Road Work In China - InformationWeek

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Road Work In China

The country is a manufacturing powerhouse, but companies doing business there still need help tracking supplies and finished goods.

Each year, approximately 6 million GT, Mongoose, Pacific, Schwinn, and other branded bicycles make the long trek from factories in China to U.S. distribution centers owned by manufacturer Pacific Cycle LLC. Moving the products across the ocean is the easy part, says Rob Gooze, Pacific Cycle's executive VP of supply chain: "The difficult part is moving data."

Things have improved since the days when Pacific Cycle had to make phone calls to confirm shipment of parts and finished goods and other details with the manufacturing plants that assemble its bicycles. But tracking the items as they weave their way from Chinese suppliers to manufacturing sites or from factories to Chinese ports is still cumbersome. Exel LLC, a third-party logistics company based in the United Kingdom, now handles the task of gathering paper-based information from assembly plants and rekeying that data into its own systems, then using EDI to transmit the data back to Pacific Cycle. Gooze looks forward to the day when Pacific Cycle, the factories it outsources manufacturing to, and its logistics vendor are all on the same platform and work from the same real-time information.

"Automation improves accuracy," Gooze says. "The chance that a wrong model number or an extra zero is keyed in declines." Errors show up in 5% of the 4,000 documents generated annually by Exel for Pacific Cycle, which could cause delays at U.S. Customs if there are discrepancies between the paperwork and the shipments. Too many delays getting products to retailers and the company could risk its business with those stores.

It's not unusual for companies doing business in emerging markets to have partners whose IT infrastructures are considerably less sophisticated than theirs--or even nonexistent. But China is fast becoming the world's manufacturer: Import and export volume exploded to $523 billion in the first six months of this year, up 39.1% from the same time last year, thanks largely to more U.S. companies outsourcing production to the country.

Companies primarily seek the benefits of China's low-cost labor, but they're finding they come with their own price. Combine an immature IT infrastructure with costly inland transportation and the high price of land to build logistics hubs, and the savings companies expect may fall short. "When you get into the logistics cost per gross domestic product in China versus Europe, Japan, or the United States, it's much higher," says Bill Gordon, director of supply chain in Asia-Pacific at Caterpillar Logistics Services Inc., a subsidiary of equipment maker Caterpillar Inc. "Well over 50% higher in China."

Multinational companies can't change Chinese government mandates that dictate everything from where they can open factories to the use of local trucking and freight-forwarding companies--which are licensed by the government and often are a supplier's logistics division--to move raw materials and finished goods in China. Nor can companies force their Chinese partners to adopt costly technologies that would improve logistics processes. "Chinese logistics providers run very lean," explains Addons Wu, CIO of General Motors Corp.'s China Group. "The profit margin to justify EDI connectivity with the OEM isn't there."

Chinese logistics providers don't have the necessary in-house expertise. Ed Matthews, director of information systems at Pacific Cycle, recalls that when he once brought up the topic of EDI with Chinese colleagues, "they came back to me asking, 'What is EDI?'"

Large manufacturers and brand names in the logistics business are trying to meet the challenges in China. DHL, Federal Express, and United Parcel Service all recently began offering services similar to Exel's, rekeying paper-based data and using traditional EDI, Internet-enabled EDI, and XML messaging to keep companies apprised of order, warehouse, and transportation data relating to their Chinese operations.

Improvements are being made on other fronts as well. By the end of the year, the Chinese government plans to deregulate its logistics industry, removing a requirement that forces most foreign logistics companies to partner with local carriers to handle the actual moving of freight in-country. That means companies doing business in China will have more freedom to set up their own logistics infrastructures.

For now, though, the big-name logistics vendors have partnerships with local carriers and are trying to bring their sophisticated docking, warehouse-management, and messaging services to bear on them. Exel, for example, rolled out a fleet-vehicle-tracking system in early June to serve customers in Beijing, Guangzhou, and Shanghai, with plans to expand the service into Chengdu by year's end. The system provides real-time wireless transmission of delivery milestones around provinces, such as freight pickup and proof of delivery. The system also allocates freight by destination and volume.

Sometimes multinational manufacturers must compensate for the lack of a solid logistics infrastructure among Chinese freight companies by pairing with more than one logistics partner or by building up their own logistics systems, says Richard Armstrong, president of Armstrong & Associates, a research firm focused on logistics in China.

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