The Human factors in managing China Supply Chain. Tony Wai, Managing Director SCMC Ltd ;

Transcription

1 The Human factors in managing China Supply Chain Tony Wai, Managing Director SCMC Ltd ; Kevin Hou, Head of Global Sourcing China Networks Global Sourcing Nokia (China) Investment Co. Ltd. Shanghai Branch x7020; 92 nd Annual International Supply Management Conference, May 2007 Abstract: Through interviews with more than 30 executives running multinational company operations in China, they all agree that the number one factor in supply chain management effectiveness here is people. This paper presents a view angle from within China about the human factors that affects management of various stage and process in a supply chain, analyzes root cause from current social economic situation that affects these human factor, with specific issues related to employees, suppliers, authority officials. We ll provide some suggestions on establishing and dealing with China supply chain more effectively, and how to avoid some of the pitfalls. Overview of China today 20 some years ago, when China just opened its door to the world market after Deng s reform initiation, its general impression to the world is poor, backward, inferior, exporting mostly craft and art and some low end products. Today, China is a daily word in purchasing and supply manager of top-class multinational companies everywhere in the world. China GDP has increased from 1 trillion yuan (~US$125B) in 1986 to 20 trillion yuan (US$2.5T) in 2006, a 20 fold in 20 years. Massive urbanization has made the number of cities increased from 193 to 660, where 40 of them each has population of over 1 million. To reflect the impact of this to personal level: In major cities like Shanghai and Guangzhou, per capita GDP exceeds US$10,000, while smaller cities like Ma an Shan (4 hours from Shanghai) has achieved US$4000 today. Beijing alone, personal income tax increase 135 folds over the last 10 years while tax rates were held constant. This dramatic change in such a short period of time, and the wealth it generates for the society, families and individuals, no doubt have strong impact to people living within. So what do these changes means to the Chinese people involved in our supply chain? What s in the people s mindset? What effect does it have when we have to manage supply chain in China? People issues in the China supply chain In the China segment of a global supply chain, people that are involve with various process include:

2 Authority and government officials Suppliers Employees managerial and non-management personnel 3 rd Party service personnel third parties that provides service to your enterprise These people are involved in each part of a supply chain operation, and form the critical links for the material, information and monetary flows in the chain. As such, understanding the mindset, fundamental interest, motivation and limitation of people in these areas will help us paint a better picture on their effect on the supply chain. We ll look at current talent supply and social/cultural factor that influence human factors performance in these areas as well. Authority this may include local business regulatory agencies, tax bureau, custom officials, FTZ controlling agency, economic-town agency. They play some of the key roles in our supply chain continuity and cost. Issues involved with the authorities include: 1. Not motivated to support your supply chain since local government operation budget is not 100% coming from direct allocation from the states, but a major portion depends on the tax/fee revenue they generate locally, they are extremely driven to maximize income revenue, such as setting up unnecessary procedure, qualification, association, additional tax and check points just to collect more fee but not adding any value, in a way prolonging the supply chain process. 2. Gray area in regulation and legislation This is a problem in 3 folds: Immaturity in the legal system leaving too much room for human interpretation and discretion; lack of efficient execution and enforcing system leaves many regulations un-enforced. Obsolete or undoable regulation leaving them totally dysfunctional, or open up ways for corruption. 3. Guanxi plays a very important role Guanxi is a Chinese term for relationship and network. It s all too important when dealing with a system that are not mature and depends too much on personal discretion of the authority in control. For example, your goods can be stuck at the custom or some point at the FTZ, and you can be demanded for limitless forms and documents if you don t have the right Guanxi, or it would be release without any hold up if you do. This is important when choosing a 3 rd party service or logistics partner choose one with the right Guanxi with the authority and you minimize headache. Suppliers these are the first tier and upper stream suppliers that has a definitive affects on the reliability, quality, continuity, and cost of your supply chain. The critical human factors that affect supplier performance are: 1. Ability to attract talent for most local suppliers, infusion of capable talents is a major issue for them, due to perceived non-progressive local corporate culture, limited training and learning opportunity, and generally perceived lower pay. This limits their ability to

3 understand at strategic level how to work with multinational customers, and how to maximize efficiency and responsiveness the support the supply chain. 2. Relationship and Trust In an untrust society with incomplete legislation for business dealing, establishing good relationships and building organizational trust base on personal level is critical for business success. Interpersonal commitment (especially among executives networking) is somewhat more dependable/efficient than legal contracts or IT systems when managing Chinese/Chinese-background suppliers; a good example is the laptop supply base around Shanghai area controlled by Taiwanese; or the RF connector supplier clusters in Jiangsu province (Zhenjiang). The root cause is the Chinese culture that people matters than process and policy; the several thousand years dominant religion in China is "Ru Dao"from Confucius, that is, people to people's commitment, from ordinary people to the king, son to the father, wife to the husband, friend to friend, all social activities (business is part of this) are governed by this rule. 3. Corporate Culture Suppliers corporate culture varies, depending on the business nature, location, leadership and ownership. Most local supplier s corporate culture is grown from a family operated business or state owned business, and inherited the culture. For the privately owned suppliers, many entrepreneurs were risen benefiting from the government role or connection at the right time, and 4. Lack of understanding of supply chain and risk Most local suppliers doesn t understand the supply chain and supply management concepts. They are operating in reactive and transactional mode. Lack of ability to comprehend planning and collaboration information from multinational companies. Lacking understanding on the concept of risk and legal implication means that no contingency plan would be in place, sometimes even though a contract is signed mandating that. Employees this is the very key asset that you rely on to deliver supply chain performance. In interviewing more than 30 executives running multinational company operations in China, the generally agreed employee factors in supply chain management effectiveness are: 1. Recruiting and retaining good talents -- in a fact growing capitalized economy, which was converted from a planned economy not long ago, supply of supply chain talents are limited. On one side, there is a major gap in competency between what Chinese schools produce and what real-life challenge requires; On the other side, corporate in such a fast pace requires lots of experienced people that can handle tasks with accountability and competency. The best local people that really understand China supply chain in modern sense has no more than 16 years of direct experience. Those are the ones that started early in China with a multinational company and moved up on the rank in the last years. They are in short supply and commands high pay that is close to an expatriate. The second tiers are the ones with at least 5 years of experience managing supply chain related activities. Since they are all in high demand, hunted after by all the multinational

4 companies entering China, turn-over rate is high and retaining has been a frequent hot topic among executives. Within the approximately 300 people we trained on the C.P.M. program, less than 20% did not change job in the past 3 years. 2. Relationship skill Since most part of managing supply chain in China is interpersonal relationship, and problem solving always involve with people, relationship with suppliers, between peers, with global partner/internal customers, other supply chain related professionals and outside parties are all important factors in achieving the reliability, efficiency and responsiveness of the supply chain. In fact, relationship skill and business competency are rated top considerations by hiring executives 3. Motivation While money is one motivation factor for multinational companies to attractive talents, corporate culture, life-style and personality fitting to the job, growth and learning potential are all critical to retain talents. Supply chain management people are more motivated by empowerment and feeling important, given responsibilities, challenges and equal level of reward. However, executives experience indicated that many employees in the younger generation (typically below 26 years old by 2006) have different set of value and motivation factors then older ones. They are all grown up under China s one kid per family policy period, and enjoyed a spoiled and indulged growing experience. The fast growing material world is dazzling and confusing to them. Sense of responsibility and accountability is lacking, and they are more motivated for short term gain with little long term objective. 4. Culture issue the culture factor here is not addressing one Chinese culture; it s very diverse: North vs. South China, provincial difference, domestic vs. global, local corporate culture vs. the home country s. A supply chain may pass multiple hands of different culture, and each interface must work together to achieve the result. Effective supply chain managers must be able to understanding and adapt to local culture. Under the same economic environment, organizational culture plays an important role in the mind set, motivation and behavior in different geographical areas. Multinational companies setting up operation in China typically result in 3 different local corporate culture: local driven, global driven, or a mix. This somehow has to do with the cultural background of top executive in China. Nevertheless, culture transition should be managed, as conflict can easily lead to mistrust internally that would adversely affect supply chain performance. 5. Competency Competency of an individual here refers to good business common sense, good analytical skills, and strong understanding of professional methodologies, with a learning attitude. Common sense can mean different thing in difference culture and environment. The critical part is that it should be feasible in the current business environment that matches with the company s strategic objective.

5 3 rd Party service personnel these are the third parties that provide service to your organization. They are actually your suppliers. They face essentially the same issues of the local suppliers if they are local organizations or the multinational organization if they are foreign-owned. Suggestion on Improving the People factor Base on our observation and analysis on the people factor on the supply chain in China, we offer the following advices for improvement. 1. Priority of requirement when recruiting staff or selecting suppliers To improve on employee performance, recruiting with the top requirements prioritized as follows: 1. Corporate culture fit 2. Relationship skill 3. Business competency To work with better strategic suppliers, top evaluation factor should include competency of its people, which also include relationship skills and ability to understand your strategy. It may sound crazy if those are put before cost, quality and delivery. However, do keep in mind that only the right people can delivery the right cost, quality and performance, whether they are your employee or your supplier. For retaining and motivating of our team, the TEAM development model of China sourcing team is summarized from one of the author s leadership experience, and is very effective with local supply base development. This can also help to serve as a model for multinational companies to transfer global sourcing responsibilities to China. TEAM = Trust, Empower, Authority and Migration Trust: Heavily involve the local people in global operations; build trust between China team members and peers in the multinational companies home country by regular face to face meetings, program collaboration, setting common performance targets etc. Two dimensions of trust need to be considered are: people relationship and business competency. Apply as much uniformity of global structure as possible in China, instead of limiting people's responsibilities as local area just because of they are local people; Empower: With the good trust in place, you can then Empower the local team to take more important (global, strategic) responsibilities and work together with home country peers to drive for excellent business result; Authority: If your local team is capable and motivated enough (in most cases, no need to worry about their working attitude), they will success and build the sense of Authority (respects, image, influence) among their peers in the global team, and they will then be fully

6 empowered to take full ownership on the job. This is a key to retain talent as they will feel happy to work; Migration: When the result becomes mature and stable, we can then move on to the phase of migrating the full global/strategic sourcing responsibilities to China. The above methodology is a phased approach, and has been implemented in one of the authors past two companies with good success. Using the local people to manage local supply base is proven the best (but not guaranteed success) approach. This trend of localization is demonstrated by what s happening in the telecom sectors, where many global commodity managers/directors in many multinational companies are Chinese local hires today. REFERENCES Web site reference: