The Shipping Point

Introduction

Peter Levesque

There is an ancient Chinese curse that says, “May you live in interesting times.” Looking back on the seismic events that occurred at the close of this last decade who could have imagined that Lehman Brothers would crumble, that home foreclosures would become routine in America's neighborhoods, or that the American automobile industry would suddenly rely on government programs like “cash for clunkers” to stay in business. Having experienced a global economic meltdown of a magnitude not seen since the Great Depression, there can be little doubt that we are indeed living in interesting times.

Shipping Point: “A disaster is a terrible thing to waste.”

Jack Welch

The global financial crisis touched everyone and everything, in ways that were unimaginable just a short time ago. When a speaker at a recent logistics conference was asked by a member of the audience how the shipping industry was performing “aside from the disastrous global economy,” the speaker paused, and then replied, “You mean, aside from the shooting Mrs. Lincoln, how did you enjoy the play?”1 It is near impossible to define any business situation today without relating it back to the turmoil experienced over the past two years.

During the peak of the crisis the once touted benefits of globalization, free trade, and the free flow of capital were increasingly scrutinized and in some cases vilified. Theories around de-globalization became increasingly popular, and protectionist policies found their way into the stimulus packages of both China and the United States. Mitigating global contagion associated with systemic financial risk, and balancing government intervention against the longer-term consequences of nationalization and moral hazard, remains a serious challenge for global policy makers today.

We discovered during the crisis that China's ability to “decouple” from the rest of the world's economies was more theory than reality. Evidence that China was not immune to the downside consequences of the global recession appeared early on when an estimated 20,000 factories in China's Guangdong Province closed their doors between 2008 and 2009, leaving some 20 million Chinese migrant workers unemployed. Hundreds of cargo ships that supported the Chinese trade were taken out of service, and over 570 ships were mothballed worldwide, representing more than 11 percent of the world's cargo ship capacity. In early 2009, at South China's Port of Yantian, over 350,000 empty cargo containers sat idle, waiting for China's factories to churn back to life. In 2010 most of the idle ships were put back into service and the shipping industry actually experienced a shortage in cargo containers due to the sudden increase in demand, highlighting the inextricable link between China and the global consumer.

When viewed through the narrow prism of recent events, the impact of the financial crisis on China may appear more pronounced. The reality is that in the midst of the financial crisis China continued to grow. It is critical that this relatively brief period of economic disruption not overshadow the broader narrative of China's historic economic development over the last decade.

The global economy is finally moving through a period of recovery. Unlike many countries in the West, however, China is emerging from the recent turmoil economically stronger and more influential on the global stage. An improving global economic environment should mean better times ahead for all. But while a rising tide lifts all boats, China's advantage in the years ahead, when compared to other world economies, will be that its boat is bought and paid for.

Sectional Framework of the Book

It is difficult to discuss where China is going without first understanding where China has been. In section one of this book we will discuss the re-emergence and rise of China as a global economic superpower and look at the impact that these developments are having on retail supply chain management (SCM). As China enters an exciting new phase of growth and innovation, it is developing world-class transportation infrastructure and technological expertise that will impact retail SCM over the course of the next decade and beyond.

China is also expanding its research and development capabilities, and there is a growing trend toward Chinese domestic retailing and Chinese domestic brands. As we will discuss further, some of these brands have already become internationally recognized. As China's original equipment manufacturers (OEMs) migrate from contract production to creating their own brand name products, they will require assistance with sales, marketing and distribution into not only foreign markets but also their own domestic markets. We will look at how this trend presents a niche opportunity for logistics service providers (LSPs) to exploit within the international logistics arena.

We will further discuss how international retail brands are increasingly looking to China not only for its ability to manufacture, but also for its enormous market potential. We will discuss how “selling to the source” (Li & Fung's terminology for selling products into the China market) will generate additional growth opportunities for global brands. We will also highlight the need for LSPs to expand beyond their traditional areas of expertise in order to meet the changing requirements of global retail customers.

China is not the only thing changing the dynamics of the global supply chain. Changes in consumer retail habits and retail business processes are also having a significant impact on the manner and speed in which products get to market. Traditional buyer/seller relationships are becoming a much more dynamic, tailor-made experience, requiring enhancements to supply chain strategy and design.

Section two will focus on the changing face of consumer retail, specifically the growing trend toward buyer participation in product development, where consumers are taking a more active role in the decisions that impact the functionality and design of the items they purchase. We call this trend “consumer-enabled design,” and we will discuss what this trend means to the future of retail SCM.

While it is not reasonable to expect that all retail products will be tailor-made in the future, there will be enough retail customization in the market to warrant innovation in how retail supply chains are constructed. Further in section two we will discuss how the convergence of social networking and consumer-enabled design are challenging traditional product development, and how product differentiation is becoming more difficult to sustain, leaving retailers to differentiate more on supply chain process. We will highlight the issues involved with building supply chains that enable retailers to quickly source, assemble, and ship component parts across multiple geographies for final configuration, based on the unique requirements of each customer.

Sections three and four will focus on supply chain innovation and support in response to infrastructure developments in China, and the market shift toward demand-driven retail environments. We will show detailed examples of more dynamic and modular supply chain processes that provide greater flexibility for dealing with variations in demand. We will highlight the ways in which supply chain solutions in the years ahead will contain a more diverse combination of service offerings that combine functions and services previously considered unrelated to SCM.

The by-product of a demand-driven, consumer-enabled supply chain is complexity. The coordination of sourcing, purchasing, manufacturing, and shipping becomes exponentially more complicated as process variation is added, and the number of possible outcomes increases. We will look at developments in supply chain technologies that are being used to manage process complexity and visibility.

While systems technology will continue to be important in meeting the requirements of end-to-end transportation, it is the human element that will make the difference between success and failure in SCM. The sheer number of service combinations that will be possible within flexible supply chains will require clients to engage with LSPs beyond traditional service parameters, allowing LSPs to orchestrate business-critical decisions on the client's behalf. This will drive the need for more capable, responsible, and empowered logistics talent, together with the development of high performance logistics teams. We will highlight the need to balance investment in technology with investment in human capital and leadership. We will also examine the importance of human capital in building more resilient and sustainable global supply chains.

Many people claim to be experts on the China supply chain, but after 15 years of living and working in Asia, I have found that true China experts are few and far between. I am pleased to have as contributors to this book three proven experts in the area of SCM and leadership—each with years of hands-on experience in the Chinese market—offering their perspectives on leadership and supply chain best practice.

Michael Jacobs, Vice President of International Supply Chain for Toys“R”Us has been at the forefront of Chinese supply chain innovation and operations for many years, and was instrumental in the development of the Toys“R”Us cross-dock consolidation model and other advanced logistics solutions from China. His chapter on origin consolidation provides an in-depth look at the technical aspects...