you express your opinions on problems existing in the supply chain of China's domestic auto industry?

Gordon. Xie: The development trend of China's auto industry has been in what we call the third phase of the Warring States period, from the Happy Valley enclosure to fight for share, and then to cost-competitive. The leading domestic manufacturers have begun to realize that the evolution of the industry trends, but gap between foreign advanced enterprises still exists in operation. I will talk about this issue from the following three aspects, systematicness, completeness, and timeliness.

The first aspect is the systematicness. We should systematically think about the optimization of the entire supply chain. According to the SOP of international supply chain management theory, the overall optimization should be from selling to operation and to procurement. Market forecast is needed. The following aspects are the indicators for forecast: different regions of China, GDP indicator, per capita consumption indicator, local availability of maintaining the volume of vehicles, consumer preferences, the market share of local competitors, sales over the past few years.

The sales forecast contributes a lot to the optimization of the entire supply chain. Or else there will be the Bullwhip Effect, with failed labor rate and on-time delivery. The production plan will be determined by sale forecast; of course proper safety stock is needed since too many stocks have the risk of being excess. Suppliers should be carefully chosen for an NPI project. Apart from considering the quality, buying price, logistics cost of the material, you should also refer to factory location and consumer location. This is so called systematicness.

The second aspect is completeness. There are many functions in supply chain management. If this function is not properly arranged, there will be overlapping or duplication. For example, there are too many people taking part in a program, while no people in another program. Only by perfect cooperation of all the functions could completeness and optimization take effect in the supply chain management. You must learn from others who do well in completeness, and then make some improvements and localization.

The last one is timeliness. Timeliness is determined by transportation methods, region, and so on. Good communication on statistics between suppliers, buyers and dealers contributes a lot to timeliness. In statistics communications, the computer can do what the human being cannot do. Deloitte provides our customers with IT services in helping PO management, invoice management, and sales forecast. The sales forecast is more flexible than before, as it is determined by the consumers and market. But IT service will make it easier, so investment in the IT service will pay back. A purchaser cares a lot about on-time delivery, quality and cost. On-time delivery will be fail if the profit is less than the business between your supplier and another customer. Timeliness will be realized on the premise of win-win solution in business.

In all, a systematic strategy, improvement of the completeness of operation, and timeliness achieved by the help of IT service are needed in China's supply chain management.

Gasgoo.com:  The supply chain cost is highly concerned in the automotive industry. Profit will increase a lot if the supply chain cost is reduced. Is there any good solution to the cost down in supply chain management?

Gordon Xie: I will talk about the outbound cost, which means cost in the process of a vehicle moving from the factory to the consumer. First, the inventory management cost. There are inventories in the factory, distribution center and 4S stores. OEMs have paid high attention to inventory management cost in the factory and distribution center, but relatively less attention to 4S stores in which inventory management cost is high. If the inventory management cost in 4S stores can drop, the cost savings will be very substantial. The second is on-time delivery. On-time delivery from the factory to the distribution center and from the distribution center to consumers depends on the accuracy of orders. Inaccurate orders will cause the Bullwhip Effect. Third, transportation costs. There are static cost and dynamic cost. Static cost such as large-trailer transport’s oil cost and wages is inevitable. It can be reduced by optimizing the delivery rate of vehicles and working hours. Dynamic cost, such as the value-added services provided by the distribution center, is negligible.

Gasgoo.com: How to cost down in transportation?

Gordon Xie:  Different modes of transport can be used to reduce transportation cost.  In China, the major means of transport is by truck. There is irregularity in railway transport since the Chinese government gives priority to the transportation of daily necessities. Water transportation fails to become a major mode due to the ever-changing demand in the automotive industry. A boat can carry more than hundreds of cars at a time. The more cars, the less cost in transportation fees. Water transportation will be the development trend of transportation mode for OEMs. Some OEMs have succeeded in optimizing its transportation network by means of water transportation which will bring a big cost down in transportation. It is quite normal that the location of OEMs, spare parts suppliers are different, which is a major cause of the high rate of emptiness of cargo in truck transportation. The emptiness of cargo can be overcome by the cooperation between OEMs in sharing the resources of truck transportation. But trust between OEMs and operation system is important.

Gasgoo.com: There is a growing number of mergers and reorganizations in the automotive industry, what is the impact on the supply chain?

Gordon Xie: There are mergers and reorganizations among both spare parts manufacturers and OEMs, while the later will suffer bigger impact.

The merger intends to achieve a growth in revenue, product complementarily, resources exchange between regions, and cost reduction. There will be an expansion of production capacity and the volume of procurement. So a cost down in some common parts is much easier. Mergers and reorganization optimize the transportation network, so the transportation cost can be reduced. 

Gasgoo.com: But there are examples of failures in merger and reorganization in the past years.  Are there any difficulties in the process of merger and reorganization for the enterprises?

Gordon Xie: We have done a survey in merger and reorganization .There are failure and success cases. A lot of mergers fail to achieve the expected effect in sales growth, cost reduction, effectiveness of human resources. Before a merger is carried out, the enterprise must make plans on how to avoid the loss of key customers and employees, how to overcome culture differences between the enterprises.

Four points should be noted: First, a detailed plan in advance is necessary, such as the risks may be involved. Second, a special team responsible for merger integration must be set up, with team members from top executives who will be involved in decision-making. Third, to achieve success in a short period of time will bring confidence of the whole team. Forth, it is inevitable that some staff will leave the company after the merger. At this time, make sure that all the changes are fair to each side.