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Supply chain management is gaining focus in China

We attended the Supply Chain Executive World Summit in Shanghai in September and were struck by the recent advances in supply chain management (SCM) in China. Not so long ago, in our line of work, we had trouble getting Chinese businesspeople to consider the SCM body of knowledge and how their enterprises could benefit by applying it. Now, it is quite clear that the tide has turned.

Until recently, it seemed to us, the typical Chinese business person was more worried about increasing capacity and simply satisfying demand through brute effort. Few took the time to see how SCM principles and practices could help them satisfy demand, nor were they worried about achieving cost reductions. Given the prevailing correction in the Chinese economy, they are becoming more thoughtful about such matters.

The two-day event we attended was organised by the Greater China Chapter of the Supply Chain Council (SCC) and the China Europe International Business School (CEIBS). It drew almost 330 participants, 36 speakers and 11 sponsors. The sectors represented included government, e-commerce, chemicals, pharmaceuticals, manufacturing, fast-moving consumer goods (FMCG), logistics, industrial ventures, finance, and food and beverages. Participants shared best practices and exchanged new ideas focusing on the theme of "Collaborative Innovations in Supply Chain Ecosystems".

As tangible evidence of how things are moving forward, CEIBS took advantage of the event to officially launch its Centre of Innovations in Supply Chain and Service (CISCS). Its goal is to create and disseminate knowledge through cutting-edge research and sharing of best practices. With the SCC and CEIBS working together, this has every prospect to succeed and to practically introduce basic SCM knowledge as well as the innovation for which the centre will strive.

The programme was well structured and focused on current hot topics in China:

- SCM in e-commerce;

- supply chain integration after a merger;

- achieving sustainability through collaborative innovations in supply chains;

- establish SC financing platforms;

- supply chain platform-based innovation;

- cross-border e-commerce strategies for SC;

- transformation through collaborations in supply-chain ecosystems.

For us, the most fascinating talk of the entire two days was the first one. Yu Gang, the co-founder and chairman of Yihaodian, a runaway success in e-commerce (so much so that Wal-Mart has acquired a 51% stake), talked about his approach to building the business and how he is now refining its management. He made the following observations:

The key in retail is SCM.

China is ideal for e-commerce because there is a huge population and traditional retail is not as developed as in other large countries.

Business to Consumer (B2C) is developing the most quickly for Yihaodian, which has built good credibility in the field, while the mobile internet is enabling shopping anywhere, anytime.

Via e-commerce, the company can cover the whole country 24/7, with limitless storage and offerings. In future, with mobile, it will be able to penetrate more third- and fourth-tier cities.

The "internet of things" will drive people more and more to e-retail, cloud services, online finance, market segmentation and personalisation.

Yihaodian started out in 2008 with only 3,000 items on offer and now has more than 4 million. It also has more categories and value-adding services, needs no physical space and fewer staff, and boasts excellent delivery service.

Astonishingly, inventory holdings were 50 days before but now the company is aiming for 15 days' coverage.

Yihaodian uses a homegrown supply chain management IT system. This way, Mr Yu says, it can try different business models and change quickly if need be. An example is price analysis and the capability to adjust pricing automatically. It has warehouses in Beijing, Shanghai and Guangzhou that carry all items, while other regional warehouses have more limited range.

Inventory management, however, still relies on the traditional replenishment approach. Customers on average buy 16 items per order, so picking is complex, but batch picking improves efficiency.

The biggest challenge in B2C commerce, taking care of the "last mile" to the customer, is something Yihaodian does by itself, having found that it can do so better than others; it sees 10% better customer satisfaction and fewer complaints than when it outsources. It has its own delivery route system to maximise customer service and efficiency.

Mr Yu observed that the third-party logistics industry in China is highly fragmented, to the point where Yihaodian has ended up leading the field. Now it is working more on front-end logistics, with programmes such as vendor-managed inventory, supplier life cycle management (suppliers supply within two hours), direct supplier delivery, pallet polling (for which Yihaodian recently won an ECR Council award), and improved cross-docking.

In future, he said, Yihaodian would look at innovative approaches such as delivery points at ambulance depots to further increase efficiency and convenience for consumers.

He is justifiably proud that customer satisfaction currently is 92% with only 2.4% of customers unhappy and the rest neutral. One key that he mentioned is that the company has linked customer satisfaction to employee compensation, and this has paid great dividends.

We look forward to reporting more in the next few weeks, as space allows.

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