Supply Chain Management in China: a 2021 Comprehensive Guide
February 25th, 2021
The reach of Chinese products is availed separately by developing and developed sectors due to its manufacturing and managing strategy. Supply chain management in China is the biggest plus to its export trade model.
But the problem arises here; why few companies find it easy to work with supply chain management in china while it’s difficult for other enterprises?
What are the managing and manufacturing strategies China is using that enable it to have a strong supply chain worldwide? How supply chain management in China is different from supply chain management in the west?
All of these questions are answered in this blog.
Before getting into the detail of supply chain management in China, it’s important to decode the term ‘Supply Chain Management’.
Chapter 1: Introduction to supply chain management
Supply chain management is the active management of supply chain activities that includes the flow of services, goods, and all those processes that transmute the raw material into the end product.
Supply chain management represents the collective attempt of supply chain firms that develop, manage, and effectively run supply chains.
1. How researchers define supply chain management?
The words of researchers hold a strong impact when it comes to the definition and significance of supply chain management. This is because of the great experience they endeavor or the insight they get after exploring the management skills of different supply chain firms.
According to Ayers JB:
‘Supply chain management is the maintenance, planning, and supply chain processes activity that is demanded by the customer and is obtained for the satisfaction of customers’ needs.’
Alberta future center acknowledges supply chain management as an act of optimizing activities across the supply chain. Little (1999) declares supply chain management as ‘the deliverance of the right goods and services to the right location, in the right quantity at the right time, and at the right cost.’
Decoding the term ‘Supply Chain’:
The term supply chain is decoded by Beamon B. (1998) as ‘a structured manufacturing process wherein raw materials are transformed into finished goods and then delivered to the end customers’.
The whole managing process that includes the production, product development, required information system, sourcing, and logistics is referred to as supply chain management. Getting into the conversation of How China manages its supply chain, first, it’s essential to know the working principle of supply chain management followed all across the world.
2. The working phenomenon of Supply Chain Management
The working of Supply Chain Management includes the 6 essentials steps:
Strategizing the process
Getting the source (of service or raw material)
Manufacturing i.e. is focused on product’s efficiency and productivity
Delivery of final product
Back end system (for returning of product for unwanted and defective materials)
A managed supply chain firm is recognized for its smooth process where it keeps the company away from recalls and lawsuits.
3. Top trends of supply chain management in 2021:
The top trends of supply chain management figured in 2021 considering the top risks caused due to the pandemic are:
Automation using robots helping in fast service
Blockchain technology increasing transparency and decreases disruptions
Product life cycle must be short to immediate fast and efficient service
Introducing ‘knowledge workers’
Circular supply chain replacing linear supply chain
This is the surface knowledge of supply chain management that runs throughout the globe but still more than half of the world relies on Supply Chain Management in China thus making it a Global supply chain.
What is different with supply chain management in China? How it stands outs as a global Supply chain network? Let’s discuss;
Chapter 2: Supply chain management in China
China’s development system is known to depend upon its export-oriented growth modal. This economic growth miracle of china is having some characteristically values:
Inseparable from the price advantage
Large scale production these key factors have led to the trade surplus in the international market and has become the cause of rapid growth of the economy.
1. Supply chain modal in China
The secret to leading supply chain modal in China is a single fact i.e. The relationship with suppliers. The supply chain management in China shares a strong bond with its suppliers.
The main struggle while managing the supply chain done is choosing an appropriate supplier. By evaluating and managing their relationship with suppliers, the chances of disagreements, opportunistic behavior, transaction, and listing charges are reduced to a great deal.
This also enhances quality, pliability, delivery, and customer service thus helping the Chinese firm to gain a competitive advantage among the internal market. To more get supply chain management modal in China, it is necessary to get into the shoe of the Chinese firm.
2. Nature of Chinese firm
In China, three types of enterprises are run:
State-owned enterprise: created by the government for taking part in commercial activities on the behalf of the government
Collectively-owned enterprise: ownership, decision making, and management come in the part of workers following the democratic fashion.
Privately owned enterprise: owned, traded and exchanged privately without any involvement of governmental and non-governmental organizations.
In China, all three types get a significant edge to build strong communication with the customers and the suppliers. This diminishes the difference among the firms.
The next step to Supply Chain Management in China that makes it stand out is its manufacturing objectives.
3. Objectives of manufacturing strategy
Four main objectives of manufacturing strategy are followed when it comes to the supply chain management in China:
The products delivered from China are known for their high quality and low prices. These lower prices attract the customer worldwide. There is a wide range of chinses products that are delivered globally and are produces according to the budget of every region, either developed or developing region.
In the 1980s, the total emphasis of China’s manufacturing management was on high quality as a module by all other supply chain management among the world.
-Delivery and flexibility:
From the early 1990s, the supply chain management in China starting exhibiting efforts on fast delivery and flexibility to the customer thus offering time-based competition to the global supply chain. New product introduction, product mix, and volume flexibility are a surplus to China’s Supply chain.
4. Relationship with suppliers and customers
According to Pyke (2000)
‘A close relationship with a supplier is correlated with the communication between the firm and its suppliers and with a consultation about production schedules.’
Chinese firms have realized the benefits of communication and the need for a closer relationship with supply chain partners. This relationship is correlated with the performance index of the firm.
5. China’s enterprise cluster modal
The supply chain management of China is composed of ‘China’s Enterprise Cluster Modal’. The individuals in a region are condensed as an enterprise cluster of that region thus each SME is recognized as an individual of that cluster.
Now a supplier group is set for each industry clustered for that region and is the urge to supply products according to the respective positions in the supply chain.
Chapter 3: Stages of supply chain management in China
Supply chain management in china have four windows:
1. Information sharing
Chinese firm shares information more than they share work. Product demand, schedule, planning, manufacturing strategy thus information is shared at every level.
2. Decision rights exchange:
The decision rights are exchanged for multiple processes allowing a vendor to make inventory stocking decisions.
3. Work exchange:
Work exchange implies outsourcing that is very common in China. Chinese firms share work more than they exchange decision rights.
4. Working out the scheme for risks and benefits sharing:
Certain schemes, plans, and logistics are explicated for risks and benefits sharing.
Till now you have got a clear view of what is supply chain management, how it works globally, what is supply chain management in China, and what are the significant key factors that make supply chain management dominant among the world.
Now the discussion will take a turn to how supply chain management is specifically different from supply chain management in the west? And why some companies in the west fail to manage supply chains in China?
Chapter 4: The difference between supply chain management in China and SCM in the west
A clear understanding of supply chain management in China is made in the above discussion. Now, before spotting the difference between the supply chain management in china and the west, let’s look into the supply chain modal followed in the west.
1. Supply chain management in the west
West prioritizes customer satisfaction thus maintain a balance between Supply chain management and customer feedback. For this, their prior concern is product quality.
In the west, the belief is so firm that the integrating operation between customer and supplier is a backbone of supply chain management. The approach in the west regarding supply chain management changed over time.
2. The old approach to supply chain management in the west:
The old approach consisted of two integrating processes:
The supply chain was implemented with product postponement and mass customization
The flow of deliveries among manufacturers, suppliers, and customers were coordinated
The drawback to this approach was that the time base system requirements were not satisfied.
3. The new approach to supply chain management in the west:
Spotting the difference:
The table gives a detailed picture of the difference seen in the supply chain management in the west with that of supply chain management in China.
Following key factors were taking into notice while changing the approach towards supply chain management in the west:
The increased understanding of the conditions between relationship marketing and supply chain management is made for acquiring a win-win partnership.
Various means are used to ensure smooth information sharing deliberating sharing of production plans and production systems. This paves way for a long-term partnership with the supplier.
The customer-supplier relationship is nourished for increasing value and decreasing cost.
The primary factor for achieving better performance is viewing the supply chain competence among the international trade.
The main focus of the supply chain modal of the west is to establish a strategic partnership and manage to outsource.
Chapter 5: Challenge for western companies seeking suppliers in China
The supply chain management in China is declared to be the global supply chain as it serves variety among the products, regarding quality and budget. All the regions around the world have an eye upon supply chain management in china for the deliverance of Chinese products, goods, and services to their state.
West found suppliers in China but some companies fail to the management supply chain in China. A little hindrance is seen on their part for reaching out to the suppliers that are aligned with western quality and performance standards.
For ensuring compliance with a western company’s quality needs, one should never chase low prices approach. Here are some key factors that will help western companies to gain supply chain success in China.
1. Key to supply chain management success in China
4 basic key factors are identified by China’s centric associates that can help western companies to reach out best supply chain management in China. These are:
Executing effective supplier qualification process
Rules of engagement
Adjusting routine supply chain management
Continually test and adjust supplier’s base
2. Executing an effective supplier qualification process
The first step is to execute the qualification process of the supplier in an effective way. Number one thing is to assess the stability of a supplier’s management and then is to build confidence in it for its management to work consistently.
This will help the supplier to meet all your requirements that include product development, product quality, acquisition, and logistics.
A little difference is seen between the two regions. In the west, effective tools are used for the accomplishment of supply chain management. For example, checking samples, products, gadgets, and quality documentation but China is a bit behind in this process.
These tools are not a necessary part of supply chain management in China so are not meant to be used for Chinese suppliers.
Following are some of the qualification criteria to be judged to execute an effective supplier qualification process:
Planning and strategy
Logistics and legalities
Tech-support and customer service management
Playing a little psychology with the supplier would be of great help. You should understand the weaknesses and strengths of the supplier. This will help you to predict its ability to deliver product quality, time- base system analysis, and communication performance.
3. Rules of engagement
A famous perspective of China regarding supply chain management is that
‘If it’s not in writing, it didn’t happen and if it’s not in writing, it’s not important’
Generally, a misconception occurs between western companies and Chinese suppliers based on expectations. Western companies fail at this point. Delivering detailed information is necessary for success in supply chain management in China that is not a norm in the west.
Because in the west a system is in place and naturally understood between both the parties.
In the west, a contract is enough between the enterprise and the supply chain management but in china, work is done according to the amount of information delivered. Using comprehensive contracts is a suggestion for all those companies in the west looking for supply chain success in China.
4. Adjusting routine supply chain management
Routine supplier process management suits the Chinese market environment. Here again, a difference is seen in supply chain management in China to that of the west.
The western market works on expectations with the supplier’s management. They demand the less active intervention of buyers in the process but this approach fail’s in China trade system.
In China, the responsibility is on buyers’ behalf to ensure product design and check out if all requirements are met according to demand by keeping routine check.
A wise suggestion for the west is:
Have routine check-ups by visiting or virtual visiting
Have project meetings tills project gets completed
Execute quality assurance programs
Perform requalification audits periodically
4. Continually test and adjust your supplier base
A new challenge for the west can be seen while reaching out to the known supply chain management in china because of the rising costs.
It is to be noticed on behalf of the companies to continually test and adjust the supplier base by scanning and also looking for new options to optimize the performance in the diverse environment.
Chapter 6: Characteristics of supply chain management in China
Major four characteristics of supply chain management in China are:
1. Dynamic relationship
A flexible and dynamic relationship between supplier and the customer is the biggest flex of any supply chain management in China. This builds trust, confidence, and consistency among both parties thus ending in long-term contracts and deep relations.
2. Zero monopolies
The supply chain management should offer zero monopolies.
3. Unique size and agglomeration of supply chain management
Due to the unique size and agglomeration of supply chain management, the uncertainties between the buyer and supplier are removed.
4. Frequent business transfer
In an industry, enterprises are seen to be highly similar in their production capacities and prices. the business transfers are convenient that offers frequent transfers.
The presence of these characteristics helps to escalate any service of supply chain management in China.
Ejet Sourcing is a similar supply chain service provider that source supplier management, new product development, product branding service, and on-ground sourcing along with the quality control delivery, shipment, and management. All the characteristics that lead to supply chain success are resided by Ejet.
Chapter 7: Managing supply chain risks in COVID-19 in China
The worldwide pandemic has caused a great threat to global supply chain management causing a big risk to supply chain management in China.
1. Supply chain management risk in China
At the starting of the outbreak, supply chain management in china faced major risks. Suddenly, many factories were shut down, and Quarantined which welcomed disruptions to many suppliers.
Trucking capacity decreased to 60% and delays in good services have been seen around 8-10 days longer than estimated. Uncertainty was seen in customer demands. Pre-booking started and unpredictability was faced.
According to research,
More than 200 fortune global 500 firms are from Wuhan; the state from where the outbreak started and was the pain point of distress.
This research predicts the great risk of supply chain management in China. Due to the virus, the vulnerabilities of many organizations especially those who depend upon China for their trade system were exposed.
China is considered as ‘world’s factory’ and if there is any disruption in China’s supply chain management, it means a great destruction is seen to the global supply chain. Major risks are caused to the companies that are in direct and semi-direct relation with supply chain management in China.
2. How companies could respond to supply chain risks caused by the pandemic?
The biggest challenge is faced on the part of companies worldwide on how to respond to such a situation. Along with economical and financial crises that have been faced by the companies, the decelerating graph of supply chain management is also giving emotional distress to the companies.
Here, activating your nerves and planning the strategy by understanding pandemic as a new normal is the first smart action to be played.
Following measures is a surplus to respond to supply chain risks caused by pandemic:
-Reorganize labor planning
Closed companies are resuming again, suppliers are activating but with major risks and disruptions. Old policies will be a great threat to the new normal. One has to start by reorganizing labor planning.
Educate your workforce about the hazards and risks that can come in the way and ways to respond to those hazards without getting into any emotional dilemma.
Your team is your asset, try to make it strong and smart enough to handle any kind of situation. Pay additional attention to workforce planning along with product quality.
-Pay attention to direct supplier risk:
Tier 1 supplier is the most effective supplier to your company. Understand the risks that come between the enterprise and supplier and work upon the visibility of the direct supplier. Pay focus on the key supplier to understand their flexibility and reliability. Switch on communication management and plan alternatively.
More inventory measures include:
Elucidate extended supply network
Reinforce planning parameters
Renovate inventory policy
Reinforce production scheduling
Restart manufacturing strategy
-Planning for supply chain disruptions:
Following are some guidelines to immediately get a solution against supply chain disruptions:
-Get started with your team:
Start with your team. Support your consistent employees, build confidence and provide conservative guidelines that might trigger points for policy changes.
-Sustain supply chain management:
Bring inventory level policies for tier 1,2 and 3 suppliers to extend work out duration expansion.
-Enhance supplier-customer relation:
As the outbreak is not specified to some regions, it is havoc caused to the whole world. Every region, state, community, industry at every level is facing disruptions and understands the condition of contracted models. Re-originate communication policy to discuss the situation and work accordingly.
-Practice the plan:
Redefine and verify the resuming and activation protocol according to the new normal for different response phases.
Formulate response policies such as product delivery, development, and quality insurance.
2. Approaches to secure supply chain management in China:
Following are the approaches that are taken to dramatically secure supply chain management in china in a short time:
-Uplift customer satisfaction:
Allow feedbacks and use them in your favor to boost customer collaboration and satisfaction. Analyze the graph by using test policy and figure out the perfect order rate.
-Enhance accuracy and increase reliability:
Use digital tools and data to enhance accuracy and increase reliability. This will reduce disruptions in managing buffers all over the supply chain.
-Unlatch cash flow:
Due to the pandemic, economic loss is faced by every industry, for the present situations it is demandable to decrease logistic and manufacturing tools. It is suggested to outsource in low value.
-Introduction to digital supply network:
Digital supply network is taking place of traditional supply network where the organization completely gets connected to their complete supply network enabling optimization, visibility, and collaboration.
Many new trends are figure out for 2021 that make supply chain management in china handy for its users. These trends are finalized by taking into consideration of supply chain risks due to COVID-19.
Chapter 8: Frequently asked questions about supply chain management in China
1. Why supply chain management is important?
Supply chain management is important as it helps in:
Achieving enterprise objectives
Controlling manufacturing processes
Reducing recalls and lawsuits risks
Providing time-base deliveries
Controls shipping procedures
Improve customer service
2. How globalization impacted supply chain management in China?
Global supply chain management that counts in China as a major supplier has affected by globalization to a great deal. It has caused suppliers to rethink the strategized policies as the graph has been decelerating with the outbreak.
3. How pandemic has affected supply chain management in China?
Pandemic has affected the supply chain in the following way:
It caused many companies to shut down and go disrupted thus decreasing the graph of supply chain management.
Approximately 8-10 days delay is seen in goods/service delivery related to the estimated time.
Shipping capacity decreases to 60-80%
Uncertainty is faced by customers
4. Is China taking control over the world’s supply chain?
China’s supply chain management is considered as ‘world trade control’ due to its diverse trade market producing goods and giving services to all the developing and developed regions in variety according to their demand. 70% of states around the world are having an eye upon China when there is a talk of supply chain management.
5. What are the elements of supply chain management?
Following are the five key elements of supply chain management:
6. What are the trends of supply chain management in China?
Following are the trends followed by supply chain management in China:
Technical teams’ production
Customized supply chains
Optimization of work capital
Enhanced customer-supplier relations
Universal visibility using block chain technology
Warehouses become smarter than loT
7. How China’s supply chain management is different and why it stands still among the whole globe?
Along with legal preferences, china market pays huge attention to ethical preferences. To China’s international trade, communication management is of top priority.
Building confidence, trust, and long-term work relations with the customer make China’s supply chain management different and help it to stand still among the whole globe.
Flip over your gadgets, toys, daily usage products and read what it says, ‘Made in China’. This speaks to the success of supply chain management in china that is spread among the diverse regions of the globe.
For any company working in the west or any other state of the world, china understands their practices and refine their management in a way that makes them reliable and flexible to work with.
Modern supply chain management in china plays a significant role in supply chain management knowledge, applications of SME service systems, dynamic resource allocation, and theoretical research guidance in the supply chain.