Supply chain's missing links

China neesd to get a move on when it comes to providing good local delivery, says logistics expert

With domestic consumption at the forefront of China's economic future, Jim Tompkins says logistics companies need to sharpen their strategy when moving products from A to B.

The 65-year-old founder of the supply-chain consultancy Tompkins International recognizes China's power in moving masses of products around, but believes many companies lack an overview when it comes to getting goods where they need to go.

"What China has is a very mixed bag in that the export supply chain is running well, it's very good and quite sophisticated, but the internal supply chain is weak," he says.

Tompkins was speaking from a hospital bed where he was recovering from minor surgery in Raleigh, North Carolina, home to Tompkins International's head office.

As many logistics enthusiasts do, he has a penchant for order and organization, compartmentalizing each step of the supply-chain process.

"Let me explain my view of the overall supply chain. There are six major components, consisting of plan, buy, make, move, store and sell," he says.

"Right now China has the very limited view of an export-only supply chain. They are capable of making the product and sending it to the dock. When producing for consumption in China they have weakness in the planning function."

This includes how many factories a company should have, where they should be and how goods should be transported between factories and distribution centers.

"Where they really do well is in between the four walls - the four walls of the factory and the four walls of the warehouse."

An author and contributor to more than two dozen books, including his most recent Caught Between the Tiger and the Dragon, published in 2009, as well as the supply chain blog GoGoGo!, Tompkins has spent the past 30 years working on bridging the outside world and the warehouse.

One of the biggest problems facing China's internal distribution is fragmentation and saturation of the market, with China's largest logistics company occupying less than 1 percent of the total industry.

"It's an economy-of-scale thing," he says. "If you're working with a big company that has 1,000 trucks and 1,000 drivers versus 1,000 different companies with one driver each, you're going to be much more efficient. It works similarly with rail and air."

Compounding the pressure on China's internal supply chains is the pace at which the nation is gravitating toward online shopping.

"Instead of shipping pallets to a shop where they'll be sold to customers, you're bringing each individual product right to the consumer's home," Tompkins says.

With e-commerce expecting to hit $1.4 trillion (1.06 trillion euros) by 2015, $380 billion of that is expected to come from China. The United States' projection is $260 billion.

To cope, he believes China needs to expand its vision of what a supply chain involves, including crucial steps such as deciding how much to make, where to store it and how to place it effectively into local distribution networks.

"You're going to see China running into three big problems," he predicts. "The first is cost. With inefficient distribution, you have too much labor and too much transportation cost."

He believes the second problem will be in Chinese retailers effectively dealing with inventory to ensure goods are at hand to be delivered quickly.

"And when customers don't get their products on time or at a reasonable price, it will result, thirdly, in problems with customer satisfaction. When you can't offer good service, business suffers."

Tompkins' interest in understanding the way goods move from company to consumer began while he was studying for his BSc in industrial engineering at Purdue University, Indiana, in 1969.

"What I have always done, since my junior year at college, was to look at and understand the idea of flow, the way that materials, information and cash move," he says.

After gaining a Master's and a PhD in industrial engineering, both at Purdue, Tompkins decided to join the military, where he became city manager for the army's Fort Monmouth in New Jersey.

He says the experience was like operating the levers of a "small city".

"I had a power station, 3,000 residents, as well as two retail compounds to take care of. I also had a warehouse full of materials and tools," he says.

"It was my job to understand and direct the flow of materials and the flow of labor to take care of the fort's needs."

It was not until a decade after leaving the fort that he began earning his keep in what is now known as the supply chain.

While working as a professor at Purdue University, he was approached by Amaco Plastic Products to work on creating a supply-chain process for the manufacture and use of plastic soda bottles.

Working on the factory floor, Tompkins helped design the most efficient method of constructing - beginning with the manufacture of the bottle, finishing at the factory where it would be filled and capped by the company's client - in this case Coca-Cola.

His designs were quite successful, laying the foundation for how plastic soft drink bottle manufacturing is done today. It also left Amoco plastics pleading with him to help design more factories.

"They asked me to help build nine more factories and I told them that between work at the university and consulting, I had no time and couldn't do it. They told me I had to," he says.

Realizing there was more money to be made applying his knowledge rather than passing it on, Tompkins started his company with his wife in 1975.

"I never went into this industry thinking I would ever own my own company. I did it partly because I had to and partly because I enjoyed it," Tompkins says.

His company now has branches across the US and in South America, and, since 2008, in China, serving clients ranging from BMW to IBM.

Tompkins says while China needs to continue developing its supply chain, the "u-turn" of the country from an export market to one focused on internal consumption has also created a challenge for foreign companies.

"Foreign companies are now having to learn the reverse - how to distribute their products that were being made in China to Chinese consumers," he says.

Contact the writer at toddbalazovic@chinadaily.com.cn