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Supply Chain

Management

Supply
Chains
in Asia:
Challenges and
Opportunities
In this issue:
Robert J. Easton and Tian Bing
Zhang explore supply chain
challenges facing companies that
operate in Asia, and identify seven
opportunity areas that have the
potential to dramatically improve
supply chain performance and
competitiveness.

Supply Chain Perspectives


helps senior management
optimise value through
supply chain innovation.

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Supply Chains in Asia:


Challenges and Opportunities
Robert J. Easton is a
partner in Accenture's
Supply Chain Management service line
responsible for supply
chain services in
China, Hong Kong,
Korea and Taiwan. He
has more than 20 years of experience in
supply chain strategy, process reengineering,
performance management, system integration and change management, and publishes
frequently on these topics. Robert earned a
masters of business administration degree
from the Macquarie Graduate School of
Management and is a graduate of the
Singapore Command and General Staff
College. Based in Hong Kong, he can be
reached at robert.j.easton@accenture.com.

Tian Bing Zhang is


a Shanghai-based
manager in the
Accenture Supply
Chain Management
service line. He
specialises in supply
chain opportunity
assessment, regional supply chain strategy,
network optimisation, strategic sourcing,
procurement, inventory management, and
modelling and simulation. Bing has a
bachelors degree in physics from Tongji
University, and a masters of business
administration degree from the Australian
Graduate School of Management, with an
exchange programme to the University of
Chicago Graduate School of Business. He can
be reached at t.bing.zhang@accenture.com.

Supply chain excellence has become a key driver of value


and competitiveness in most industries and geographies.
Yet in Asia, the supply chains of multinational corporations
as well as those of local private and nationally owned
companiestend to be more fragmented and less competitive
than their counterparts in the United States and Europe.
By some estimates, they are three to five years behind
the West.
Companies doing business or seeking to operate in Asia must acknowledge this
performance gap. They also must work to understand the special nuances and challenges that gave rise to the region's subpar supply chain performance. For example,
dauntingly complex market and regulatory environments are common in Asia, as
are underdeveloped network infrastructures, technological inconsistencies, adversarial
cultural agendas and convoluted distribution networks. Identifying those barriers and
understanding their impact is the first essential step toward building a supply chain
capability with business outcomes equal to those achieved elsewhere in the world.
This paper examines in detail the supply chain challenges facing companies that
operate in Asia. It then explores seven opportunity areas that have the potential to
dramatically improve supply chain performance and competitiveness. Pursuing these
opportunity areas should be a top priority for CEOs and CFOs. In Asia, as with other
parts of the world, supply chain excellence can provide a competitive weapon to
deliver market advantage and achieve quantum leaps in cost and revenue performance.

The Critical Supply Chain Challenges in Asia


For a company to be competitive, its supply chain must be cost-efficient, responsive,
flexible, agile, and support customer requirements to receive the product they need,
in the quantity they want, and when and where they want it. Ensuring the presence
of all these characteristics is difficult anywhere. But in Asiaa region of enormously
diverse languages, cultures, currencies, regulations, taxes, infrastructures, business
practices, organisational forms and economic-development levelsattempting to
optimise the supply chain can seem almost futile. Complicating matters further, this
diversity exists not only among countries, but also among cities within the same
country; in countries such as China, it exists even within cities. Broadly speaking,

Asia's supply chain challenges fall into five principal areas:


1. Market and Regulatory Diversity
2. Supply Chain Network Complexity
3. Market Penetration
4. Organisational Models
5. Cultural Mind-Set

1. Market and Regulatory Diversity


In Asia, diversity is the norm rather than the exception. For example, there is a
growing gap among developed economies such as Singapore, Hong Kong, Japan
and South Korea; developing economies such as China, Indonesia, Malaysia, the
Philippines, Thailand and Taiwan; and emerging economies such as Cambodia,
India and Vietnam (Figure 1). These disparities make the movement of goods
within and across borders difficult at best. To meet the challenge, organisations
must address four primary areas of diversity:
Infrastructure
Capabilities
eCommerce
Organisation

Diversity of Infrastructure
National, regional and municipal diversities are the product of many factors. The
first of these is infrastructure, the quality, efficiency and capacity of which varies
greatly from country to country. For instance, Japan, South Korea, Hong Kong and
Singapore have highly efficient ports, airports, road connections, rail services and
customs operations, while the transportation infrastructures of Indonesia, the
Philippines and Thailand are largely inadequate. Recognising the problem, some countries are investing heavily to enhance their rail, port and air infrastructures. In the
near future, for example, Malaysia will spend RM21.2 billion (US$5.6 billion) to
upgrade its transport infrastructure.
1

China stands out as the country most affected by a subpar road, rail, air, port and
technology infrastructure. In 1999, its aggregate road network was 1.526 million
kilometres, less than one-fourth that of the United States. China's infrastructure is
ranked last of seven of the world's most highly industrialised nations. As a result,

The potential and the


rewards associated
with infrastructure
improvements are clear,
particularly since the
economies of many
countries rely on
intra-Asian trade.

June Lim, Malaysia Continues to Improve Logistics Infrastructure, MHD Supply Chain Solutions
(November 2001), 14.

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Diversity of Capabilities
Differences in:
Economic development and political stability
Customs duties and taxes (some free trade zones)
Language, complexity of documents, countryspecific branding and packaging
Currency and stability

Superior supply chain capabilities exist in only a few of Asias more-developed


countries, most notably Singapore and Hong Kong. Elsewhere, peak capabilities are
largely the province of multinational corporations, conglomerates and a small
number of foreign logistics companies. For the most part, capability shortcomings
are the result of a shortage of skilled people, a dearth of enabling technologies
and/or insufficient access to third-party logistics providers.

Taxation and regulatory systems


Logistics and communication infrastructure
Banking practices
Sophistication of consumers, customers
and vendors

Uneven market penetration


Complex sourcing,
manufacturing, logistics
and distribution networks
Conglomerate
organisational models
Unwritten business
rules and entrenched
business practices
Market pressure and
changing business imperatives

Poor infrastructure and distribution


Limited data, low levels of automation
Fragmented industries
High degree of government
involvement
Resistance to third parties, low
third-party capability
Very low Internet uptake
Focus on fire-fighting

Mix of traditional, modern and


emerging distribution channels
(e.g., super/hypermarkets)
More demanding customers,
increasing competition, consolidation
and rationalisation of industries
Difficult to access sophisticated
supply chain capabilities
More advanced technology but with
varying levels of integration
Low to medium Internet uptake
Movement from reactive to
collaborative

Modern distribution channels


Intense competition
Demanding consumers
Availability of sophisticated
capabilities and technology
Easier to attract quality labour
Greater propensity to outsource
High Internet uptake
Processes and infrastructure that
support collaboration

Figure 1: Factors influencing supply chain competitiveness in Asia.

companies entering the Chinese market often find that standard theories of supply
chain management do not apply, because the country cannot always support the
timely and economical movement of materials. China's government has announced
major initiatives to improve the infrastructure; for the time being, though, supply
chain performance improvements are innately handicapped.
But China is not the only country with an inferior logistics infrastructure. In fact,
there really is no pan-Asian integrated transport and distribution network to leverage.
However, the potential and the rewards associated with infrastructure improvements
are clear, particularly because the economies of many countries rely on intra-Asian trade.

People:
The shortage of experienced supply chain professionals is a global issue that
simply is more acute in Asia. In fact, the regions quest for supply chain
excellence was nearly nonexistent until recently, which meant that few skilled
managers were recruited and hardly any supply chain courses of study existed
in top Asian universities. Fortunately, many Asian universities now are working
to add supply chain management to their curricula.

Enabling Technologies:
In North America and Europe, implementation of materials resource planning
systems began in the 1960s. By the mid to late 1990s, many companies across
these regions had completed enterprise resource planning (ERP) and business
reengineering initiatives, and were poised to build "intelligent supply chains"
using focused applications for demand management, procurement, interenterprise collaboration and customer relationship management.
In Asia, however, local, regional and global players were far less inclined
to embrace leading-edge technologies, primarily due to skill limitations, infrastructure shortcomings and a general reluctance to invest in intangible assets.
In fact, many Asian companies have not reengineered their logistical operations
and are only starting to implement ERP solutions. Even some multinationals
have yet to integrate their ERP platforms regionally. Without a reliable ERP
system as a central repository for accurate transactional data and standardised
business processes, even basic operational improvements materialise more slowly.

For the most part,


capability shortcomings
are the result of
a shortage of skilled
people, a dearth of
enabling technologies
and/or insufficient
access to third-party
logistics providers.

All in all, the information, costing, procurement and distribution systems of


many Asian companies are antiquated, fragmented and largely unrationalised.
It is therefore no surprise that in Asia, compared to North America and Europe,
costs are higher, reliability is lower, transfer pricing and sourcing decisions are
exceptionally difficult to make, and reliable reports on regional performance
are hard to obtain.

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Compared to North
American and European
companies, Asian
companies have been
slow to embrace
outsourcing.

Third-Party Logistics Providers:


Compared to North American and European companies, Asian companies have
been slow to embrace outsourcing. There are only a few established logistics
firms in Asia, a minority of which are internally networked and none of which
are pan-Asian in scale. This dearth of outside resources means that companies
have little alternative but to develop convoluted webs of relationships with
multiple vendors and/or to rely heavily on subpar, internally developed supply
chain capabilities. Fortunately, there appears to be both a consolidation and
expansion of third-party resources in Asia, which in the near future should mean
broaderand more broadly availablecapabilities at the country and regional levels.

eCommerce Diversity
Internet penetration levels vary greatly across Asia, with highs of more than 25
percent in Hong Kong and lows of less than 1 percent in China and India. Moreover,
Accenture client experience indicates that most Asian companies use the Internet
solely to share information and not as a mechanism for streamlining or managing
their supply chains. As a result, efficient online payment systems, third-party
eServices providers, mechanisms for managing supplier risk, and regulations that
protect against electronic payment fraud often do not exist. Nor is reliable data for
due diligence available publicly as it is in the US and Europe. Thus companies
typically use letters of credit, which heightens security but adds complexity, time
and inefficiency.

is network complexity. This problem is endemic in Asian distribution channels, which


generally are multilayered, with three or four intermediaries between manufacturer
and customer. (In the US and Europe, one or two intermediaries are the norm.)
In China, regulations prohibit foreign companies from owning distribution channels,
and they have little choice but to rely on local concerns to distribute their product.
Even if the performance of those local organisations were not suspect, foreign
companies still lose their ability to view and understand actual demand levels and
customer requirements (Figure 2).
In China and Korea, distribution channels are particularly inefficient, fragmented
and costly. Because neither country has national distributors, the market is owned
by a plethora of small- and medium-sized local wholesalers. Consider the pharmaceuticals industry in China and Korea, which is served by 16,000 Chinese wholesalers

Some industry analysts report that, within a couple of years, 20 percent of the
world's business-to-business transactions will involve Asia. But with an eCommerce
infrastructure that significantly lags the US and most of Europe, Asian players will
have little choice but to tolerate supply chain inefficiencies and bring on extra
players to build and maintain supply chain relationships.

Organisational Diversity
Asias linguistic, cultural and regulatory diversity has forced many multinationals
to organise along geographic lines, with each division set up as an independent,
country-specific profit centre. This approach helped many organisations penetrate
local markets, but it also perpetuated supply chain inefficiencies by fragmenting
product development, buying, manufacturing, logistics and planning efforts. In
effect, opportunities to build cost-saving, sales-enhancing synergies continue to
be undermined by the organisational barriers to a regional supply chain strategy.

Local and imported materials


Some contract manufacturers
for specific projects

Often responsible for own


operations, including purchasing
Sometimes based in
multiple provinces

Warehousing/distribution
joint venture or handled
by local or joint venture
third parties
Rudimentary automated
systems
Delivery lead-times in weeks
not days
Manual accounting

Nonexclusive distributors
Distribute product to stores
Credit with stores
Execute in-store promotions
Some have willingness and
capability to improve
Little visibility of
subcontracted distribution,
unpredictable service

Little visibility of endcustomers apart from


key accounts
Actual demand and service
performance masked

2. Supply Chain Network Complexity


Asia's market and regulatory diversity has created serious supply chain complexities.
Tariff and non-tariff barriers, for example, hinder cross-border and regional trade,
and severely complicate make-versus-buy decisions. The prime impediment, however,

Figure 2: A typical supply chain network for a hypothetical consumer products company operating in China.

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

In China and Korea, distribution channels


are particularly inefficient, fragmented and
costly. Because neither country has national
distributors, the market is owned by a plethora
of small- and medium-sized local wholesalers.

and 400 Korean wholesalersall with margins of more than 25 percent. In South
Korea, a manufacturer that desires nationwide distribution must work with as many
as 50 wholesalers. By contrast, there are only eight such wholesalers in the entire
United States, four of which distribute 80 percent of pharmaceutical manufacturers
output at an average margin of less than 5 percent. With Chinas accession to the
World Trade Organization (December 2001), some regulatory restrictions controlling
distribution channels and logistics services are being lifted. But until the transition is
complete, the development of advanced supply chain networks will remain constrained.

4. Organisational Models
In North America and Europe, conglomerates are a declining organisational form.
In Asia, however, vertical and horizontal conglomerates continue to dominate and
shape their markets. In fact, about 30 percent of Asia's 50 largest companies could
be classified as conglomerates. In Korea, the top 30 conglomerates account for
more than 90 percent of the gross domestic product (GDP). In Southeast Asia,
Hong Kong and Taiwan, family-owned conglomerates also are the rule, while in
China the equivalent State-Owned Enterprises (SOEs) dominate.
Despite the efficiencies that Asian conglomerates might derive from their scale,
scope, wealth and long-standing relationships, this organisational model inhibits
supply chain efficiency. That is because the entities within most conglomerates
take a portfolio approach to investment decision making, which has encouraged
the development of disparate technology systems and architectures that inhibit
companywide transparency of information. This results in fewer enterprise performance
measures and less opportunity to collaborate at the group level (e.g., by leveraging
aggregated spend, rationalising and sharing supply chain assets, jointly developing
and sharing forecast and planning data, and leveraging core competencies
across entities).

Overall, the development of pan-Asian networks has been routinely subjugated by


mandatory adherence to local interests. Those regulations have forced the operating
units of multinationals and conglomerates to enter Asian markets at different times,
set up shop as independent operations, and/or enter enforced joint ventures. The
result has been widespread duplication of supply chain infrastructures and burdensome levels of network complexity.

Lastly, family-like perspectives, consensus decision-making approaches and highly


insular relationships dominate the thinking of Asian conglomerates. In effect, a need
to preserve the current order and not disrupt existing relationships can override
conglomerates' pursuit of outsourcing opportunities or the establishment of new
collaborative endeavours.

5. Cultural Mind-Set
Across Asia, three culturally based barriers stand in the path of meaningful, sustainable improvements in supply chain efficiency:

3. Market Penetration
For most global companies, Asian market penetration is deepest in the more-developed
countries, such as Japan, Singapore, Korea and Hong Kong, as well as in urban
centres along China's east coast. Not surprisingly, supply chain networks and infrastructures also are more fully developed in these areas, and thus they often are
hubs from which broader, pan-Asian capabilities are launched. Still, as countries
such as Indonesia, China, India and Vietnam become key markets or new points of
penetration, current supply chain networks and infrastructures will have to be
reconfigured and new capabilities will have to be developed.

Asia Industry: Redefining the Pharmaceutical Supply Chain, Economist Intelligence Unit Regional Economic News
(October 15, 2001).

Trust is the foundation upon which information sharing and collaboration


are built. However, trust, particularly between supply chain partners, remains
a significant issue in Asia.
Win-lose perspectives are common in Asia, particularly when dealing with
suppliers. For example, a survey of 582 Asian companies found that most want
their suppliers to add Internet capabilities (e.g., to help them obtain product
prices, search and compare product features, and conduct online price negotiations). However, few plan to actually add such capabilities themselves.

Indeed, many companies


around the globe
confront the pressure
of achieving supply
chain excellence to
increase revenue,
reduce net operating
costs, reduce working
capital and increase
capital utilisation.

David Manion, Asia Pacific Supply Chain Survey, CommerceNet (November 19, 1999).

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Asia has several


highly entrenched
business practices
that profoundly
affect the evolution
of supply chain
optimisation initiatives.

Respect, in Asia, often refers to the importance of minding ones own


business. Across the region, people generally are expected to stay within their
own boundaries and avoid challenging the way others do business, especially
when the relationship involves superiors. This mind-set has been inculcated
within companies, among departments, and across external entities and trading
partners. Because it discourages change, coordination and the development
of new approaches, it can undermine a companys pursuit of greater supply
chain efficiencies.

7A. Extend the Traditional Supply Chain


1. Strategise and Optimise the Network
3. Integrate Demand and Supply, Manage Surges
Supplier's
Supplier

Supplier

Further Exacerbating Asia's Supply Chain Challenges


Consumer demand for better, faster, cheaper products and services is a worldwide
phenomenon, as well as a major incentive for supply chain improvements. Indeed,
many companies around the globe confront the pressure of achieving supply chain
excellence to increase revenue, reduce net operating costs, reduce working capital
and increase capital utilisation. But in Asiaa global hub for the manufacture of
consumer products (and particularly electronics)the pressure to improve in these
areas is even greater. The global economic slowdown left many Asian companies
holding excess inventories at a time when spending on local goods also dropped.
However, the regions astonishing diversity and complicated distribution network
schemes make responding to these pressures even tougher than in other parts of the
world. In contrast to the United States and Europe, for example, Asian companies face:
In-store stock-outs.
Lower levels of visibility over inventory and demand.
Poor levels of forecast accuracy and demand management.
Higher inventory carrying costs, lower inventory turnover,
and lower levels of accuracy and control.
Less understanding of customer and consumer needs and
required service levels.
Excess infrastructure (i.e., too many nodes and assets in the network).
Lower levels of process and system standardisation and data
transparency across enterprises.
Lower use of reliable performance measures.
Lastly, Asia has several highly entrenched business practices that profoundly affect
the evolution of supply chain optimisation initiatives. For example, improving
the buying of materials and services is a significant savings opportunity in Asia; but
it also threatens the livelihood of procurement officials who might accept off-book
incentive payments. Unwritten rules and entrenched practices such as those vary across
countries, but they are a major source of resistance in virtually any business context.

10

6. Source Capabilities Intelligently (Buy, Build, Borrow)

Buy

Make

Move

Sell

Customer's
Customer

Customer

2. Achieve Functional Excellence

IT Follow-on

4. Integrate Technology and Systems Architecture

IT Follow-on

Organise Follow-on

5. Organise and Measure for Supply Chain Efficiency

Organise Follow-on

Alternate
Channel

Alternate
Channel

Alternate
Channel

Alternate
Channel

7B. Extend beyond the Traditional Supply Chain

Key:

Establish Foundations

Organise and Measure

Extend the Supply Chain

IT and Systems

Source Capability Outsource

Extend beyond the Supply Chain

Figure 3: Supply chain opportunity areas for Asia.

The Opportunities:
Seven Approaches for Supply Chain Success in Asia
As the previous overview of challenges makes clear, realising supply chain improvements in this part of the world is not easy. Yet it can be done. As summarised in
Figure 3, the remainder of this paper profiles seven ways that companies operating
in Asia can significantly improve their supply chain efficiency and competitiveness:
Opportunity
Opportunity
Opportunity
Opportunity
Opportunity
Opportunity
Opportunity

1: Strategise and Optimise


2: Achieve Functional Excellence
3: Integrate Demand and Supply
4: Integrate Technology and Systems Architecture
5: Organise and Measure for Supply Chain Efficiency
6: Source Capabilities Intelligently
7: Extend the Supply Chain

11

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Obviously, Asias diversity complicates the task of prescribing solutions that successfully relate to more than one group or business context, which is why many of
the cited opportunities must be addressed on a country-by-country, company-bycompany and/or supply-chain-by-supply-chain basis.
The numbering of opportunities in Figure 3 is deliberatean attempt to proffer a
logical order to approaching supply chain tasks and determining what is achievable.
For companies dealing with underdeveloped infrastructures and tough regulatory
constraints, simply excelling at the basics would be a significant achievement. For others (operating in more sophisticated environments), the task of synchronising supply
chains and connecting networks of eMarkets might be a more appropriate goal. The
greatest likelihood, however, is that multinational corporations operating throughout
the region will have to address both scenarios.
As Figure 4 shows, there also must be a clear path that companies follow in their
quest for supply chain effectiveness. This is particularly true in Asia, where operating
environments can be varied and unsophisticated, and basic infrastructure systems
and capabilities are of utmost importance. In effect, the development and mastery
of core capabilitiesconsistent processes and procedures, integrated IT, accurate
and reliable data, straightforward performance measures, and thoughtful management of peopleare even more important to companies doing business in Asia. Thus,
true leaders and innovators do not question the need for a logical, evolutionary
approach to supply chain improvement. Instead, they look for ways to do it quicker
and smarter.

Across Alliance
Partners

With
Customers
and Suppliers

Elite Industry Shapers

Leading Companies

Between
Business
Functions

Typical Companies
Within
Business
Activities
Functions

Opportunity 1: Strategise and Optimise


Companies in Asia often embark on multiple supply chain projects without a coherent,
guiding supply chain strategy. In fact, few organisations operating in the region have
such a strategy. The problem with this approach is that it produces little more than
incremental improvements. Unless supply chain projects are implemented within the
context of a broader, clearly defined strategy, their impact becomes diluted, localised
and easily lost.
However, when they are implemented within the context of a broader strategy, the
results can range, for example, from reductions in inventory costs and improved
inventory visibility and control, to a competitively advantageous transportation
structure. Plus, a more strategic supply chain approach leads to tax and duty optimisation and better end-of-life product management, which can reduce inventory
obsolescence. This can be a big deal in Asia, but to date, few broad-scale efforts
have been undertaken. Accentures client experience shows network and inventory
savings ranging from 10 percent to 40 percent have been realised by companies in
Asia that have focused on developing a strategy and optimising their network. More
importantly, companies have experienced improvements in revenue and market share
from 2 percent to 5 percent by aligning and optimising their supply chains.
To realise these benefits, companies in Asia need to determine what drives real
advantage in their supply chains and what drives real value to their customersand
then configure their supply chains accordingly. As part of this effort, they need to
align all relevant capabilities, processes and structures to an overall strategy.
Sourcing, conversion, distribution and replenishment planning should be coordinated
within the overall network design to ensure the optimal spread of resources, assets
and lower cost-to-serve (Figure 5). Complexity in algorithms caused by the impact of
tax regimes and regulatory diversity on make-buy decisions justifies the use of robust
optimisation tools. Yet, to date, limited use has been made of network optimisation
tools in Asia.
Given the diversity of geography, language, culture, customs, regulations, and tax
and tariff regimes, postponement is a key component of most pan-Asian strategies.
In fact, the lack of local packaging, labelling, region-specific parts and/or multilingual documentation routinely adds cost, complexity and bloated inventories to the
supply chains of companies that perform final configuration at their manufacturing
sites. Asian companies that have implemented postponement techniques have
realised inventory savings that average 10 percent to 30 percent. Additional savings
have resulted from higher fill rates and lower product obsolescence.

Process

Figure 4: The path to supply chain transformation.

12

13

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

The Stock Holding Balance

Opportunity 2: Achieve Functional Excellence

Variability

Time

Availability of material
for on-time fulfilment
of demand

Service objective or
stock-out cost

Service

Stock
Levels

Cost

Buy

Raw materials

Manufacturing costs

Work-in-process

Sourcing material costs

Finished goods

Transportation costs
Material handling costs

Sourcing

Economics

Process execution costs

Strategy Considerations for Asia

Supply Chain Network Issues

Local vs. regional factories, warehouses, etc.

Identify lowest-cost sourcing strategy

Revenue vs. profit maximisation

Determine number of manufacturing sites


and lowest-cost conversion strategy

Role/relevance of each country/location


to the overall strategy
Global implications and strategic directives

Determine lowest total cost finishedgoods source locations


Determine stock-holding locations
across the network
Determine new infrastructure requirements
Identify cost-to-serve and service trade-offs
for specific customer segments

Figure 5: Strategising and optimising the network.

There are two types of postponement:


1.

2.

14

Companies operating in Asia have a great opportunity to improve efficiencies


across the core supply chain processes. The effort to achieve functional excellence
in these areas provides the foundation to pursue other improvement opportunities
as well. Following are some examples of the opportunities that exist in each of
these areas.

Intracompany postponement is easier to achieve because it keeps activities


in house: Final product and package configuration simply is moved from manufacturing centres to distribution facilities, thus creating a ready supply of
semiconfigured products that are customised just in time.
Intercompany postponement moves final configuration from a companys manufacturing site(s) to an outside distributor, reseller or retailer. In the personal
computer industry, for example, assemblers ship semiconfigured products to
distributors, which add components such as disk drives and memory only when
actual orders are received. This approach is more of a challenge and requires
higher levels of governance and trust, but it also can create savings in several
supply chain areas.

Companies with well-managed, relationship-focused procurement practices outperform other companies in financial terms (total shareholder return, return on equity,
return on assets, cash flow, return on investment) and in productivity terms (sales
per employee, income per employee, real growth in sales).
However, it is clear that Asian companies lag their US and European counterparts
in consolidating and leveraging purchasing activities across the enterprise. They also
have been slower to adopt strategic sourcing practicesmaking suppliers true business
partners and thus bringing greater transparency to the overall procurement process.
In the short term, those companies may be foregoing the benefits of solutions that
accompany strategic sourcing techniques, such as online auctions. Further down the
road, they probably will be unable to match the lower cost-of-goods-sold profiles
attained by industry leaders that have implemented highly efficient eProcurement
solutions. In fact, the Aberdeen Group calculated that eSourcing applications have
the potential to save US businesses more than $690 billion per year.
4

Excellence in sourcing offers multinationals, especially conglomerates, significant


opportunities for immediate supply chain improvements and value creationoften
by leveraging and transforming cross-entity procurement activities and capabilities.
Strategic sourcing and procurement transformation will continue to grow across
Asia. Here, in particular, the opportunities are too attractive to ignore. To remain
competitive, companies must find ways to overcome the challenges of unwritten
rules, trust and transparency.

Make

Companies operating
in Asia have a great
opportunity to improve
efficiencies across
the core supply
chain processes.

Manufacturing dominates the industry landscape in Asia, and inexpensive labour is


abundant throughout the region. Accordingly, there are many pockets of real manufacturing excellence, particularly among the multinationals, which routinely apply
advanced principles such as lean manufacturing and six sigma. But there also are
numerous, large, local companies and State-Owned Enterprises whose processes are
basic and for which improvement opportunities remain abundant.

Aberdeen Group, Strategic e-Sourcing Could Save Business $1.7 Trillion on a Global Basis, press release
(April 3, 2001).

15

Supply Chain Perspectives

For many Asian


companies, the greatest
cost-reduction
opportunities are those
associated with logistics
and distribution.

Supply Chains in Asia: Challenges and Opportunities

Many of those opportunities involve make-versus-buy decisions and plant rationalisation.


As noted earlier, for example, outsourcing is significantly underrepresented in Asia,
despite its potential to help companies (particularly small and medium enterprises)
realise production and cost efficiencies. This opportunity has not escaped the attention of contract manufacturers such as Flextronics, which plans to build a major
manufacturing and logistics hub in Malaysia.

Move
For many Asian companies, the greatest cost-reduction opportunities are those
associated with logistics and distribution. Consider Korea, where the cost of transportation, storage, unloading and packaging accounts for 16.3 percent of the
country's GDP, compared to 9.9 percent of the United States and 9.6 percent of
Japans. In most parts of Asia, in fact, distribution centre productivity, layout and
operations are rudimentary at best.
In many cases, the key to better logistical performance is technology. For instance,
Mayne Logistics recently implemented EXE Technologies supply chain execution
software at Unilever's facilities in Malaysia. On-time performance rates subsequently
rose from 75 percent to 99.8 percent. Route planning and transport-management
systems also are underrepresented in Asia, which could mean large opportunities to
reduce net landed costs. Data mapping technologies for transport management
systems are in their infancy, but documented increases in transport efficiency should
drive their use higher in the near future. Given the amount of product movement
that occurs in Asia, transportation optimisation should be a top priority.
5

Sell
In the US and Europe, tailoring supply chain responses to customer requirements has
yielded revenue increases from 3 percent to 5 percent for companies. But in Asia, a
"one size fits all" approach often prevails. As a result, broad opportunities exist for
companies to increase revenues and market share by understanding: a) the costs
associated with serving each customer; b) what specific services customers require;
and c) services for which customers are prepared to pay. Market leaders then will use
those insights to align their supply chain culture, capabilities, infrastructure and
people with the specific responses required by their best customers. The Asian companies that have followed a programme to segment and tailor their supply chain
responses to specific customer requirementsdeveloping a more holistic cost-toserve perspective that integrates sales and the supply chainhave seen significant
cost and revenue benefits.

Other sell-related opportunities also are available as the result of Asian companies
limited success at:
Understanding the relationship between line fill and revenue. (Increases in line
fill generally lead to an increase in revenue.)
Acknowledging a connection between inadequate service and increased costs.
Measuring customer satisfaction from an external perspective. (Many companies
simply do not query customers on a regular basis, preferring instead to rely on
internal measures of service performance.)
Measuring what is shipped as demand, rather than true demand (what
customers first ask for prior to negotiation, back orders, or other manual or
automated manipulation of the customers initial requests).

Opportunity 3: Integrate Demand and Supply


As leaders such as Wal-Mart and Dell Computer have demonstrated, successful
demand and supply management requires thorough integration across the enterprise.
Unfortunately, many companies in Asia are silo-based, and thus do not have process
owners to orchestrate an integrated demand/supply planning process. Moreover, the
few that have implemented some form of integrated planning often retreat to silo
formation because they lack the measures to drive full integration, or because they
have failed to organise around the integrated processes. Lastly, forecast accuracy and
inventory management in Asia generally are poor, which further complicates matters.
To lay the groundwork for integrated demand and supply planning, companies
should start with a fundamental, effective sales and operations planning process.
That means having marketing, sales, logistics, manufacturing and procurement
personnel talking with one another, planning together and identifying every
opportunity to replace inventory with information. With this foundation in place,
demand/supply planning software from companies such as i2 Technologies,
Manugistics, SAP and Oracle can help organisations make complex operating decisions,
ensure process consistency, adhere to key measures, and increase data integrity and
transparency. The extensive use of demand and supply planning software in the US
and Europe has not occurred to the same extent in Asia; but, as companies reengineer
their processes and improve their technology and data integrity, wider use of these
tools is expected.

Robert J. Bowman, Despite Obstacles, Shippers Score Success in Asia, Global Logistics & Supply Chain Strategies
(July 1999).

16

17

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Opportunity 4: Integrate Technology and Systems Architecture


Leading organisations recognise the importance of developing an end-to-end supply
chain view by linking planning/scheduling technologies with their ERP systems, as
well as the systems of their customers and suppliers (Figure 6). However, in Asia
and particularly in developing countriesmany companies have yet to implement
ERP systems. The penalty they pay for this is greater than just the cost and difficulty
of managing disparate and often archaic systems. It is the inability to integrate and
optimise the newer technologiesincluding those in front-office, market-facing
areas such as supplier relationship management and customer relationship management.
Without integrated systems, organisations lose the opportunity to make better decisions, reduce overall operating costs, and further leverage resources and information.

Fulfilment and
Transportation

Procurement

Implement improvements

across business units/markets:


- Reduce costs through
aggregation, auctioning

and strategic sourcing


- Improve supplier management and performance
- Achieve greater compliance
to supplier contracts
- Leverage eProcurement
solutions

Rationalise distribution
centres across business
units/markets

Optimise supply/demand
balancing across business
units/markets

Lower transportation
contract rates and improve
performance across Asian
markets through load
and creation tendering,
carrier selection, and
optimisation services

Plan and schedule at


regional levels

Optimise finished goods


sourcing strategy across
business units/markets

Reduce intercountry and


in-country transport times
and costs

Customer Demand Forecast


In-Transits/Deliveries
Goods Receipts

Achieve operational
excellence in fulfilment
and transportation across
business units/markets
(e.g., track and trace,
payment services)

Customers

Supply/Demand
Planning and
Replenishment

Improve forecast accuracy


and line fill across business
units/markets
Reduce raw material,
finished goods and
packaging inventory across
business units/markets
Deliver sophisticated
planning capabilities to
emerging economies
Reduce costs and improve
service through
collaborative planning
with suppliers
and customers

Network and Tax


Optimisation
Rationalise or relocate
plants and supply chain
assets across business
units/markets
Reduce network costs
through use of
postponement strategies
Reduce invested capital
across business
units/markets
Optimise cost-to-serve
trade-offs for particular
customer segments
Optimise tax and duty
regimes across Asian
markets through effective
use of corporate
organisation and location

People and
Capability
Build capability rapidly
across business
units/markets
Optimise training costs
and increase training
effectiveness across
business units/markets
Facilitate transfer of best
practices across business
units/markets

Integrated Order
Management

Figure 7: Opportunities for a cross-business unit or regional supply chain organisation.

Integration Tools

ERP

Warehouse
Management System

Legacy Systems

Advanced Planning and Scheduling


Supply Chain Planning
Forecasting

Order Processing
Demand Planning

Constraint-Based
Master Planning

Demand Planning

Demand Forecasting

Supply Chain Planning

Transport Optimisation
NEON Systems
Peregrine
Systems
SeeBeyond
webMethods

Transportation
Management/Optimisation

Shipment Requests,
Track and Trace

Third- and Fourth-Party Logistics

Figure 6: Illustrative example of integrated IT.

18

Forecast/Material Requirements
Procurement Processes

Customer Collaboration

Demand Collaboration
Product Collaboration

Enterprise application integration (EAI) technologies, or middleware, are another


effective way to integrate applications and capabilities, and thus improve interenterprise
data transfer and data transparency. However, before ERP or EAI can be effective,
companies must separate their operational and technical challenges. If basic operational measuresforecast accuracy, make adherence, line fill, inventory accuracy,
inventory turns, operating cost and delivery accuracyare off-base, it is unlikely that
any software package will provide much relief. Companies must recognise that, in
general, 30 percent of the benefits to be derived from a software solution will come
from the software and technology itself, and the remaining 70 percent will come
from process reengineering. Without appropriate process improvements, a company
may merely be speeding up or automating its current antiquated processes.

Supplier Collaboration

Opportunity 5: Organise and Measure for Supply Chain Efficiency


Supplier

Companies striving for supply chain competitiveness must first organise for efficiency
(Figure 7). That means optimising the whole, not the constituent parts of their supply
chains. Asian organisations, however, historically have done the opposite: They have
organised their supply chains around local markets, functions and business units. As
a result, there is a deeply ingrained legacy of duplicated and inefficient supply chain
infrastructures, technologies, operations, processes and people.
19

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

Following are four ways that Asia business leaders can rationalise their supply chain
operations to increase efficiency:

Regional Capabilities

1. Regionalise Supply Chain Functions and Processes


Several high tech and consumer goods companies operating in Asia have adopted
regional manufacturing, distribution and marketing strategies. However, the areas
exceptional diversity makes it difficult to prescribe a single pan-Asian operating
model or rationalisation solution. Figure 8 summarises Accenture research into what
various companies have done to organise for efficiency.
Perhaps the most important effort companies can make to balance centralisation
and regionalisation is to consolidate the supply side to reduce variable costs and
improve economies of scale. Several companies have successfully centralised demand
and capacity planning, while still executing locally. Similarly, various intracountry
logistics efforts now are planned and executed locally, but are centrally planned
when material movement is between countries.

Emerging
Markets/Companies

Developing
Markets/Companies

Developed
Markets/Companies

Developed
Localise
the supply chain
Key Characteristics
for Supply Chain
Management

Regionalise
the supply chain

Optimise local operations,


integrate processes where
possible

Integrate, collaborate,
think centrally or
regionally, act locally

Rationalise
the supply chain

Rationalise, collaborate
and synchronise

Emerging

Figure 9: Applying sophisticated capabilities to less-developed markets.

Product
Development

Procurement

Typically handled centrally


Direct or strategic
material procurement
Modification or
typically handled globally
customisation performed
regionally or locally to fulfil or regionally
customer preferences
Indirect or nonstrategic
purchases handled locally

Manufacturing

Logistics and
Distribution

Typically handled locally


Typically handled
regionally or locally,
as the market in different
depending on the nature of countries varies
the products and degree
of configuration required

Possible Configuration:
Country centre
localises formula
Regional centres
harmonise for their region

Possible Configuration:
Possible Configuration:
Possible Configuration:
Handled and planned
Regional or global centres Regional
regionally when
manage direct material
Some activities outsourced
between countries
procurement
(e.g., assembly/packaging)
Indirect and packaging
Handled and planned
materials procured regionally
locally when within
countries, often by the
Demand aggregated
manufacturing entity
regionally

Rationale:
Ensure consistency
and fulfil local
customer requirements

Rationale:
Rationale:
Reduce costs
Achieve cost efficiency
Ensure regional consistency through economies
of scale
Provide scheduling

Provide scheduling
flexibility at factories
flexibility at factories

Rationale:
Limited benefits
in regionalising

Figure 8: Summary of operating models and trends in regionalising supply chain management.

20

Demand
Management
Typically performed regionally
Product planning
typically performed locally
based on regional/central
demand plan

Possible Configuration:
Regional sales and
operations planning
Regional scheduling
of production at
local factories

Rationale:
Optimise regional production
Maintain balanced
supply chain

These important efforts currently are being pursued by multidivisional multinationals,


conglomerates and regional companies, and are showing strong potential not only to
reduce costs and increase efficiencies, but also to:
Standardise processes.
Adhere to best practices and create "centres of excellence."
Develop tighter controls.
Improve access to higher-quality management.
Leverage scarce skills.
Build critical mass.
Clarify management's focus on areas of value creation.
Provide sophisticated capabilities to less-developed markets that, if viewed in
isolation as independent markets, would be constrained to the supply chain
capabilities that characterised their stage of development (Figure 9).

2. Rationalise across Business Units


Balancing regionalisation and centralisation increases the transparency of a companys
supply chain and planning requirements, while helping it to develop a more
consolidated view of customer requirements across regions and divisions. This, in
turn, can help the organisation recognise and realise opportunities to rationalise
assets, infrastructure, people and operations across business units. As the Asian
market grows and matures, the likely result will be more supply chain shared services
centres and greater supply chain visibility in executive boardrooms.

The authors thank Jeremy Rowe and his Accenture team for the research that informed this chart.

21

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

performance are altered during a highly iterative transaction process. As orders


are changed or cancelled during the fulfilment process, new documents generally
are produced, while the original record is discarded. This prevents future analysis
of the root causes for cancellations or shifts in demand.

3. Elevate People and Structures


Regardless of geography, sustainable increases in efficiency can only be achieved if
companies: a) successfully develop, attract and retain key talent; and b) migrate from
a functional or subprocess orientation to one where direct, high-level accountability
is established for each supply chain process. Boundary issues, resource conflicts and
divergent opinions about the need for change naturally increase when higher levels
of regionalism and centralisation are indicated. Without talented people and a single,
cross-boundary process owner, most initiatives will not increase the effectiveness of
the company as a whole. New cost-effective options for rapidly building supply chain
talent and capability across a dispersed supply chain organisation are emerging to
provide immediate infrastructure and virtual supply chain training, which can be
tailored to individual and corporate needs. These options also provide companies
with the ability to rapidly transfer best practices across divisions and markets.

Archiving practices that are inconsistent. Historical records often are not
kept or are lost.

Inconsistent calculation and reporting of measures. From month to month,


reported data may be drawn from varying sources and reflect different time periods.

Targets that are not grounded in best practices, and do not represent the
consensus of all participants. Rules of thumb for calculating key performance
measures such as days of inventory coverage and forecast accuracy are applied
instead of robust measures that have quantitative validity and reliability.

Lack of a performance-management culture. People often do not know


how measures in their companies are derived, nor what their purpose may be.
There also may be a lack of designated process owners responsible for overall
performance measure management from data capture through to reporting.

4. Focus on Performance Measures and Benchmarks


We know of no organisation that has achieved high levels of supply chain efficiency
and effectiveness without an effective performance measurement and benchmarking
capability. In fact, Michigan State University's multiyear study of supply chain
excellence cited performance metrics and benchmarking as one of the top four
drivers of supply chain excellence. However, Accentures client experience confirms
that few Asian companies have pursued this capability with any level of vigour. In
fact, it is not uncommon to find:
8

A lack of standard measurement definitions across countries, business units,


plants or distribution centres. Where defined metrics do exist, there usually is
not enough consistent data to develop reliable comparisons.

Few integrated, supply-chain-wide measures to improve cross-functional


performance. The imperatives of saving face and minding ones own business
are so strong and prevalent that measures sometimes are manipulated to
produce favourable results.

Key performance indicator (KPI) source data that are not captured and/or
maintained as history. For example, true demand often is not ascertained,
since only the negotiated demand is recorded. Moreover, true order histories
are lost, because source documents and records that are used to calculate

The best firms in Asia recognise that performance measures


provide the link between strategy and operational reality,
which is why most use monthly, weekly and daily scorecards
to hone in on the right activities and help set common
goals for supply chain performance.

Accentures Supply Chain Academy solution tailors virtual supply chain training on almost any supply chain
management subject and offers a cost-effective option for Asian companies.

The Global Research Team, Michigan State University, World Class Logistics: The Challenge of Managing
Continuous Change, Council of Logistics Management (1995).

22

23

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

The best firms in Asia recognise that performance measures provide the link between
business strategy and operational execution, which is why most use monthly, weekly
and daily scorecards to hone in on the right activities and help set common goals for
supply chain performance. Those leaders also apply rigorous measures based on highquality data rather than rules of thumb. Most importantly, they clearly define what is
needed to achieve total supply chain efficiency and competitiveness.
For Asian companies, effective performance measurement and benchmarking could
be the best opportunity to translate supply chain strategy and improvement initiatives into real business results. But without those capabilities, they cannot see how
they are doing today, nor can they know how they are progressing or when they
actually have achieved success. In effect, they are driving blind.

Opportunity 6: Source Capabilities Intelligently


Many opportunities avail themselves solely to companies that are smart about how
they acquire key supply chain capabilities. As shown in Figure 10, there are four
different ways that those capabilities can be obtained; each has a clear-cut set of
advantages and shortcomings.

Dell Computer is an excellent example of a company that successfully turned the


acquisition of supply chain capabilities into an art form. When given the task of
setting up two assembly plants in Malaysia and China, Dell obtained various supply
chain capabilities in several ways.
First, Dell purchased off-the-shelf software applications (buy). To overcome gaps
in the capabilities of its people, the company recruited a key supply chain manager
(buy) and used consultants to help with high-impact projects (borrow), thereby
accelerating the implementation of short-term projects. At the same time, the company
invested heavily in training supply chain personnel to ensure strong management
capabilities going forward (build). To bridge gaps in the technology capabilities of
local suppliers, Dell provided them with access to demand information via the Web
(ally). Lastly, the company recognised the basic limitations of its logistics infrastructure, so it outsourced some of its transportation and distribution operations
to third-party providers (borrow).

Access to the best supply


chain capabilities is more
important than ownership
of those capabilities.

The result: Dell successfully has implemented its direct sales model across Asia,
and Dell factories in China and Malaysia are capable of delivering made-to-order
personal computers to business customers within tight time frames. Currently,
Dell's plant utilisation levels are at 90 percent, while production planning cycle
time is down to two hours.

Outsourcing in Asia
High

Buy
Development
Support

Build

Moderate

Ability to Differentiate

Ally/Acquire

Dell obviously understands that access to the best supply chain capabilities is more
important than ownership of those capabilities. In fact, outsourcing has become a
mainstream way for companies in the US and Europe to obtain supply chain capabilities that help them:
Bring new capabilities online quickly and productively.
Minimise capital investment.
Convert fixed costs into variable costs.
Respond quickly and economically to changes or surges in demand.

Preference for
Outsourcing

Outsource

Low
Low

Moderate

In-House Ability

High

Agilent, Colgate-Palmolive, Compaq, Danone, Ericsson, Herman Miller,


Hewlett-Packard, Johnson & Johnson, Lucent, Motorola, Nokia, Procter & Gamble
and Sun Microsystems also have outsourced some of their Asian supply chain
management operations. The most commonly outsourced activity is fulfilment:
tapping the transportation, warehousing and inventory-management expertise
of local and foreign logistics services providers. Microsoft, for example, outsourced
its logistics operations in Asia to BAX, and subsequently doubled its inventory
turns, increased order-fill rates, raised the percentage of on-time shipments, and
reduced obsolescence levels and the amount of returned scrap.
9

Robert J. Bowman, For Asian Supply Chains, Good News and Bad, Supply Chain Brain (July 2000).

Figure 10: Alternative approaches to acquiring supply chain capabilities.


24

25

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

A noteworthy outsourcing leader in southern Asia is the pharmaceuticals industry,


many of whose members routinely outsource traditional distribution functions and
(in many countries) the formulation and packaging of product. Distributors such as
Zuellig Pharma (with operations in 14 countries), Diethelm Keller Pharma Asia
(operations in 13 countries) and JDH Healthcare, a division of Li & Fung (operations
in seven countries), have invested heavily in technology, supply chain management
systems and eCommerce platforms. Each offers a wide range of supply chain services,
including manufacturing, warehousing, transportation and distribution. All in all, the
outsourcing push is having a dramatic effect throughout Asia, with more and more
regional distributors using scale and critical mass to develop highly competitive operations. Nevertheless, large pockets of opportunity remain in places like China and
Korea, where the pharmaceutical industry is highly competitive and fragmented due
to regulatory controls on distribution channels.
Looking ahead, several factors are likely to drive even more Asian business
operations toward outsourcing. They include:
Intensifying competition.
Tighter focus on profitability.
Increasing customer demands.
Enhanced abilities to disseminate, acquire and utilise information via ERP
systems and the Internet, thereby communicating with and managing thirdparty providers more effectively.
IDC predicts that the outsourcing market for logistics will rise from US$8.6 billion in
2002 to $29.2 billion in 2005, with the most significant opportunities appearing in
greater China, Singapore and Malaysia. In addition to the worldwide benefits noted
above, these dramatic increases will be driven by Asia-resident companies' need to
surmount linguistic, cultural, regulatory, political and economic barriers more readily,
and to forge new inroads into other Asian markets. In the short term, many conglomerates will rely on internal departments for logistics support, particularly in Korea and
China. But over timeas external logistics providers become more adept at managing
supply chainsconglomerates will outsource logistics support. Despite being suspicious
of external parties, there are major opportunities for internal logistics departments of
conglomerates to break free of their parents, and for large conglomerates to involve
themselves in comprehensive outsourcing deals.
10

10

26

IDC predicts that the outsourcing market for logistics will


rise from US$8.6 billion in 2002 to $29.2 billion in 2005,
with the most significant opportunities appearing in
greater China, Singapore and Malaysia.

Using Transformational Outsourcing to Create New Efficiencies and Revenue Streams


Following the lead of successful supply chain transformational outsourcing ventures
in the US and Europe, a number of Asia's key business players and some large
conglomerates are considering the development of solutions that provide: a) quantum
leaps in the supply chain performance of their individual business units or markets;
and b) a capability that can be marketed to other players in the industry. Selling
supply chain services to other players clearly helps the originator build scale and
synergies, which it may be able to then leverage as a service provided to the
numerous small and medium enterprises that might be unable to achieve scale in more
conventional ways. In fact, there is every reason to believe that in some industries these
new supply chain service providers eventually may sell services to their competitors.
Currently, the greatest potential for these services appears to be in the energy and
resources industries, as well as utilities, high tech, telecommunications, automotive
spare parts, beverages and pharmaceuticals. However, there are many questions about
the structure, ownership and even the business feasibility of these endeavours in
Asia. For one thing, a successful supply chain service provider requires an unusually
broad array of capabilities that generally do not exist in one organisation and hence
will need to be obtained from outside the organisation, including: technology integrators,
logistic services providers, programme managers, supply chain experts with deep
functional knowledge, and people with deep industry knowledge (Figure 11). However,
Asias unique and formidable barriers, combined with the need for low-capability
organisations to transform themselves rapidly, could be a catalyst for outsourcing
models that transform rather than tinker with a multinational corporations
supply chain.

Douglas A. Jaffe, Caron Harrison and Wilvin Chee, Taking Logistics into the 21st Century: A Study of Logistics in
Asia-Pacific (Excluding Japan), IDC (July 2001) 27-28.

27

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

There is a strong rationale for creating an independent supply chain service organisation that consolidates management of the supply chain across business units or
markets. For those companies that independently manage supply chain activities
within each business unit or market, such a transformation can result in numerous
benefits, as outlined in Figure 11.

...to consolidated management of the supply


chain across markets/business units by a new
supply chain service organisation

From independent market/business unit management of


the supply chain with points of resistance...
Market/Business Unit 1

Buy

Supply/Demand Planning
Distribution
Make
Logistics

Market/Business Unit 1

Supply/Demand Planning

Customer
Management

Buying

Supply/Demand Planning
Distribution
Make
Logistics

Customer
Management

Buying

Make

Distribution
Logistics

Customer
Management

Culture, Entrenched Practices

Market/Business Unit 3
Buy

Industry Collaboration. Thus far, industry-level collaboration across Asia has


been approached only informally. Moreover, there are few organisations working
toward standardised rules, protocols and/or accepted practices. There are two
exceptions, however: Singapore and Hong Kong. In the latter, several initiatives
are under way to increase collaboration levels, including the formation of the
Hong Kong Logistics Development Council, comprising key industry and government leaders. There also are some indications that the Association of Southeast
Asian Nations (ASEAN) may spur collaboration efforts in the near future. A study
has been launched to examine this issue. Similar experiences in the US, Europe
and Australia show that industry-level collaboration around data standards,
protocols, pallet and container standards, and the like can produce significant
savings and efficiencies.
Supply Chain Collaboration for Dispersed Production. Dispersed production
refers to the process of developing goods and materials at a sequence of facilities.
According to a Harvard Business Review article, for example, yarn purchased from
a Korean producer is shipped to Taiwan, where it is woven and dyed, and zippers
produced in Japan are purchased through a Chinese manufacturer. Then,
because of quotas and labour conditions, woven yarn and zippers are shipped
to Thailand, where garments are made in one of five factories.

Joan Magretta, Fast, Global and Entrepreneurial: Supply Chain Management, Hong Kong StyleAn Interview with Victor Fung,
Harvard Business Review (September-October 1998), 105-106.

Customer
Management

Distribution
Logistics

Buy

Customer
Management

Buying

Make

Distribution
Logistics

Customer
Management

Customer
Management

Buying

Make

Distribution
Logistics

Customer
Management

Market/Business Unit 4
Supply/Demand Planning
Distribution
Make
Logistics

Rationale/Benefits
Accelerating savings and release of cash
Overcoming resistance to change in regions, countries and
functions overcomes strong organisational inertia
Provide a reason and rationale to change the operating
model by introducing a new supply chain service organisation
Achieve rapid development of people and skills, instant
access to capabilities and infrastructure
Achieve fact-based, rational decision making by including
an outside party that isn't influenced by existing models
Direct centralised savings to areas that can achieve the
highest economic value-add

Supply Chain Service Organisation

Sourcing and procurement


Fulfilment and transportation
Supply/demand planning; inventory, network and tax optimisation
Supply chain technology and execution management
Supply chain people capability-building and knowledge management

Figure 11: Transforming the supply chain across markets and/or business units.

Not surprisingly, this movement of raw materials, semifinished goods and finished
products poses a significant supply chain challenge, particularly to smaller
businesses. However, many Asian players are working hard to fill the void. A premier
example is Li & Fung, Hong Kong's largest export trading company, which works
with more than 7,500 suppliers across 37 countries. Working primarily over the
Internet, this innovative firm coordinates the pan-supply-chain efforts of
numerous suppliers, manufacturers, wholesalers, retailers and customers. It
collaborates with virtually all of them on forecasts, capacity management
and resource availability, thus enhancing each party's flexibility, responsiveness
and agility.
12

11

11

Supply/Demand Planning
Distribution
Make
Logistics

Systems and Transparency

1. Extend the Traditional Supply Chain


Extending the traditional supply chain refers to collaboration with suppliers and
customersa strategy with three principal permutations:

28

People and Capabilities

Buy

Customer
Management

Customers

Across Asia, major


opportunities exist to
build collaborative
supply chain capabilities
that span multiple
business entities.

Across Asia, major opportunities exist to build collaborative supply chain capabilities
that span multiple business entities. If issues relating to trust, data capacity and
win-lose thinking can be overcome, then companies' regional and national supply
chains could become significantly more competitive and cost-efficient. Here are two
basic extension opportunities.

Supply/Demand Planning
Distribution
Make
Logistics

Suppliers

Opportunity 7: Extend the Supply Chain

Buy

Customers

Suppliers

Market/Business Unit 2

12

A Surprising World Leader in Supply-Chain Management, The Economist (June 6, 2001).

29

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

As a spokesperson commented on Li & Fungs model of borderless manufacturing:


Were not asking which country can do the best job overall. Instead, were
pulling apart the value chain and optimising each step. Not only do the benefits
outweigh the costs of logistics and transportation, but the higher value added
also lets us charge more for our services.
13

In addition to overall cost savings, value is realised in the reduction of delivery


cycle-times from months to weeks. Plus, Li & Fung uses informationnot
assetsto create competitive supply chains. Its adroit use of eCommerce helps
to counteract the threat of major retailers going directly to suppliers, which
might cut Li & Fung out of the loop.

In any context, however, collaboration represents a new way of thinking for


many Asian companies. It also involves several prerequisites. Companies must
reengineer and integrate their internal supply chain planning processes and
technologies prior to involving themselves in collaborative activity. They also
must be able to ensure that the data produced by their respective supply chain
technologies is valid, consistent and transparent. Lastlybecause real collaboration means sharing information on demandcompanies must develop a
trust-based "win-win" perspective. When these requirements have been met,
it becomes possible for trading partners to understand each other's basic operating
mechanisms and thus develop unified processes that drive down costs and
increase the effectiveness of both parties.
2. Extend beyond the Traditional Supply Chain
Extending beyond the traditional supply chain involves creating new revenue
channels and cost-reduction opportunities by interacting in new or less-conventional
ways. Here are four examples:

13

Trading Hubs. The establishment of logistics and distribution trading hubs is a


hot topic in Asia. China, Hong Kong, Malaysia, Singapore, South Korea and
Taiwan are competing to develop supply chain hubs that will control and shape
the movement of goods in and around Asia. In the case of Hong Kong and
Singapore, the challenge is to maintain their edge by improving the efficiency
and competitiveness of existing hubs. Many observers believe that the economic
well-being of these regions depends on the success of trading hubs.
Magretta 106.

Alliances for Logistics Providers. Seeking to leverage new market opportunities


and the growing popularity of hubs are the logistics arms of several nationally
backed conglomerates. These forward-looking organisations desire to use their
logistics capabilities to develop a network or alliance of national supply chain
services providers. This network likely would resemble the oneworld alliance
and Star Alliance developed by the airline industry, which bring together
a number of competing, national flag-carrying airlines. Just as competing
national airlines collaborate on (and synchronise) the flow of passengers to optimise
capacity utilisation, an alliance of logistics providers could synchronise the
complex flow of goods into, out of and across Asia (Figure 12).

Logistics
Leader

Followers

Profitability and Growth

Supply Chain 1

Alliance Relationships

Logistics
Leader

Followers

Alliance Relationships

Market Dominance

Collaborative Planning and Synchronisation. Collaboration among supply chain


partners (i.e., customers and suppliers) can involve vendor-managed inventory,
collaborative demand planning, manufacturing and design, joint capacity planning
and/or synchronised order fulfilment (which involves the most risk because it
makes parties dependent on each other).

Even further out, the distributed nature of Asian manufacturing, and the
subsequent trade flows that occur among Asian countries, suggest that a major
opportunity may exist to connect several hubs into a network of co-opetition
(cooperation and competition). In the long term, this sort of synchronisation
could help make Asian supply chains a formidable business force.

Market Dominance

30

Making the hub concept work involves developing solutions that move synchronisation beyond supply chain participants to trade chain participants
connecting customers, suppliers, enterprises, bankers, third-party logistics
providers, air and sea ports, freight forwarders, and customs/tax officials. In
places such as Hong Kong, there is no higher supply chain imperative, even
though overcoming hurdles relating to trust, data standardisation, language,
currency, security, bureaucracy, ownership and leadership will be a major challenge.

Market Dominance

Because real collaboration


means sharing demand
information, companies
must develop a trust-based
win-win perspective.

Logistics
Leader

Followers

Profitability and Growth

Profitability and Growth

Supply Chain 2

Supply Chain 3

Figure 12: A vision of the best working with the best across Asia: This model demonstrates how several nationally
backed conglomerates could link their logistics capabilities into a network of supply chain service providers to synchronise
the flow of goods into, out of and across Asia.
Source: Andrew Berger and John Gattorna, Supply Chain Cybermastery: Building High Performance Supply Chains of the Future, Gower (2001), 25.

31

Supply Chain Perspectives

Supply Chains in Asia: Challenges and Opportunities

eMarkets. Most of Asias eMarkets, or electronic markets, are focused on


procurement: SESAMi in Singapore, BayanTrade in the Philippines, Cyberlynx
and CW Optus in Australia, and Pantavanij in Thailand. However, no pan-Asian
eProcurement marketplace yet existsand the market and regulatory diversity
makes development of such an entity unlikely in the near term. However, there
is an opportunity for a hub that connects and synchronises the activities of
multiple eMarkets.
Toward this end, SESAMi recently announced that it has linked six of the most
active eMarket operators in the world to form the Global Interoperability Group
(GIG). A network of horizontal marketplaces within the Global Trading Web
Association, GIG will move eCommerce transactions seamlessly around the
world. The theory is that companies working with any of the participating
eMarkets will be able to use GIG to interact online with trading partners around
the worldwith one consistent business contract and no concerns about
technical compatibility.

There are several


immediate actions
organisations can take
to accelerate along
the path to success.

Horizontal Conglomerates. With superior supply chain capabilities developed


within and/or across verticals, companies doing business in Asia can further
leverage their scale, efficiency and knowledge by improving information flows
among horizontals. The goals are to: a) provide a simpler, more integrated,
one-stop service to customers by synchronising the delivery of services; and
b) make services available to othersparticularly Asia's myriad small-tomedium-size businesses.
In Hong Kong, for example, Hutchison Whampoa Limiteds Global Trade
Exchange is creating new sales channels and opportunities by integrating its
ports business with its other transport-related businesses. Similarly, Hutchison
Port Holdings LINE (Logistics Information Network Enterprise) subsidiary
provides a wide variety of supply chain management services, including online
procurement; inventory management; transportation management and load
optimisation; order visibility and track and trace; sourcing of spare parts for
ports and vessels; and a trading community. Targeting banks, freight forwarders,
buyers and sellers of transportation services, insurance companies, and government agencies, LINE demonstrates the dramatic extent to which traditional
supply chains can be extended.

32

Asia is one of the world's most dynamic and


diverse markets, and certainly will remain so
for quite some time. From a supply chain
standpoint, it also is one of the most challenging
markets; that, too, is unlikely to change
anytime soon.

The Time to Act Is Now


Asia is one of the world's most dynamic and diverse markets, and certainly will
remain so for quite some time. From a supply chain standpoint, it also is one of the
most challenging markets; that, too, is unlikely to change anytime soon. In
fact, different (and generally divergent) cultures, business practices, regulations,
technology capabilities and transportation infrastructures often combine to make
effective Asian supply chain management seem more like a lofty ideal than an
achievable objective.
Certainly, the seven opportunities discussed in this white paper will not completely
alleviate the basic differences or conflicting priorities that characterise the Asian
marketplace. But they do constitute a viable framework for reaching levels of supply
chain efficiency and competitiveness that might otherwise be unattainable. They
have been used successfully by othersboth outside and within the region.

The Path Forward


Diverse companies obviously will position these opportunities in varying ways and
contexts. While some will focus on mastering the basics, others will move more
quickly to develop advanced optimisation and synchronisation capabilities. But in
all cases, there are several immediate actions organisations can take to accelerate
along the path to success:

33

Supply Chain Perspectives

Establish the imperative or pressure for change. Complete a supply chain value
targeting exercise so that the benefits potential and business value are evident
and owned by key stakeholders.

Develop a time-phased business case and road map in which priorities are based
on driving significant value early from the supply chain. Success breeds success.
It is vital that all supply chain initiatives in the road map are integrated with
other organisational initiatives.

A Surprising World Leader in Supply-Chain Management, The Economist


(June 6, 2001).
Asia Industry: Redefining the Pharmaceutical Supply Chain, Economist Intelligence
Unit Regional Economic News (October 15, 2001).

Articulate a supply chain vision that supports the companys operating model
and is compelling for all stakeholders.

Bowman, Robert J., Despite Obstacles, Shippers Score Success in Asia, Global
Logistics & Supply Chain Strategies (July 1999).

Appoint an executive sponsor and process owner who will champion the change.

Create the capacity to change. That is, clearly define responsibilities, train the
appropriate people and provide worthwhile incentives.

Jaffe, Douglas A., Caron Harrison and Wilvin Chee, Taking Logistics into the 21st
Century: A Study of Logistics in Asia-Pacific (Excluding Japan), IDC (July 2001),
27-28.

Establish an end state through performance measures that are clearly tied to
strategic and operational goals. Communicate these measures and goals, and
then rigorously monitor performance.

Continually monitor customer reactions, market conditions and outcomesand


adjust as necessary.
Celebrate success and then continue to innovate and drive value.

Lastly, the time to act is now. For those companies that do not begin to capitalise on
these opportunities in Asia, be assured that the competition will do so.

This white paper is adapted from a chapter in the forthcoming Gower Handbook of
Supply Chain Management, Fifth Edition, edited by John L. Gattorna. The book is to
be published by Gower Publishing Ltd., UK, in early 2003.

34

Bibliography

Kim, M., LG Electronics' Global Supply Chain Management System Goes Live,
Business Wire (September 5, 2001).
Lim, June, Malaysia Continues to Improve Logistics Infrastructure, MHD Supply
Chain Solutions (November 2001), 14.
Magretta, Joan, Fast, Global and Entrepreneurial: Supply Chain Management, Hong
Kong StyleAn Interview with Victor Fung, Harvard Business Review (SeptemberOctober 1998), 105-106.
Manion, David, Asia Pacific Supply Chain Survey, CommerceNet (November 19, 1999).

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