Thomas Doyle  MSc.


Global Supply Chains 

Important differences between country operations:


  • Labor rights and labor unions.


Marketing Material from Trade Shows held in PRC 2005-2007 to promote Industrial Projects for Foreign Investments 

                                                 Producer Control Global Supply Chains



Manufacturer    --------------------------------------->         Distributor           ---------------------------------------------------->         Retailer


Domestic & Overseas Factories                                                          Shippers                                                                                                                  Big Box Stores

Subcontractors                                                                                      Fulfillment  Centers                                                                                              Department Stores

Material suppliers                                                                                 Returns processing                                                                                               Specialty Retail

​                                                                                                                                                                                                                                                   E-commerce


Examples

  • Fast-Food Toy Premiums   (US based agency with HKO* handles NPD, manufacturing, QA/QC, distribution and delivery to retailer) ---->  QSR clients
  • Importers  (US based importers with HKO* and brand license handles D&D, manufacturing and delivery  to retailers) ----> Retail stores


*Hong Kong Office (HKO)

  New Product Development (NPD)

  Quality Assurance and Quality Control (QA/QC)


Pros:

  • ​Quality Assurance
  • On-time delivery



Cons

  • Requires cost for dedicated high-performance team.
  • Requires cost for Time to market (TTM)  tactics.


Important differences between factories,subcontractors and trading companies:


  • Factories generally have control of their factories.
  • Factories aspire to control their subcontractors.
  • Trading companies generally have no control over orders handled by third party factories and subcontractors.
  • Here is a quick way to test a supply chain source if they are a factory or a trading company:

​​               1) During your first meeting, ask the source if they can meet or beat your target price on a finished good presented in the meeting.

​                    a) If the source says, " I need my cost engineer to study the product and will let you know asap". It is likely a factory.

                    b) If the sourse says, "Sure, how many do you want." immediately it is likely a trading company who will immediately claim to be                                            able to meet the target price because they desperately need orders. 

                                        i. They will attempt to shop your product around to factories (i.e. each factory will assess how they can knock off the design),                                                             demanding the factories to meet an even lower target price that includes the trading company profit margin.     

                                       ii. Now you suddenly have a product integrity and quality assurance risk because the factory, trading                                                                                          company and subcontractors will all  take  profit margins at their own discretion so it  must come out of the product                                                            cost (i.e. short cuts, off spec materials, regrind materials, forced labor etc).

Land and Expand Model


Example:

  • The toy manufacturing industry was one of many early adopters to mainland China manufacturing during the early to mid 1980's (i.e.  Land).
  • Since China entered WTO in 2001, many manufacturing industries have moved to mainland China (i.e. Expand).
  • Free Trade Zones
  • Export Processing Zones
  • Bonded Logistics Zones
  • Investment Environments
  • Government Policies
  • Key Projects Opening to Foreign Investment
  • Economic Development Zones
  • Proposed Projects for International Economic and Technical Cooperation
  • Foreign Trade and Economic Cooperation Bureau
  • Investment Guides
  • Investment & Trade Symposiums
  • Industrial New Districts
  • Municipal Development and Reform Bureau

                                                    Buyer Control Global Supply Chains





                                                Overseas Buyers

                                                              |

                                                              |

Factories   --------------------------------------------------------------------------------------------------------------------->     Retailers

                                                               |                                                                                                          -Deep Discount Stores

                                                               |                                                                                                          Surplus and damaged lots. 

                                                                                                                                                                           

                                               Traders/Agencies



Examples

  • Factories   (Producer reject production lots for defects then factory sells rejected defects to buyers at deep discounts) ----> Discount Retailers
  • Factories   (Factories and traders sell products on E-commerce platforms/storefronts)----------------------------------------------->   E-Commerce Storefronts



Pros: 

  • Cheap price



Cons: 

  • Poor quality 


Rules of engagement:


  • Only communicate information on a "need-to-know basis".
  • Understand "anti-corruption missionary"  risks, and understand how critical it is to assess reality and manage the risk.

​                                -Are QC inspectors spending recreational time with factory owners? 

                                -Are your HK managers only in your China offices during the weekends?

                                     -Does a US importer have a strained relationship with their overseas suppliers? 

                                                            *Have they been compromised by an unreported product safety hazard?

                                                            *Have they borrowed too much money  from the supplier that the US importer is captured by the supplier?

                                    -Assess your supply chains risk to being "compromised",  "Compromised" is leverage in global supply chains.


  • Everyone want to be the "boss":
  1. ​ Loyalty is low.
  2. It is difficult to get a good paying job and more difficult when you get older because everyone was to be the "boss".




Examples:


Need to know basis