A global manufacturer in China has a challenge – decades of a relatively good business environment in Europe allowed the company to amass a war chest to finance their business development in China. First setting up their own brand for organic growth – then merger & acquisitions to capture a sizable local market share.

The situation reverses – the war chest is empty

Global financial crisis, stagnating markets across Europe, eroding profits and – meanwhile – continued growth in China triggers the company’s Headquarters in Europe to begin requiring their Chinese subsidiary to return profits back to the mother ship – the first time in the company’s near 20 years business history in China.

But China is no longer a low-cost country for the most part, nor has the company experienced by all means a situation of high profitability in the local market – as so many organizations that have mostly focused on growing their business revenues in China. Increasing cost of labor, raw materials and managing the complex Supply Chain endangers the subsidiary’s ability to turn out sizable profits – and to refinance the ailing home business.

Refocusing in China – from high growth to cost-efficient growth

The company identifies – operating with semi-finished and finished goods factories in over 10 locations across China, bridging distances of over 2,300km – that their Supply Chain may be a major driver of operational and organizational complexity and cost.

Over a period of 6 weeks the company studies their current Supply Chain setup, location by location, site by site:

Do they need the currently existing, partially organically grown partially acquired, 5+ distribution warehouses across the country? Do they need the 8-15 staff at each warehouse location, summing up to over 50 people managing the Supply Chain alone, and who do – to a high extend – perform almost identical tasks? How can they support one manufacturing location doubling in capacity, without necessarily doubling the associated warehouse size? Can Supply Chain logistics be managed more effectively at central locations and hubs? Can they outsource parts of their Supply Chain logistics to 3rd party service vendors to achieve cost optimization, higher scalability, while containing or eliminating supply chain risks? How must they restructure organization, processes and information technology to support the transformation?

It takes a first step – promising results

The company is only at the beginning of reviewing their Supply Chain in China, but the outlook is promising – a recent study by China Business Review revealed that by revamping, restructuring their Supply Chain, along with corresponding process and skills enhancements and implementation of readily available information technology, companies operating in China were able to cut costs by 1.4-1.7 percent of annual revenue and increase profits by 23-28 percent.

Michael Adick
Managing Director | Articulate Ltd.