Commerce | Peter J Liddell

Better ties can help companies build successful supply-chain partnerships

Manufacturers in China continue to be challenged by intense global competition and the rise of key input costs. Yet, while growth in the rest of the world tapers off, China continues to be a magnet for global manufacturing companies.

There are emerging opportunities for manufacturers in China to capitalize on future growth where deliberate policy decisions will propel an economy that is encouraged by a focus toward accelerating local consumption. To capitalize on the expected demand-driven economic growth, China-based manufacturers must ensure that their supply chain strategies stay ahead of the pack.

In a recent global manufacturing survey undertaken by KPMG in partnership with the Economist Intelligence Unit, one of the key findings emerging from the survey highlights that manufacturers are viewing their channel partners as more of a "network" which is critical to achieve a "demand-driven" supply chain, i.e. one that provides a real time view to total demand, supply, and capacity information. For manufacturers of all sizes, genuinely closer working relationships between suppliers and other partners will be critical to maximizing their responsiveness to changes in a dynamic market such as China. More effective and efficient cooperation with channel partners will enable manufacturers to meet the constant changes in customer demand whilst better optimizing inventories, logistics, and other operational costs.

The survey's finding seems more relevant than before in China where manufacturers face unique supply chain challenges that challenge even the best of the best. To survive, China-based manufacturers need to rely on their network of partners to help navigate these local challenges, such as transport impediments due to Customs clearance delays and infrastructure limitations, as well as insufficient logistics capabilities and a lack of high quality supply chain services.

The manufacturers also need to maintain close working relationships across their supply chain by understanding the motivations of their trading partners and determining how best to work with them to ensure that they are not reprioritized by their distribution partners.

The next wave of supply chain gains is expected to be dramatic as a new spirit of partnership, transparency and visibility across the value chain creates enormous economic value from a technology-enabled demand driven supply chain.

The financial benefits achieved by Chinese supply chain networks that have recently optimized when working better with their partners is significant. Manufacturers with mature and well structured supply chains have realized an additional 3 percent to 6 percent reduction to their total supply chain operating cost base (which falls straight through to the bottom line) once they have mastered network partnering and collaboration.

The more agile and flexible they become, the more strategic the advantage they exercise over the competitors and the greater financial returns that are generated. The opportunity for those manufacturers with less mature and not so well structured supply chains is even more significant.

The report, 2013 Global Manufacturing Outlook, "Competitive advantage: enhancing supply chain networks for efficiency and innovation", notes that companies remain well aware of the importance of investing in R&D and increasingly, manufacturers are finding that their supply chain partners can play a critical role in their innovation strategies provided that they can overcome a series of challenges in deepening collaboration with outside partners. One of the top five innovation challenges highlighted from the survey is with the complexity in collaborating with suppliers and partners.

This finding is very relevant in China where data availability and access to quality decision-support technologies are not as accessible as in other mature markets. These challenges reduce the ability of China-based manufacturers to collaborate across their supply chains.

Interestingly, the survey also identified that, "visibility is the new watchword in supply chain optimization and it is a major opportunity for many companies. Many companies have a substantial opportunity to boost performance, agility, and resilience by improving visibility across their supply chain network."

Yet the survey outlined that nearly half of the respondents state that they lack visibility beyond their tier-1 partners. In China, it is extremely important for manufacturers to work with all trading partners throughout the extended supply chain, especially as China continues to experience a high occurrence of critical supply chain disruptions such as transport delays, product recalls, etc. Harnessing emerging technologies that provide easy access to high-quality information to support end-to-end supply chain visibility, will allow manufacturers in China to make timely decisions and become more responsive to such unplanned events and challenges.

While there is no short-term fix, those China based manufacturers that move first toward better collaboration and true partnering within their supply chain network will ultimately gain a significant competitive advantage.

The author is a partner with KPMG China. The views do not necessarily reflect those of China Daily.