Chinese Supply Chains: Not Yet Lean

I previously wrote about how Chinese companies have generally not yet adopted lean practices in their factories. A new report says they are also not doing a good job at managing their supply chains – yet.

            In a report prepared for the recent APICS conference, Wei Quang Qu of Allied Supply Chain Management Solutions writes that, with China still a young market with cheap labor, the business focus tends to be on sales rather than the efficiency of the supply chain.

            But, according to the report, that is changing: “As the global competition competes on cost, efficiency and flexibility, there is no exception for Chinese enterprises. So more and more companies are switching the core competency onto supply chain management.”

            It’s not easy, at least partly because Chinese companies have traditionally been unwilling to share information with supply chain partners. But according to Wei, a hard lesson was learned in the second half of 2004.

            “The Chinese automobile industry experienced a continuous drop in sales,” she writes. “The whole supply chain suffered, with large amounts of excess inventory and obsolescence, which affected dealers, car manufacturers, and tier-one and tier-two suppliers. The inventory piled up on each level until the second quarter of 2005. All stakeholders of this chain learned a lesson: If the information could be shared among the whole chain, in a timely manner, and if integrated planning is in place, the bull-whip effect could be reduced greatly.”

            Chinese companies are also having problems with ERP implementations, for a variety of reasons (surprise, surprise).

            “Overall,” Wei writes, “the Chinese supply chain is under a big transition and development,” with support of lean and other improvement strategies starting to take place.

            My take on this is that, if you do business in China (or plan to) and know how to apply lean principles to the supply chain, now is the time for action. If you can establish yourself as one of the better-run, more efficient players in this marketplace before a lot of other companies have done so, it enhances your chances for success. And if you haven’t been working to achieve a lean supply chain, you better get started.