An Inside Look at Logistics from Asia May 16, 2008 5:15 PM
, By Gerard Hempstead
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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.
An Inside Look at Logistics from Asia
