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Supply Chain Management in China

90 percent of an average Chinese manufacturer’s time is spent on logistics, while 10 percent is spent on manufacturing. Accounts receivable a key measure of inefficient logistics practices often exceeds 90 days. Despite these weaknesses, China’s distribution and logistics sector is growingrapidly. Supply Chain in China was once an afterthought or was only thought of in terms of the MAKE and SHIP processes included in manufacturing in China. But as China becomes not only the factory of the world but the “mall of the world” this can no longer be true. Companies need to get China, Asia and their home operations more integrated and have a clear understanding of their China-specific supply chain challenges or risk losing in a hyper-competitive market.

Conducting an end-to-end Supply Chain Assessment and then rapidly implementing needed changes is a must now. Both the public and private sectors in China are taking some bold steps to respond to the challenges of the new consumption-driven economy. Government measures, though stuck at a policy level in many cases, are addressing the right issues. Domestic companies are rising up to meet new demands. In 2014, China saw dramatic developments in its core logistics, retail, e-commerce and manufacturing industries. In September 2013, China became the world’s largest net importer of petroleum. In recent years, China’s fuel costs have grown at around 20%. While it may drop to 15% in the coming year, the government has a challenge to get energy costs under control. In the long run, they plan to allow competition by private firms for domestic oil production, but this will take time as the state-owned oil corporations try to maintain control.

China is struggling, but making progress, to morph into an economy that is driven by domestic consumption, but the logistics infrastructure to enable this transformation is a major challenge. The government recognizes the issues and will continue taking measures such as controlling fuel cost, encouraging logistics development, and opening up trade. Domestic companies will continue to take aggressive steps such as building their own integrated logistics networks and moving up the value chain.