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Supply Chain Management Conference 2004
Logistics Strategies for a
New China
Richard Zhu
UPS Supply Chain Solutions
April 14, 2004
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Agenda
• China transportation and
logistics market overview
• Four logistics strategies
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Compared to the U.S., China transportation and logistics
spend is small, but a relatively large percentage of GDP
US Japan China
$10,082
$1,008
10%$5,976
$657
11%
$1,150
$214
19%
GDP
Transportation and
Logistics Spend
Source: BEA National Economic Accounts; CSFB; Chinainfobank; European Commission; Securities
Market Size – 2001
($ U.S. Billion)
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China’s transportation and logistics market exhibits low efficiency
and poor service quality — attributable to four major factors
Low Efficiency and
Poor Quality
Under-developed
Infrastructure
Lack of Expertise
and TechnologyFragmented/
Segmented Market
Regulatory History
and Constraints
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Hurdles are being addressed
Low Efficiency and
Poor Quality
Under-developed
Infrastructure
Lack of Expertise
and TechnologyFragmented/
Segmented Market
Regulatory History
and Constraints• WT reforms
• Competition
• Multinationals and
integrated services
• National road and rail network
• Triple container port capacity
• 10,000 logistics
specialists
graduating
each year
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Growth of 3PL outsourcing
• From in-house to third party
• 25-30% 3PL growth rate
• More foreign-owned 3PLs establishing networks
• Domestic providers to play a role
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UPS Supply Chain Solutions in China
• 3PL air and ocean forwarding
• 1,000 people, 24 locations, 1.5 million sq. ft. of
warehouse space
• 6 weekly direct flights
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Four strategies for efficient logistics management
• Integrate everything
• Share the pain
• By-pass the DCs
• Make sure you can see
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Integrate everything
• Fragmented suppliers hinder visibility,
increase hand-off problems
• 3PLs handle suppliers, for one point of contact
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A High-tech Manufacturer
• World’s largest manufacturer of
hard disk drives
• Vertically integrated manufacturer –
heads, media, PCB, final assembly
• Technology leadership and
leverage
• Very competitive industry with
steep year-over-year reductions
in price
• Strategic focus on R&D, marketing
and sales
• VMI hubs for inbound
component parts
• Airfreight (2,000+ tons/month)
• Ocean freight
• Customs Brokerage
• LTL/TL transportation
• Global finished goods distribution
• Reverse logistics for
warranty/repair
• Supply chain visibility –
in-transit and in-site
About the Company Scope of UPS Solution
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UPS manages the Company’s China pre-manufacturing VMI
logistics, finished goods fulfillment and returns consolidation
Beijing
VMI
60+ Global
Suppliers
Wuxi EPZ
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UPS manages the Company’s China pre-manufacturing VMI
logistics, finished goods fulfillment and returns consolidation
Beijing
Wuxi EPZ
North America
Asia Pacific
DC
VMI
60+ Global
Suppliers
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UPS manages the Company’s China pre-manufacturing VMI
logistics, finished goods fulfillment and returns consolidation
Global Repair
Mexico
Dallas, TX
Singapore
Beijing
DC
VMI
60+ Global
Suppliers
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The Client has reduced costs, improved performance
and simplified their supply chain
Program Results
Economics
• Logistics cost per drive reduced by 25% over 2 years
• Improved asset utilization and lower capital expense
• 5% US transportation expense reduction
Simplification
• Air freight providers reduced from 6 to 2
• US carriers reduced from 62 to 7
• Materials reduction via site consolidation
• Lower capital expense
Service Levels and Optimization
• Direct fulfillment improved from 20% to 83%
• Utilization of ocean for selected products
• Customer error reduction
Visibility and Integration
• Elimination of redundancy and wastedcommunication time
2001 2002 2003
-10%-15%
Freight Cost: $ per drive
2001 2002 2003E
-64%
-50%
Loss Management: $ per drive
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Share the pain
• Sharing regional distribution facilities with
other companies
• Share costs, minimize delivery times
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By-pass the DCs
Speed to market
• UPS Trade DirectSM Ocean – An integrated solution combining ocean freight and
customs clearance with final UPS package, TL or LTL delivery.
• UPS Trade DirectSM Air – An integrated solution for moving time-sensitive shipments
from your international origins direct to customers or stores. Combines air freight and
customs clearance with final UPS package or LTL delivery.
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DC By-pass video clip
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Make sure you can see
• Customers demand visibility
• Track products, track costs,
speed delivery
• Using 4PL is one way to
achieve visibility
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Lucent Technologies
• Increased complexity in logistics coordination
• Over 40 regional and 2nd tier warehouses
• Over 14 transportation LSPs
• Global industry slowdown led to organization
downsizing and cost reduction pressure
• Increased competition led to lower margin
and higher service levels
• Project-based deployment practice requires
greater flexibility in resources
• Global realignment to the virtual
manufacturing model requires the SCN
organization to outsource
• Freight forwarding
• Inland Transportation
• Customs Brokerage
• Express Package
• Freight payables
• Visibility Systems
• Warehousing
• Transportation Management
• Order Fulfillment
• Inbound Process Management
• Outbound Process Management
China Logistics Activities Challenges
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Lucent Technologies
China Lead Logistics Provider
• Logistics network
management and
execution
• Total supply chain
visibility solutions
• Management of
logistics service
providers
Lucent China
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Logistics in China:
From a question mark to an exclamation mark!
Supply Chain Management Conference 2004
Thank you
© Copyright 2004 United Parcel Service of America, Inc. UPS, the UPS brandmark and the color brown are trademarks of United Parcel Service of America, Inc. All rights reserved.
Supply Chain Management Conference 2004