China and the shift from make to buy

Mike Woods

Mike WoodsSupply Solutions Limited

Partner with Plymouth for the delivery of corporate vocational programmes at diploma and degree BSc (hons) level in International Supply Chain Management

The shift from make to buy•Manufacturing as a percent of UK GDP

•1960. 55%

•1980. 45%

•2012. 20%

•Ford Motor Company

•Purchase as a percent of cost of sales

•1980. 55%•

2012. 70% and rising

•

Where has all the working gone? Gone to China

•

everyone, when will we ever learn?

Pete SeegerWhere have all the flowers gone

Technical push and the move to China

•Hardware to software

•Analog to digital

•Discrete to converged

Convergence the iphone 5 and an annoying slide

ScreenTechnology

Radio

Signal Processing Better than

missileSystems

Video Player

Music Player

Phone

Email

Apps

Internet

CameraGPS

Consumer pull

•Wait till it wears out or change it when the fancy takes

•We are all unique and are entitled to self actuate

•Keeping up with the Jones'

•How many fridges do we really need?

•Product life cycle shortensTechnical challenge increasesTime to recover investment reducesManagement challenges in all areas accelerate

Consequences of technical push and consumer pull

Technical risk and consumer pull

•It's all too risky

•Cost to design and test a car still £500M but model only good for 5 years

•Toyota - The machine that changed the world 'Womack and Jones'

•Needs a relaunch with additional styles after 12 months

•Needs a midlife update after three

Solution

• Share risk

• Move business model from make to buy

• Means we can flex our business to the changes in market

• Seek world class technology partners where it matters

• Seek world class cost partners where cost matters

• We're off to China!

China -A supply chain perspective

Working in China - A supply chain perspective

• Logistics issues

• Slow boats to China, slower back to save fuel!

• Typical lead time 6 weeks

• Cost of movement

• Fuel now 30% of cost of running a ship, was 15%,

• Speed of response to changes in demand

• Last year Marks and Spencers undersold one style of tee shirt by 80000 units because of speed of response of supply chain

Working in China - A supply chain perspective

• Labour laws differ

• Language and cultural issues abound

• Environmental conditions and consequences evident

• Reputational risk management is key for western brands

• Geo-political considerations not too be ignored

• Is outsourcing to China a polite form of economic suicide?

• Discuss - later

• BUT IT IS SO CHEAP!

Chinese labour rates 2008 - beware dodgy data

China’s hourly manufacturing labor rates are far below rates in Japan ($27.80) and Taiwan ($8.68) but roughly on par with nations like the Philippines ($1.68). China manufacturing compensation costs slightly higher than those in India. Many EMS / ODM companies in China, especially those making PCs, are moving operations inland.

Though manufacturing workers in China are earning more than ever before, average hourly compensation costs were only $1.36 in 2008.

Consider that, from 2002 to 2008, hourly labor costs in the manufacturing sector in the United States increased by 19%, while the corresponding figure in China grew 100%.

How many Chinese workers do you get for one German?

Anywhere from 5 to 20 depending on the job style and

complexityBUT

You also getHigher

productivity, longer working

hours, and some ethical issues

iPhone supply chain