A retired vice president for DHL, Gerard “Jerry” Hempstead spent most of last year on the ground in China observing the country’s manufacturing, transportation and logistics. Hemstead, president of Hempstead Consulting (www.hempsteadconsulting.com), a firm that helps companies reduce their transportation costs, offers his take on Asian logistics.
First, a reality check: If you think America can get any of the manufacturing back that migrated to China, you are whistling in the dark. The cost of labor is just too high here. When China figures out how to move more of the manufacturing off its coast and into the heartland and West of China, it will open up the workforce to a billion more people.
The opening up of the West in China I liken to the connection of the East and West of the U.S. with the railroad here in 1869. Domestic transportation, both rail and ground, has a long way to go in China. When the country gets it figured out, it will be even more competitive than it is today.
Granted, fuel is an issue, so the cost of getting items to the U.S. is rising. But open skies will result in more aircraft coming into the U.S. from China, which means the cost per pound will come down and there will be excess capacity.
Same holds true for the mega ocean container ships coming on line. The economy slowing down can result in more competitive shipping rates, and that’s a good thing. I witnessed some incredible rate cutting while I was in China, and the battle for domestic China traffic is heating up between UPS, FedEx, TNT and DHL.
So what should you be thinking about as a company trying to reduce costs here in the U.S. and be more profitable?
I observed the most forward-thinking paradigms I had seen in my career. I saw orders coming into China, being fulfilled over there sometimes within minutes of an item’s manufacture‹and labeled with the U.S. carrier documentation. The orders are packed into containers, flown to the U.S., the freight is cleared when the aircraft goes wheels up, and the freight entered into the U.S. distribution streams as if the order were fulfilled here. Consider all the touch points an item has to go through if it’s manufactured in Asia and then brought into the U.S. It’s transported to a distribution/fulfillment center, then counted and put into inventory.
Warehousing costs include insurance, rent, staff, plus having the product picked, packed with U.S. labor and government work rules and then shipped to the consumer. You can start to appreciate that it’s likely you can cut all of those steps out and just do the fulfillment from the point of manufacture in Asia.
There are a few critical factors for success. One is a transportation partner with whom you can collaborate to make the supply chain seamless from pick up until delivery to the consumer. Some do this better than others.
Second is a multicarrier manifesting solution that can take your orders and process them with the appropriate carrier when the order hits the U.S. There is at least one software company that is enabling orders to come out of Asia in this manner and enter Europe and the U.S. For some, this new paradigm is opening up more markets for them, without having to open facilities in each continent.
Manufacturing is going to chase least cost of labor. If China gets too expensive, the work will migrate to India or Vietnam. The challenge is to figure out how to move the items your customer wants, in the least-cost way, to be more competitive and to maximize your profit.