China and the shift from
make to buy
Mike Woods
Mike Woods
Supply 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%
Pete Seeger
Where have all the flowers gone
2012. 70% and rising
Where has all the working gone? Gone to China
everyone, when will we ever learn?
Technical push and
the move to China
• Hardware to software
• Analog to digital
• Discrete to converged
Convergence the iphone 5 and an annoying slide
Radio
Screen
Technology
Internet
Signal
Processing
Better than missile
Systems
Email
Camera
GPS
Video
Player
Apps
Phone
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?
Consequences of technical push and consumer
pull
• Product life cycle
shortens
Technical challenge
increases
Time to recover
investment reduces
Management
challenges in all areas
accelerate
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
complexity
BUT
You also get
Higher
productivity,
longer
working
hours, and
some ethical
issues
iPhone supply chain