The Asian Supply Chain is a unique and complex environment, in which we all live and operate daily. This is the first in a series of articles that will discuss the Asian Supply Chain and how it affects all our daily commercial lives.
Before we begin discussing why you need a supply chain solution we should introduce some terms that will be used in these article. (See Table 1.)
The computer industry has surrounded Supply Chain with mystique for years. In the early seventies, it was Materials Requirements Planning or MRP. This was a new way for manufacturing companies to order raw materials or components. Quickly this became MRP2, because companies had taken away the mystique of MRP. Then Enterprise Resource Planning (ERP) evolved.
Before long, IT consultants and experts were convinced that ERP was not the
solution. The problem, they said, was that the ERP concept centers around the
company or enterprise, which has products that it wants to sell to the customers.
In the past economy, one of the business acumen was to focus on customer
loyalty. However, today's customers are far more sophisticated and mature, and
thus, need managing as well. This led to the emergence of Customer Relationship Management software
|Stuff||a technical term for what most people call products.|
|Demand||what people want, when they want it and where they want it.|
|Inventory||the imbalance of stuff caused by the variance between demand and supply|
|Collaboration||the real time sharing of data via the Internet between trading partners.|
|Visibility||complete knowledge of the supply chain.|
Demystifying the concept
So many Three Letter Acronyms (TLA's). So many new phrases like Available to Promise (ATP). And, it keeps on coming. Let's try to dispel the mystique surrounding Supply Chain. Let's get a simple understanding of what we are talking about.
You have a warehouse full of stuff. The stuff got there one of three ways. You may have manufactured the stuff. This makes you a manufacturer. You may have purchased the stuff. This makes you a distributor. You may have the stuff stored by a third party. They want you to look after their stuff and deliver it to their customers. This makes you a third party logistics supplier.
If you are a manufacturer you had to purchase components or raw materials to make your stuff. You probably planned your purchases using a material planning tool or an MRP system. If you purchase some of your material from a sister company then your MRP system covers the entire enterprise. This is called an ERP system. If you are a distributor you probably used similar planning tools. However, your tools are only interested in planning end items, not components or raw materials. This is sometimes called a Distribution Resource Plan or (DRP). If you are a third party logistics provider then you probably have no say in what stuff arrives in your warehouse. Your principal or customer just sends stuff and you charge them for keeping it in your warehouse.
No matter which you are the same concept is true. While accountants call your stuff an asset, to your warehouse manager it is really a liability. The more stuff you have the more difficult it is to control. Sometimes you have so much stuff you have to ask somebody else to look after your stuff for you. This conundrum gave rise to "Just in Time" Supply Chain Management.
This is a brilliant concept. You buy stuff or make stuff just before your customer wants to buy your stuff from you. This sounds very good. This means in theory you have no stuff in your warehouse. This reduces your asset holding. This reflects in an increase in your share value. Your accountants are happy. Your shareholders are happy.
But in reality what we end up with is another phenomenon of the Supply Chain. This is not "Just in Time" but rather "Just Too Late". You manage to have stuff available just after your customer wanted it, and they have bought it from somebody else.
As technology improves the computer industry is coming up with more and more ways of addressing the issue of stuff. But technology for technology sake is not the answer. Technology developed in one part of this globe does not automatically have application in other parts of our world. Earlier we said the Supply Chain in Asia is complex and unique. That is why Supply Chain solutions developed in other parts of the globe do not necessarily work here.
The Asian Chain
Let's take a look at the Asian Supply Chain. Why is Asian Supply Chain "complex and unique"? Let's take a simple example. If we were trying to move stuff from Los Angeles to New York it would be simple. We would load our truck with stuff and get onto Route 66. When it ended we would be in New York. There would be only one currency. There would be only one level of taxation. There would be no need to unload and re-load the truck. There would be a single mode of transport. There would be a single language.
Now let's take a similar trip in Asia. Let's try to move some stuff from Bangkok to Singapore. This is roughly the same distance. But in this scenario we have to deal with multiple modes of transport. We have to load and unload our stuff on many occasions. We also have to deal with multiple languages. We may have to deal with multiple taxing authorities. We will have to deal with multiple currencies. Each of these issues adds complexities to Asia's Supply Chain. Each of these issues will add value, or cost, to our stuff.
These are simple example of the complexities of Supply Chain in Asia. There are many more. Let's look at a couple more.
In Europe and the United States warehouses are very different buildings. They are custom designed and built to perform the functions for which they were required. I have seen warehouses built for cross docking. These warehouses have less than five thousand square feet of storage space. I saw one warehouse with fifty-six docks. Twenty-eight docks were used for receiving. Twenty-eight docks were used for Despatch. The warehouse operator would organise twenty-eight delivery vehicles to deliver to twenty-eight stores. Then they would organise twenty-eight different suppliers to deliver product required by those twenty-eight stores.
Now this is "cross-docking". Roll product off the supplier truck. Break the supplier delivery into store deliveries right there on the dock. Build a store delivery from the twenty-eight supplier trucks at the warehouse. Roll the store delivery onto the delivery truck and despatch the delivery to the store.
This type of warehousing is not possible in Asia. The small warehouses and go-downs that make up Asian warehouses are totally unsuitable for this type of operation. Every consultant here talks about "cross-dock", but it is physically not possible. Supply Chain Solutions in Asia must take account of variations such as this.
Let's look at another example. Transportation planning in Europe and United States is relatively simple. Planes, boats, trucks and trains just about cover it. Planning a single trip usually will entail only one mode of transport, maybe two. In Beijing recently I was in a warehouse watching the Despatch process. The client was loading trucks, buses, tricycles and horse drawn carts. When I asked why they were using tricycles and horse drawn carts they explained. Normal vehicles would not fit into the laneways and alleyways where customers are located.
All these are aspects of the Asian Supply Chain. Supply Chain is of course much more than this. But each of these aspects is a potential point for adding cost to the Supply Chain. The concept of Supply Chain Management is to reduce cost and add value to the process. How can Supply Chain Management solutions assist Asian companies overcome these and other complexities?
Preparing for Change
So what do we do here in Asia to address the issues of Supply Chain Management? Do we simply say that it is too complex and keep going the way we always have? I think not. The extension of the World Trade Organisation will force change upon us. Therefore, we have to be prepared for this inevitable influx of change.
Recent history shows us that importing solutions to Supply Chain Management will not address our issues. Therefore, Asia has to source Supply Chain solutions that are developed in Asia for Asian conditions. These solutions will be there very nature address the issues articulated above.
However, the geographic challenges of Asia introduce yet another complexity. The traditional approach to Supply Chain Management involves the implementation of a collection of "point solutions". Collectively these provide the back-office functionality required to optimize a company's distribution efficiency. A comprehensive "mix" of these point solutions would include some or all of the following:
These back office systems are designed to create maximum internal efficiency, but do no address the imperative to manage external relationships with trading partners. If Supply Chain solutions are to work today in Asia they must address both the internal and external requirements of the Supply Chain. Today the pundits are calling this collaboration.
Historically this collaboration would have taken the form of a fax or a telephone call. These were perfectly adequate forms of collaboration. But with the global speed of doing business today this is no longer so. The Internet has changed all our lives forever. Nothing is more accurate than in conjunction with the Supply Chain.
In our next article we will discuss the importance of collaboration and what is now known as Extended Relationship Management ("XRM"). Yes, another acronym.
Ross Eades is an infotech industry veteran, specialising in Supply Chain Management and e-business. He has provided consulting services to some of the largest organisations in Asia and brings with him a wealth of experience in planning and implementing Supply Chain Solutions in this region. He is curently the Regional Director of Enterprise Management Solutions for Infrontier.