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
Robert J. Easton is a
partner in Accenture's
Supply Chain Manage-
ment 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 integra-
tion and change management, and publishes
frequently on these topics. Robert earned a
master’s 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
bachelor’s degree in physics from Tongji
University, and a master’s 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.
2 3
Supply Chains in Asia: Challenges and Opportunities
Supply Chains in Asia:
Challenges and Opportunities
Supply chain excellence has become a key driver of value Asia's supply chain challenges fall into five principal areas:
1. Market and Regulatory Diversity
and competitiveness in most industries and geographies.
2. Supply Chain Network Complexity
Yet in Asia, the supply chains of multinational corporations— 3. Market Penetration
as well as those of local private and nationally owned 4. Organisational Models
companies—tend to be more fragmented and less competitive 5. Cultural Mind-Set
than their counterparts in the United States and Europe.
1. Market and Regulatory Diversity
By some estimates, they are three to five years behind In Asia, diversity is the norm rather than the exception. For example, there is a
the West. growing gap among developed economies such as Singapore, Hong Kong, Japan
and South Korea; developing economies such as China, Indonesia, Malaysia, the
Companies doing business or seeking to operate in Asia must acknowledge this Philippines, Thailand and Taiwan; and emerging economies such as Cambodia,
performance gap. They also must work to understand the special nuances and chal- India and Vietnam (Figure 1). These disparities make the movement of goods
lenges that gave rise to the region's subpar supply chain performance. For example, within and across borders difficult at best. To meet the challenge, organisations
dauntingly complex market and regulatory environments are common in Asia, as
must address four primary areas of diversity:
are underdeveloped network infrastructures, technological inconsistencies, adversarial • Infrastructure
cultural agendas and convoluted distribution networks. Identifying those barriers and • Capabilities
understanding their impact is the first essential step toward building a supply chain • eCommerce
capability with business outcomes equal to those achieved elsewhere in the world. • Organisation
This paper examines in detail the supply chain challenges facing companies that Diversity of Infrastructure
operate in Asia. It then explores seven opportunity areas that have the potential to
National, regional and municipal diversities are the product of many factors. The The potential and the
dramatically improve supply chain performance and competitiveness. Pursuing these first of these is infrastructure, the quality, efficiency and capacity of which varies
opportunity areas should be a top priority for CEOs and CFOs. In Asia, as with other greatly from country to country. For instance, Japan, South Korea, Hong Kong and rewards associated
parts of the world, supply chain excellence can provide a competitive weapon to Singapore have highly efficient ports, airports, road connections, rail services and
deliver market advantage and achieve quantum leaps in cost and revenue performance. with infrastructure
customs operations, while the transportation infrastructures of Indonesia, the
Philippines and Thailand are largely inadequate. Recognising the problem, some coun- improvements are clear,
tries are investing heavily to enhance their rail, port and air infrastructures. In the
The Critical Supply Chain Challenges in Asia near future, for example, Malaysia will spend RM21.2 billion (US$5.6 billion) to
particularly since the
For a company to be competitive, its supply chain must be cost-efficient, responsive,
upgrade its transport infrastructure. 1
economies of many
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 China stands out as the country most affected by a subpar road, rail, air, port and countries rely on
of all these characteristics is difficult anywhere. But in Asia—a region of enormously technology infrastructure. In 1999, its aggregate road network was 1.526 million intra-Asian trade.
diverse languages, cultures, currencies, regulations, taxes, infrastructures, business kilometres, less than one-fourth that of the United States. China's infrastructure is
practices, organisational forms and economic-development levels—attempting to ranked last of seven of the world's most highly industrialised nations. As a result,
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, 1
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

Differences in:
Economic development and political stability
Customs duties and taxes (some free trade zones)
Language, complexity of documents, country-
specific branding and packaging
Currency and stability
Diversity of Capabilities
Taxation and regulatory systems Superior supply chain capabilities exist in only a few of Asia’s more-developed
Logistics and communication infrastructure countries, most notably Singapore and Hong Kong. Elsewhere, peak capabilities are
Banking practices
Sophistication of consumers, customers largely the province of multinational corporations, conglomerates and a small
and vendors 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.

Uneven market penetration • People:

Complex sourcing,
manufacturing, logistics
and distribution networks
Conglomerate
organisational models
Unwritten business
rules and entrenched
business practices
Market pressure and
changing business imperatives
The shortage of experienced supply chain professionals is a global issue that
simply is more acute in Asia. In fact, the region’s 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:
For the most part,
Poor infrastructure and distribution Mix of traditional, modern and Modern distribution channels In North America and Europe, implementation of materials resource planning
emerging distribution channels
Limited data, low levels of automation
Fragmented industries (e.g., super/hypermarkets)
Intense competition
Demanding consumers
systems began in the 1960s. By the mid to late 1990s, many companies across capability shortcomings
High degree of government More demanding customers,
Availability of sophisticated these regions had completed enterprise resource planning (ERP) and business
involvement
Resistance to third parties, low
increasing competition, consolidation
and rationalisation of industries
capabilities and technology
reengineering initiatives, and were poised to build "intelligent supply chains"
are the result of
Difficult to access sophisticated Easier to attract quality labour
third-party capability
Very low Internet uptake
supply chain capabilities
More advanced technology but with
Greater propensity to outsource
High Internet uptake
using focused applications for demand management, procurement, interenter- a shortage of skilled
Focus on fire-fighting varying levels of integration Processes and infrastructure that prise collaboration and customer relationship management.
Low to medium Internet uptake support collaboration people, a dearth of
Movement from reactive to
collaborative In Asia, however, local, regional and global players were far less inclined enabling technologies
to embrace leading-edge technologies, primarily due to skill limitations, infra-
Figure 1: Factors influencing supply chain competitiveness in Asia.
structure shortcomings and a general reluctance to invest in intangible assets. and/or insufficient
In fact, many Asian companies have not reengineered their logistical operations
access to third-party
and are only starting to implement ERP solutions. Even some multinationals
companies entering the Chinese market often find that standard theories of supply have yet to integrate their ERP platforms regionally. Without a reliable ERP logistics providers.
chain management do not apply, because the country cannot always support the system as a central repository for accurate transactional data and standardised
timely and economical movement of materials. China's government has announced business processes, even basic operational improvements materialise more slowly.
major initiatives to improve the infrastructure; for the time being, though, supply
chain performance improvements are innately handicapped. All in all, the information, costing, procurement and distribution systems of
many Asian companies are antiquated, fragmented and largely unrationalised.
But China is not the only country with an inferior logistics infrastructure. In fact, It is therefore no surprise that in Asia, compared to North America and Europe,
there really is no pan-Asian integrated transport and distribution network to leverage. costs are higher, reliability is lower, transfer pricing and sourcing decisions are
However, the potential and the rewards associated with infrastructure improvements exceptionally difficult to make, and reliable reports on regional performance
are clear, particularly because the economies of many countries rely on intra-Asian trade. are hard to obtain.

4 5
Supply Chain Perspectives Supply Chains in Asia: Challenges and Opportunities

• Third-Party Logistics Providers: is network complexity. This problem is endemic in Asian distribution channels, which
Compared to North American and European companies, Asian companies have generally are multilayered, with three or four intermediaries between manufacturer
been slow to embrace outsourcing. There are only a few established logistics and customer. (In the US and Europe, one or two intermediaries are the norm.)
firms in Asia, a minority of which are internally networked and none of which In China, regulations prohibit foreign companies from owning distribution channels,
are pan-Asian in scale. This dearth of outside resources means that companies and they have little choice but to rely on local concerns to distribute their product.
have little alternative but to develop convoluted webs of relationships with Even if the performance of those local organisations were not suspect, foreign
multiple vendors and/or to rely heavily on subpar, internally developed supply companies still lose their ability to view and understand actual demand levels and
chain capabilities. Fortunately, there appears to be both a consolidation and customer requirements (Figure 2).
expansion of third-party resources in Asia, which in the near future should mean
broader—and more broadly available—capabilities at the country and regional levels. In China and Korea, distribution channels are particularly inefficient, fragmented
and costly. Because neither country has national distributors, the market is owned
Compared to North eCommerce Diversity by a plethora of small- and medium-sized local wholesalers. Consider the pharma-
Internet penetration levels vary greatly across Asia, with highs of more than 25 ceuticals industry in China and Korea, which is served by 16,000 Chinese wholesalers
American and European 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
companies, Asian solely to share information and not as a mechanism for streamlining or managing
companies have been their supply chains. As a result, efficient online payment systems, third-party
“eServices” providers, mechanisms for managing supplier risk, and regulations that
slow to embrace protect against electronic payment fraud often do not exist. Nor is reliable data for
outsourcing. 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.

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
Asia’s linguistic, cultural and regulatory diversity has forced many multinationals
Local and imported materials Often responsible for own Warehousing/distribution Nonexclusive distributors Little visibility of end-
to organise along geographic lines, with each division set up as an independent, Some contract manufacturers operations, including purchasing joint venture or handled Distribute product to stores customers apart from
for specific projects Sometimes based in by local or joint venture Credit with stores key accounts
country-specific profit centre. This approach helped many organisations penetrate multiple provinces third parties
Execute in-store promotions Actual demand and service
local markets, but it also perpetuated supply chain inefficiencies by fragmenting Rudimentary automated Some have willingness and performance masked
systems
product development, buying, manufacturing, logistics and planning efforts. In capability to improve
Delivery lead-times in weeks Little visibility of
effect, opportunities to build cost-saving, sales-enhancing synergies continue to not days subcontracted distribution,
be undermined by the organisational barriers to a regional supply chain strategy. Manual accounting unpredictable service

2. Supply Chain Network Complexity

Asia's market and regulatory diversity has created serious supply chain complexities. Figure 2: A typical supply chain network for a hypothetical consumer products company operating in China.
Tariff and non-tariff barriers, for example, hinder cross-border and regional trade,
and severely complicate make-versus-buy decisions. The prime impediment, however,

6 7
Supply Chain Perspectives
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 wholesalers—all 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’
2
output at an average margin of less than 5 percent. With China’s 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.
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 burden-
some levels of network complexity.
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 infra-
structures 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.
2 3
“Asia Industry: Redefining the Pharmaceutical Supply Chain,“ Economist Intelligence Unit Regional Economic News
(October 15, 2001).
8 9
Supply Chains in Asia: Challenges and Opportunities
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).
Lastly, family-like perspectives, consensus decision-making approaches and highly Indeed, many companies
insular relationships dominate the thinking of Asian conglomerates. In effect, a need
to preserve the current order and not disrupt existing relationships can override
around the globe
conglomerates' pursuit of outsourcing opportunities or the establishment of new confront the pressure
collaborative endeavours.
of achieving supply
5. Cultural Mind-Set chain excellence to
Across Asia, three culturally based barriers stand in the path of meaningful, sustain-
able improvements in supply chain efficiency: increase revenue,
• Trust is the foundation upon which information sharing and collaboration
reduce net operating
are built. However, trust, particularly between supply chain partners, remains costs, reduce working
a significant issue in Asia.
• Win-lose perspectives are common in Asia, particularly when dealing with
capital and increase
suppliers. For example, a survey of 582 Asian companies found that most want capital utilisation.
their suppliers to add Internet capabilities (e.g., to help them obtain product
prices, search and compare product features, and conduct online price negotia-
tions). However, few plan to actually add such capabilities themselves. 3
David Manion, “Asia Pacific Supply Chain Survey,“ CommerceNet (November 19, 1999).
Supply Chain Perspectives Supply Chains in Asia: Challenges and Opportunities

• Respect, in Asia, often refers to the importance of “minding one’s own 6. Source Capabilities Intelligently (Buy, Build, Borrow)
business.” Across the region, people generally are expected to stay within their
own boundaries and avoid challenging the way others do business, especially
7A. Extend the Traditional Supply Chain
when the relationship involves superiors. This mind-set has been inculcated
within companies, among departments, and across external entities and trading
1. Strategise and Optimise the Network
partners. Because it discourages change, coordination and the development
of new approaches, it can undermine a company’s pursuit of greater supply 3. Integrate Demand and Supply, Manage Surges
chain efficiencies. Supplier's Customer's
Supplier Buy Make Move Sell Customer
Supplier Customer

Asia has several Further Exacerbating Asia's Supply Chain Challenges 2. Achieve Functional Excellence
Consumer demand for “better, faster, cheaper” products and services is a worldwide
highly entrenched phenomenon, as well as a major incentive for supply chain improvements. Indeed,
many companies around the globe confront the pressure of achieving supply chain IT Follow-on 4. Integrate Technology and Systems Architecture IT Follow-on
business practices
excellence to increase revenue, reduce net operating costs, reduce working capital Organise Follow-on 5. Organise and Measure for Supply Chain Efficiency Organise Follow-on
that profoundly and increase capital utilisation. But in Asia—a global hub for the manufacture of
consumer products (and particularly electronics)—the pressure to improve in these
affect the evolution areas is even greater. The global economic slowdown left many Asian companies Alternate Alternate Alternate Alternate
Channel Channel Channel Channel
of supply chain holding excess inventories at a time when spending on local goods also dropped.
However, the region’s astonishing diversity and complicated distribution network 7B. Extend beyond the Traditional Supply Chain
optimisation initiatives. 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: Key: Establish Foundations Organise and Measure Extend the Supply Chain
• In-store stock-outs. IT and Systems Source Capability – Outsource Extend beyond the Supply Chain
• Lower levels of visibility over inventory and demand.
• Poor levels of forecast accuracy and demand management.
Figure 3: Supply chain opportunity areas for Asia.
• 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). The Opportunities:
• Lower levels of process and system standardisation and data Seven Approaches for Supply Chain Success in Asia
transparency across enterprises.
• Lower use of reliable performance measures. As the previous overview of challenges makes clear, realising supply chain improve-
ments in this part of the world is not easy. Yet it can be done. As summarised in
Lastly, Asia has several highly entrenched business practices that profoundly affect Figure 3, the remainder of this paper profiles seven ways that companies operating
the evolution of supply chain optimisation initiatives. For example, improving in Asia can significantly improve their supply chain efficiency and competitiveness:
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” Opportunity 1: Strategise and Optimise
incentive payments. Unwritten rules and entrenched practices such as those vary across Opportunity 2: Achieve Functional Excellence
countries, but they are a major source of resistance in virtually any business context. Opportunity 3: Integrate Demand and Supply
Opportunity 4: Integrate Technology and Systems Architecture
Opportunity 5: Organise and Measure for Supply Chain Efficiency
Opportunity 6: Source Capabilities Intelligently
Opportunity 7: Extend the Supply Chain

10 11
Supply Chain Perspectives
Obviously, Asia’s diversity complicates the task of prescribing solutions that success-
fully 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-by-
company and/or supply-chain-by-supply-chain basis.
The numbering of opportunities in Figure 3 is deliberate—an 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 oth-
ers (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 capabilities—consistent processes and procedures, integrated IT, accurate
and reliable data, straightforward performance measures, and thoughtful manage-
ment of people—are 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 Elite Industry Shapers
and Suppliers
Leading Companies
Between
Business
Functions
Typical Companies
Within
Business
Activities
Functions Process
Figure 4: The path to supply chain transformation.
12
Supply Chains in Asia: Challenges and Opportunities
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 optimi-
sation 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. Accenture’s 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 customers—and
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 multilin-
gual 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.
13
Supply Chain Perspectives Supply Chains in Asia: Challenges and Opportunities

The Stock Holding Balance

Opportunity 2: Achieve Functional Excellence
Variability Time Companies operating in Asia have a great opportunity to improve efficiencies
Availability of material Service objective or across the core supply chain processes. The effort to achieve functional excellence
Service
for on-time fulfilment stock-out cost
of demand 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.
Stock
Cost
Levels
Buy
• Raw materials • Manufacturing costs
Companies with well-managed, relationship-focused procurement practices outper-
• Work-in-process • Sourcing material costs
form other companies in financial terms (total shareholder return, return on equity,
• Finished goods • Transportation costs
• Sourcing • Material handling costs
return on assets, cash flow, return on investment) and in productivity terms (sales
Economics • Process execution costs per employee, income per employee, real growth in sales).

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
• Role/relevance of each country/location and lowest-cost conversion strategy
to the overall strategy • Determine lowest total cost finished-
• Global implications and strategic directives goods source locations
• Determine stock-holding locations
across the network
• Determine new infrastructure requirements
• Identify cost-to-serve and service trade-offs
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 practices—making 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
4

for specific customer segments

the potential to save US businesses more than $690 billion per year.

Figure 5: Strategising and optimising the network.

There are two types of postponement:
1. Intracompany postponement is easier to achieve because it keeps activities
in house: Final product and package configuration simply is moved from manu-
facturing centres to distribution facilities, thus creating a ready supply of
semiconfigured products that are customised just in time.
2. Intercompany postponement moves final configuration from a company’s manu-
facturing 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.
Excellence in sourcing offers multinationals, especially conglomerates, significant Companies operating
opportunities for immediate supply chain improvements and value creation—often
by leveraging and transforming cross-entity procurement activities and capabilities. in Asia have a great
Strategic sourcing and procurement transformation will continue to grow across opportunity to improve
Asia. Here, in particular, the opportunities are too attractive to ignore. To remain
competitive, companies must find ways to overcome the challenges of unwritten efficiencies across
rules, trust and transparency.
the core supply
Make chain processes.
Manufacturing dominates the industry landscape in Asia, and inexpensive labour is
abundant throughout the region. Accordingly, there are many pockets of real manu-
facturing 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.
4
Aberdeen Group, “Strategic e-Sourcing Could Save Business $1.7 Trillion on a Global Basis,“ press release
(April 3, 2001).

14 15
Supply Chain Perspectives
For many Asian Many of those opportunities involve make-versus-buy decisions and plant rationalisation.
As noted earlier, for example, outsourcing is significantly underrepresented in Asia,
companies, the greatest despite its potential to help companies (particularly small and medium enterprises)
realise production and cost efficiencies. This opportunity has not escaped the atten-
cost-reduction tion of contract manufacturers such as Flextronics, which plans to build a major
opportunities are those manufacturing and logistics hub in Malaysia.
associated with logistics Move
and distribution. For many Asian companies, the greatest cost-reduction opportunities are those
associated with logistics and distribution. Consider Korea, where the cost of trans-
portation, 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
Japan’s. 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
5
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.
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 com-
panies that have followed a programme to segment and tailor their supply chain
responses to specific customer requirements—developing a more holistic cost-to-
serve perspective that integrates sales and the supply chain—have seen significant
cost and revenue benefits.
5
Robert J. Bowman, “Despite Obstacles, Shippers Score Success in Asia,“ Global Logistics & Supply Chain Strategies
(July 1999).
16
Supply Chains in Asia: Challenges and Opportunities
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.
17
Supply Chain Perspectives Supply Chains in Asia: Challenges and Opportunities

Opportunity 4: Integrate Technology and Systems Architecture

Supply/Demand
Leading organisations recognise the importance of developing an end-to-end supply Fulfilment and Network and Tax People and
Procurement Planning and
Transportation Optimisation Capability
chain view by linking planning/scheduling technologies with their ERP systems, as Replenishment
well as the systems of their customers and suppliers (Figure 6). However, in Asia—
• Implement improvements • Rationalise distribution • Optimise supply/demand • Rationalise or relocate • Build capability rapidly
and particularly in developing countries—many companies have yet to implement across business units/markets: centres across business balancing across business plants and supply chain across business
ERP systems. The penalty they pay for this is greater than just the cost and difficulty - Reduce costs through units/markets units/markets assets across business units/markets
aggregation, auctioning • Lower transportation • Plan and schedule at units/markets • Optimise training costs
of managing disparate and often archaic systems. It is the inability to integrate and and strategic sourcing contract rates and improve regional levels • Reduce network costs and increase training
optimise the newer technologies—including those in front-office, market-facing - Improve supplier manage- performance across Asian through use of effectiveness across
• Improve forecast accuracy
ment and performance markets through load postponement strategies business units/markets
areas such as supplier relationship management and customer relationship management. and line fill across business
- Achieve greater compliance and creation tendering, units/markets • Reduce invested capital • Facilitate transfer of best
Without integrated systems, organisations lose the opportunity to make better deci- to supplier contracts carrier selection, and
• Reduce raw material, across business practices across business
- Leverage eProcurement optimisation services units/markets
sions, reduce overall operating costs, and further leverage resources and information. finished goods and units/markets
solutions
• Optimise finished goods packaging inventory across • Optimise cost-to-serve
sourcing strategy across business units/markets trade-offs for particular
business units/markets customer segments
• Deliver sophisticated
• Reduce intercountry and planning capabilities to • Optimise tax and duty
in-country transport times emerging economies regimes across Asian
and costs markets through effective
• Reduce costs and improve
• Achieve operational service through use of corporate
• Customer Demand Forecast excellence in fulfilment organisation and location
Customers collaborative planning
• In-Transits/Deliveries and transportation across with suppliers
• Goods Receipts business units/markets and customers
(e.g., track and trace,
payment services)
Integrated Order
Management
Figure 7: Opportunities for a cross-business unit or regional supply chain organisation.
Warehouse
ERP Legacy Systems
Management System
Integration Tools

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

Advanced Planning and Scheduling effective way to integrate applications and capabilities, and thus improve interenterprise
• Supply Chain Planning • Order Processing • Constraint-Based
data transfer and data transparency. However, before ERP or EAI can be effective,
• Forecasting • Demand Planning Master Planning
companies must separate their operational and technical challenges. If basic opera-
tional measures—forecast accuracy, make adherence, line fill, inventory accuracy,
Supply Chain Planning Demand Planning Demand Forecasting
inventory turns, operating cost and delivery accuracy—are off-base, it is unlikely that
any software package will provide much relief. Companies must recognise that, in
• Transport Optimisation • Customer Collaboration general, 30 percent of the benefits to be derived from a software solution will come
• NEON Systems
Demand Collaboration from the software and technology itself, and the remaining 70 percent will come
• Peregrine Transportation
from process reengineering. Without appropriate process improvements, a company
Systems Management/Optimisation Product Collaboration
• SeeBeyond may merely be speeding up or automating its current antiquated processes.
• webMethods
• Shipment Requests, • Forecast/Material Requirements • Supplier Collaboration
Track and Trace • Procurement Processes
Opportunity 5: Organise and Measure for Supply Chain Efficiency
Third- and Fourth-Party Logistics 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
Figure 6: Illustrative example of integrated IT. 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.

18 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 Emerging Developing Developed

Several high tech and consumer goods companies operating in Asia have adopted Markets/Companies Markets/Companies Markets/Companies
regional manufacturing, distribution and marketing strategies. However, the area’s Developed

exceptional diversity makes it difficult to prescribe a single pan-Asian operating

Localise Regionalise Rationalise
model or rationalisation solution. Figure 8 summarises Accenture research into what the supply chain the supply chain the supply chain
various companies have done to organise for efficiency.
Key Characteristics
for Supply Chain
Perhaps the most important effort companies can make to balance centralisation Management Optimise local operations, Integrate, collaborate, Rationalise, collaborate
integrate processes where think centrally or and synchronise
and regionalisation is to consolidate the supply side to reduce variable costs and
possible regionally, act locally
improve economies of scale. Several companies have successfully centralised demand
and capacity planning, while still executing locally. Similarly, various intracountry
Emerging
logistics efforts now are planned and executed locally, but are centrally planned
when material movement is between countries.
Figure 9: Applying sophisticated capabilities to less-developed markets.

Product Logistics and Demand

Development
• Typically handled centrally
• Modification or
customisation performed
regionally or locally to fulfil or regionally
customer preferences
Possible Configuration:
• Country centre
localises formula
• Regional centres
harmonise for their region
Procurement
• Direct or strategic
material procurement
typically handled globally
• Indirect or nonstrategic
purchases handled locally
Possible Configuration:
• Regional or global centres • Regional
manage direct material
procurement
• Indirect and packaging
materials procured regionally
• Demand aggregated
regionally
Manufacturing
Distribution
• Typically handled • Typically handled locally
regionally or locally, as the market in different
depending on the nature of countries varies
the products and degree
of configuration required
Possible Configuration: Possible Configuration:
• Handled and planned
• Some activities outsourced regionally when
(e.g., assembly/packaging) between countries
• Handled and planned
locally when within
countries, often by the
manufacturing entity
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
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).

Rationale: Rationale: Rationale: Rationale: Rationale:

• Ensure consistency • Reduce costs • Achieve cost efficiency • Limited benefits • Optimise regional production
2. Rationalise across Business Units
and fulfil local • Ensure regional consistency through economies in regionalising • Maintain balanced Balancing regionalisation and centralisation increases the transparency of a company’s
customer requirements of scale supply chain
• Provide scheduling supply chain and planning requirements, while helping it to develop a more
flexibility at factories • Provide scheduling
flexibility at factories consolidated view of customer requirements across regions and divisions. This, in
turn, can help the organisation recognise and realise opportunities to rationalise
Figure 8: Summary of operating models and trends in regionalising supply chain management.
6 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
6
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.

20 21
Supply Chain Perspectives Supply Chains in Asia: Challenges and Opportunities

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.
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
8
drivers of supply chain excellence. However, Accenture’s client experience confirms
that few Asian companies have pursued this capability with any level of vigour. In
fact, it is not uncommon to find:
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.
• 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
7
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.

• 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 one’s 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.

7
Accenture’s 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.

8
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 high-
quality 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 initia-
tives 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 Access to the best supply
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 is more
chain capabilities in several ways.
important than ownership
First, Dell purchased off-the-shelf software applications (buy). To overcome gaps of those capabilities.
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 infrastruc-
ture, so it outsourced some of its transportation and distribution operations
to third-party providers (borrow).
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 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 capabil-
Buy
Development ities that help them:
Ally/Acquire Build
Support • Bring new capabilities online quickly and productively.
• Minimise capital investment.
Ability to Differentiate
Moderate

• Convert fixed costs into variable costs.

• Respond quickly and economically to changes or surges in demand.

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

Preference for Hewlett-Packard, Johnson & Johnson, Lucent, Motorola, Nokia, Procter & Gamble
Outsource
Outsourcing 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
Low of local and foreign logistics services providers. Microsoft, for example, outsourced
Low Moderate High its logistics operations in Asia to BAX, and subsequently doubled its inventory
In-House Ability turns, increased order-fill rates, raised the percentage of on-time shipments, and
9
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
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 opera-
tions. 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 third-
party 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
10
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 conglom-
erates will rely on internal departments for logistics support, particularly in Korea and
China. But over time—as external logistics providers become more adept at managing
supply chains—conglomerates 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
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.
26
Supply Chains in Asia: Challenges and Opportunities
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,
Asia’s 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 corporation’s
supply chain.
27
Supply Chain Perspectives Supply Chains in Asia: Challenges and Opportunities

...to consolidated management of the supply

There is a strong rationale for creating an independent supply chain service organisa- chain across markets/business units by a new
From independent market/business unit management of
tion that consolidates management of the supply chain across business units or the supply chain with points of resistance... supply chain service organisation
markets. For those companies that independently manage supply chain activities Market/Business Unit 1 Market/Business Unit 1
Supply/Demand Planning
Supply/Demand Planning Supply/Demand Planning
within each business unit or market, such a transformation can result in numerous Distribution Customer Distribution Customer
Buy Make Logistics Management Buying Make Logistics Management
benefits, as outlined in Figure 11.
Culture, Entrenched Practices
Market/Business Unit 2
Supply/Demand Planning

Customers
Distribution Customer Distribution Customer

Customers
Suppliers
Buy Make Buying Make

Suppliers
Logistics Management Logistics Management

Opportunity 7: Extend the Supply Chain People and Capabilities

Across Asia, major Across Asia, major opportunities exist to build collaborative supply chain capabilities Market/Business Unit 3
Supply/Demand Planning
Buy
Distribution
Logistics
Customer
Management
that span multiple business entities. If issues relating to trust, data capacity and Distribution Customer Distribution Customer
opportunities exist to win-lose thinking can be overcome, then companies' regional and national supply
Buy Make Logistics Management Buying Make Logistics Management

Systems and Transparency

build collaborative chains could become significantly more competitive and cost-efficient. Here are two Market/Business Unit 4
basic extension opportunities. Supply/Demand Planning

supply chain capabilities Buy Make

Distribution
Logistics
Customer
Management Buying Make
Distribution
Logistics
Customer
Management

1. Extend the Traditional Supply Chain

that span multiple Rationale/Benefits
Extending the traditional supply chain refers to collaboration with suppliers and • Accelerating savings and release of cash
Supply Chain Service Organisation
business entities. customers—a strategy with three principal permutations: • Overcoming resistance to change in regions, countries and
functions overcomes strong organisational inertia
• Provide a reason and rationale to change the operating • Sourcing and procurement
• Industry Collaboration. Thus far, industry-level collaboration across Asia has model by introducing a new supply chain service organisation • Fulfilment and transportation
• Achieve rapid development of people and skills, instant • Supply/demand planning; inventory, network and tax optimisation
been approached only informally. Moreover, there are few organisations working
access to capabilities and infrastructure • Supply chain technology and execution management
toward standardised rules, protocols and/or accepted practices. There are two • Achieve fact-based, rational decision making by including • Supply chain people capability-building and knowledge management
an outside party that isn't influenced by existing models
exceptions, however: Singapore and Hong Kong. In the latter, several initiatives
• Direct centralised savings to areas that can achieve the
are under way to increase collaboration levels, including the formation of the highest economic value-add
Hong Kong Logistics Development Council, comprising key industry and govern-
ment leaders. There also are some indications that the Association of Southeast
Figure 11: Transforming the supply chain across markets and/or business units.
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 Not surprisingly, this movement of raw materials, semifinished goods and finished
savings and efficiencies. products poses a significant supply chain challenge, particularly to smaller
• Supply Chain Collaboration for Dispersed Production. Dispersed production businesses. However, many Asian players are working hard to fill the void. A premier
refers to the process of developing goods and materials at a sequence of facilities. example is Li & Fung, Hong Kong's largest export trading company, which works
According to a Harvard Business Review article, for example, yarn purchased from with more than 7,500 suppliers across 37 countries. Working primarily over the
a Korean producer is shipped to Taiwan, where it is woven and dyed, and zippers Internet, this innovative firm coordinates the pan-supply-chain efforts of
12
produced in Japan are purchased through a Chinese manufacturer. Then, numerous suppliers, manufacturers, wholesalers, retailers and customers. It
because of quotas and labour conditions, woven yarn and zippers are shipped collaborates with virtually all of them on forecasts, capacity management
11
to Thailand, where garments are made in one of five factories. and resource availability, thus enhancing each party's flexibility, responsiveness
and agility.

11 12
Joan Magretta, “Fast, Global and Entrepreneurial: Supply Chain Management, Hong Kong Style—An Interview with Victor Fung,“ “A Surprising World Leader in Supply-Chain Management,“ The Economist (June 6, 2001).
Harvard Business Review (September-October 1998), 105-106.

28 29
Supply Chain Perspectives
Because real collaboration As a spokesperson commented on Li & Fung’s model of borderless manufacturing:
“We’re not asking which country can do the best job overall. Instead, we’re
means sharing demand 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
information, companies also lets us charge more for our services.”13
must develop a trust-based
In addition to overall cost savings, value is realised in the reduction of delivery
“win-win“ perspective. cycle-times from months to weeks. Plus, Li & Fung uses information—not
assets—to 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.
• 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).
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. Lastly—because real collabora-
tion means sharing information on demand—companies 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:
• 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.
13
Magretta 106.
30
Supply Chains in Asia: Challenges and Opportunities
Making the hub concept work involves developing solutions that move synchro-
nisation 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.
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.
• 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).
Alliance Relationships Alliance Relationships
Logistics Logistics Logistics
Leader Leader Leader
Followers Followers Followers
Market Dominance
Market Dominance
Market Dominance
Profitability and Growth Profitability and Growth Profitability and Growth
Supply Chain 1 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
• eMarkets. Most of Asia’s eMarkets, or electronic markets, are focused on
There are several • Horizontal Conglomerates. With superior supply chain capabilities developed
immediate actions
organisations can take
to accelerate along
the path to success.
32
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 exists—and 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 world—with one consistent business contract and no concerns about
technical compatibility.
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 others—particularly Asia's myriad small-to-
medium-size businesses.
In Hong Kong, for example, Hutchison Whampoa Limited’s 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 govern-
ment agencies, LINE demonstrates the dramatic extent to which traditional
supply chains can be extended.
Supply Chains in Asia: Challenges and Opportunities
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 others—both 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.
• Articulate a supply chain vision that supports the company’s operating model
and is compelling for all stakeholders.
• 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.
• 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 outcomes—and
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
“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).
Bowman, Robert J., “Despite Obstacles, Shippers Score Success in Asia,“ Global
Logistics & Supply Chain Strategies (July 1999).
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.
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 Style—An Interview with Victor Fung,“ Harvard Business Review (September-
October 1998), 105-106.
Manion, David, “Asia Pacific Supply Chain Survey,“ CommerceNet (November 19, 1999).
About Accenture

Accenture is the world's leading management and technology services organisation. Through
its network of businesses approach—in which the company enhances its consulting and out-
sourcing expertise through alliances, affiliated companies and other capabilities—Accenture
delivers innovations that help clients across all industries quickly realise their visions.

With more than 75,000 people in 47 countries, Accenture can quickly mobilise its broad and
deep global resources to accelerate results for clients. The company has extensive experience in
18 industry groups in key business areas, including customer relationship management, supply
chain management, business strategy, technology and outsourcing. Accenture also leverages
its affiliates and alliances to help drive innovative solutions. Strong relationships within this net-
work of businesses extend Accenture's knowledge of emerging business models and products,
enabling the company to provide its clients with the best possible tools, technologies and
capabilities. Accenture uses these resources to serve as a catalyst, helping clients anticipate
and gain value from business and technology change. Its home page is www.accenture.com.

The Accenture Supply Chain Management service line helps companies operating in Asia to
solve complex supply chain problems with strategies and solutions that drive significant
cost savings and create competitive advantage. Our professionals across the region combine
deep skills and leading-edge approaches in supply chain planning, manufacturing and design,
procurement, fulfilment—and new models such as supply chain synchronisation, outsourcing
and supply chain value transformation—to help clients enhance revenue, reduce cost, and
improve asset productivity and customer service.

Copyright © 2002 Accenture. All rights reserved.

Accenture, its logo, and Accenture Innovation
Delivered are trademarks of Accenture.