China and the shift from make to buy

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China and the shift from make to buy

• Mike Woods

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Mike WoodsSupply Solutions LimitedPartner with
Plymouth for the delivery of corporate vocational
programmes at diploma and degree BSc (hons)
level in International Supply Chain Management
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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 Seeger Where have all the flowers gone
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Technical push and the move to China

• Hardware to software
• Analog to digital
• Discrete to converged

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Convergence the iphone 5 and an annoying slide
Screen Technology
Radio
Music Player
Internet
Signal Processing Better than missile Systems
Email
Camera
GPS
Video Player
Apps
Phone
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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?

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Consequences of technical push and consumer pull

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

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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

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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!

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China -A supply chain perspective
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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

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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!

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Chinese labour rates 2008 - beware dodgy data
Chinas 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.
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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
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iPhone supply chain