Choosing the right 3PL in China (page 3)

-- Logistics Management, 5/1/2005

Page 3 of 3

Kemper: The whole "network optimization" push is new to most of them. By "network optimization" I mean planning, developing, and managing a holistic transportation and storage system that's woven tightly into the whole supply chain. It's about monitoring the design of the whole logistics layout.

The deal today is flexibility, speed, and service level as well as cost; the logistics manager has to manage all of those aspects. It's similar to the way supply chain managers have gone beyond the factory's four walls. So the scope of knowledge of the logistics professional has to increase significantly. The traditional transaction-oriented logistics manager is going to be replaced by strategically oriented people who can be partners at the table with the supply chain executives.

LM: With that in mind, what will be some of the top concerns for logistics managers doing business in China in the future?

Kemper: Don't think that just because [electronics manufacturer] Solectron is producing electronics products in China that it will always be doing so. Wage inflation and rotation of labor will continually drive companies to find new locations to produce.

Already plenty of areas in China are getting overheated really quickly, and labor rotation in some places is really high. So if you can accept that you're going to be chasing that lower wage to many different places, then you've got to be ready. You've got to be really good at sourcing from Hungary as well as from China. There has to be some strategic thinking about where the suppliers of tomorrow will be.

Clifford: China's labor costs are kept down in part by the surplus of labor flowing from the remote inland areas to the coastal cities. But as the inland cities begin to develop, their citizens may be less interested in migrating. Already we're seeing some labor shortages in Guangdong province in the south, for instance.

LM: How can Western logistics managers minimize the risks to their Chinese supply chains?

Clifford: It's really important not to outsource too quickly or too completely. Test your 3PLs to see if they can deliver the basics and only then, if they've passed those tests, should you push for complex, added-value services. Monitor constantly and check up repeatedly. Never let Chinese partners or suppliers tell you "No problem" or "Trust me." You have to expect the worst so you won't be surprised.

LM: So what big changes in logistics capabilities can be expected in the next three years?

Clifford: We're going to start seeing more specialization among Chinese logistics firms. The most promising areas are chilled or frozen products, pharmaceuticals, and hazardous freight.

LM: If there's one "golden rule" in logistics outsourcing in China, what would it be?

Clifford: Don't do things from afar. Also, check things out for yourself on the ground, and keep checking regularly. That's all the more important in China given the sheer size and complexity of the country, and given the poor level of transparency and accountability among the local players.

Kemper: I'd add this: Know what you're trying to accomplish and be clear about what your potential vendors can and cannot do. I agree with Paul: Don't just trust—verify. There's a lot of cost to ramping up a logistics operation these days, and a lot of cost to unwinding it.

Previous 1 2 3