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CBRE’s Executive Director of Industrial and Logistics Services, Asia – Andrew Hatherley predicts higher...

CBRE’s Executive Director of Industrial and Logistics Services, Asia – Andrew Hatherley predicts higher rents and fewer available properties over the next 12 months.   Just focusing on Shanghai, average Logistics rents fell approx 16% during the Recession, however the last 3 Qs have all seen growth to a total of just over 6%.   CBRE expects that this rental growth will accelerate rapidly during the next 12 months due largely to……   A) vacancy rates dropping on the back of increasing demand and   B) the effect of virtually no new  International Grade warehouse construction in the past 2 years.   The increased demand for warehousing space is coming from higher levels of local consumer consumption coupled with much improved Export levels ( now back to early 08 levels )   Most other major cities in China are also enjoying rental growth, inc Beijing which has improved by 3.1% in the 1st half of 2010 with solid volumes.   Mr Hatherley believes these factors are leading many of the major Logistics Development companies to bring forward plans to restart projects in Q4 of this year.   However, taking into consideration the likely construction time, the first of these new warehouses wont be available for occupancy until well into 2011   Given the above, CBRE predict that 2011 will be a challenging year, real estate wise, for 3PLs and Logistics companies as rents will rise quickly and available warehouse options will dry up fast.   Current estimates by CBRE show Logistics rental rates for new leases could rise by up to 20% in the next 12 months.  Aug 27, 2010 4:00 AM

Li & Fung, the consumer goods sourcing company, a supplier to Wal-Mart Stores, recently offered to take Integrated Distribution Services Group (IDS) private for HK$7 bill...

Li & Fung, the consumer goods sourcing company, a supplier to Wal-Mart Stores, recently offered to take Integrated Distribution Services Group (IDS) private for HK$7 billion ($901 million) in order to expand its business into mainland China. The Fung family of Hong Kong-based Li & Fung, which holds a 32.96-per cent stake in IDS has offered HK$21, or 0.585 of its stock, for each share in logistics firm IDS, according to a filing with the Hong Kong stock exchange. Li & Fung Group and the Fung family jointly own about 45 per cent of IDS. The IDS Group, part of the Li & Fung Group, where Li & Fung Group along with the Fung family jointly own 44.94 per cent, is a leading integrated distribution and logistics services provider specialising in value-chain logistics with extensive networks in China, ASEAN, the US and the UK. Headquartered in Hong Kong, the $1.8 billion turnover IDS provides integrated-distribution services covering logistics, distribution, manufacturing and international. IDS currently has over 400 customers including many blue-chip multinationals from a wide spectrum of industries including consumer, healthcare, retail, footwear and apparel and garment. Founded in Guangzhou in 1906, Li & Fung Group is a multinational group of companies operating in three distinct core businesses - export sourcing through Li & Fung Limited, distribution through IDS and retailing through Convenience Retail Asia Limited, Trinity Limited and other privately-held entities. The Li & Fung Group has a total staff of over 35,000 across 40 economies worldwide and reported revenues of $16.7 billion for 2008. Li & Fung, the biggest supplier of apparel and toys to Wal-Mart Stores, generates most of its revenue from the US and Europe, will gain entry into Asia, especially China, where IDS has majority of its clients.     Aug 19, 2010 5:00 AM

THE National Development and Reform Commission (NDRC) has revealed that 20 per cent of fresh fruit and vegetables, 30 per cent of fresh meat and 15 per cent o...

THE National Development and Reform Commission (NDRC) has revealed that 20 per cent of fresh fruit and vegetables, 30 per cent of fresh meat and 15 per cent of seafood are spoiled in delivery, costing CNY100 billion (US$147 million) a year, reported China News.   To counter this, the central government has launched a five-year plan to develop an agricultural cold chain logistics system to enhance preservation and storage of fresh agricultural produce so that producers can better compete in global markets. China's cold chain logistics system is in its initial stages of development compared to the US, the European Union and Japan, where cold chain logistics practices cover 100 per cent of poultry and 95 per cent fruit and vegetables. This new five-year plan for agricultural produce will include the development of regional cold chain logistics distribution centres as well as reorganising resources of major players in the sector. The plan aims to set up an overall cold chain logistics system for the country in 2015 to handle more than 20 per cent of fresh fruit and vegetables, 30 per cent of the meat and 36 per cent of seafood. The frozen food five-year plan calls for increases in cold chain coverage to 30 per cent of frozen fruit and vegetables, 50 per cent of frozen meat and 65 per cent of frozen seafood to reduce spoilage 15 per cent for fruit and vegetables, eight per cent for meat and 10 per cent for seafood. The plan intends to raise China's competitive standing in the global agricultural markets where it has many comparative advantages if it were not for its high spoilage rate because of an inadequate cold chain system. Food spoilage rate still high in China Aug 10, 2010 9:00 PM

Ningbo plans to build an information platform linking 5,000 logistic companies in the city in the next three years.   "It's like an Ali...

Ningbo plans to build an information platform linking 5,000 logistic companies in the city in the next three years.   "It's like an Alibaba platform which connects all of the logistic companies in Ningbo and enables them to release information and trade on it," said Li Bao, deputy director of Ningbo Hi-Tech Industrial Development Zone. Ningbo development zone on Monday signed a memorandum of understanding with IBM's China unit, which is going to set up a development lab in Ningbo, the fourth after ones in Beijing, Shanghai, and Xi'an. "Only 5 percent of Ningbo's logistics companies have their own information systems while the rest are running their businesses very inefficiently," said Wang Jinghang, president of Ningbo Logistics Association. According to industry figures, logistics costs account for 30 percent of the total costs of goods made in China, while internationally that figure is about 10 percent. Lowering the cost of logistics and making better use of resources is "extremely important" for Ningbo, said Matt Wang, the director of IBM China Development Laboratories. He added that the lab would focus on software development, testing, consulting and training to provide services for the city's logistics enterprises. Overall throughput in Ningbo port reached 384 million tons last year, with a year-on-year increase of 6 percent, ranking it second among coastal ports in China. The city's plan for the logistic industry is part of its plan to build a "smarter city" including manufacturing, financial services, the leisure industry, and logistics. Many cities in China have been working to upgrade information processing and this has provided international IT companies with more opportunities for expansion in the country. US-based IBM, for example, has established cooperation with various cities including Guangzhou, Kunshan and Shenyang over the past two years. Aug 10, 2010 7:00 PM

General Motors plans to increase purchases of components and services from Southeast Asian-based suppliers to up to USD 1.6 billion per year within...

General Motors plans to increase purchases of components and services from Southeast Asian-based suppliers to up to USD 1.6 billion per year within three years, Martin Apfel, president of GM Thailand and GM South-east Asia Operations (GMSEA), told reporters at a press conference in Bangkok recently. Apfel said GM needs to build vehicles in the markets where they are sold. "For that to become a reality, we need more component localization," he said. The vast majority of the spending increase will be in Thailand, where the company currently spends around $200 million per year on outsourcing parts and services. GM plans to ramp up vehicle production at its 140,000-unit plant in Rayong, Thailand, from next year with the launch of a new pickup truck range, to be followed by passenger vehicle derivatives including a midsize SUV. The company hopes to increase its exposure to booming vehicle demand across the ASEAN region. In the first half of 2010, sales in the region's main markets increased by 41 percent to a record 1.18 million units. General Motors needs a higher level of local sourcing also to support its new $500 million Thai diesel engine plant, which is due to become operational in early 2011. Construction of the engine plant was halted in 2008 during the global financial crisis but resumed in 2009 after GM secured financing of around $400 million from a consortium of Thai banks. It will have an annual production capacity of 100,000 2.5- and 2.8-liter engines, which GM developed with the collaboration of Italian engine specialist VM Motori. GM also assembles the Captiva SUV and the Cruze and Aveo passenger cars in Thailand, from CKD kits imported from its South Korean unit, GM Daewoo. Local content of these models is very low, which means that they incur high taxes across the ASEAN region. This has held back the company's sales performance in recent years. Apart from Thailand, GM has a small assembly joint venture in Malaysia. Production at its Indonesian plant ceased several years ago but may be restarted once the company's regional strategy unfolds. Other than its pickup-based program, the recently launched Cruze compact sedan is particularly important for the company's future growth in the region. "This model has Chevrolet's new global design features that are becoming the common signature on all new products," Apfel added. To increase local sourcing, GMSEA will need to increase its regional engineering capabilities — particularly in Thailand. Apfel says GM is "growing our Thai engineering capabilities and are currently expanding the engineering center by 20 percent." Aug 10, 2010 1:00 AM

With rapid development of China over the past thirty years, Chinese manufacturing industry ranks 4th among all manufacturing industries of the world...

With rapid development of China over the past thirty years, Chinese manufacturing industry ranks 4th among all manufacturing industries of the world, just lagging behind United States Of America, Japan and Germany. Especially in light-industries, China has been a biggest manufacturing and supplying center of consumer electronics and small commodities in an extremely wide range. Both in build quality, price and variety of products, Chinese suppliers have sharp edges in competing with those branded gadgets. Here Top 10 China Electronics Wholesale Center will be introduced below: 1. Guangzhou Wholesale Market Guangzhou is a very famous city for those importers and buyers importing Chinese merchadize often because it is the city for the Canton Fair – One of World’s Largest Fairs and held twice in this city every year. It attracts 300 thousands of businessmen coming to there and its sales reaches 30 – 40 billion US dollars in each fair. Besides the Canton Fair, There are nearly 50 wholesaling centers and over 100 thousands of vendors active in this city. From toys, textile & clothing, stationary, gift product to consumer electronics, communication device, you can get everything you are looking for. 2. Shenzhen Seg Electronic Wholesale Market Shenzhen Seg Electronic Wholesale Market, the world’s top distribution hub of electronic products such as China cell phones and components, is located in Shenzhen where exist over 10,000 electronics manufacturers and more than 50,000 distributors of various scales. Plus its geographical advantage of adjecent to Hong Kong, Shenzhen it a priority Choice to importing electronics direct from China Electronics Wholesale Center. 3. Yiwu China Commodity Centre Yiwu China Commodity Centre is the largest small commodity market not only in Mainland China, but also in the world. It’s famous for providing an extremely wide range of small commodities while concentrated on gifts and decoration gadgets at competitive price. People from all over the world come here to buy goods for retail in other parts of and abroad, in particular. Because of its large variety of quality and cheaper price, this free market has also become shopping paradise for tourists. 4. Linyi Motorcycles and Accessories Trading Center The Motorcycles and Accessories Trading Centre is located in the Linyi Wholesale Town, which is No. 3 wholesale market in China in terms of total trading volume. With convenient transportation and excellent logistics services, the trading centre is the leading motorcycle and accessory wholesale market in China. 5. Jiangsu China Eastern Silk Market Located in the traditional place of silk production of Wujiang, Jiangsu Province, China Eastern Silk Market is one of the top wholesale centres in China, which specializes in the trading of silk products. As a national silk distribution and price-setting centre, it has an Important role to play in both domestic and international silk market. 6. Nansantiao Wholesale Market As the largest small commodity in North China, Nansantiao Wholesale Market in Shijiazhang, Hebei Province boasts the name of "the World’s Nansantiao". Apart from a small commodity trade, it also provides accommodation, warehousing, logistics and financial services to customers from all over the country as well as from over 20 nations and regions in East Europe, Africa and Central Asia. 7. Chaotianmen Market Started as retail market, Chongqing Chaotianmen Market has now grown as one the top wholesale market in China. With more than tens of thousand of goods in over 20 categories, ranging from clothing to office supplies, the market’s annual trading volumes hit 20 billion RMB in 2006. 8. Shenyang Wuai Market Shenyang Wuai Market’s location in the Northeast of China gives itself geographical advantages for trading with Korea, Russia and other nations and region in Asia. It’s another one of the top 10 wholesale markets in the country, which specializes in clothing and small commodities. 9. Wuhan Hanzheng Street Market Wuhan Hanzheng Street Market in Hubei Province offers wholesales in almost everything, from clothing to interior decoration and from toys to office supplies. But it’s more well-known as distribution centre for clothes of a variety of quality. 10. Changde Bridge South Market Changde Bridge South Market is one of the largest wholesale markets in China, with over 30 thousand suppliers of industrial equipment, household appliances, textile, non-staple food, aquatic products, building materials and much more.   Aug 10, 2010 1:00 AM

CHINA Merchants Americold Logistics Company Limited (CMAC), the 51-49 joint venture established between China M...

CHINA Merchants Americold Logistics Company Limited (CMAC), the 51-49 joint venture established between China Merchants Holdings (International) Co. and Americold Realty Trust, has completed the acquisition of 70 per cent of China Merchants International Cold Chain (Shenzhen) Co Ltd (CMCC) from CMHI. "The establishment of CMAC with Americold, and the acquisition of KXL and injection of CMCC enables CMHI to solidify CMAC as China's premier third-party temperature-controlled logistics provider, operating an integrated nationwide platform across 15 cities in China," said CMHI chairman Fu Yuning. "As CMHI's platform for cold chain services, CMAC plans to develop and promote cold chain logistics services in the broad consumer goods market in China," said Dr Fu. The joint venture also signed a definitive agreement to acquire KangXin Logistics (KXL) from Rich Products Corporation for HK$700 million (US$90 million) for both transactions. CMHI and Americold will fund these transactions in accordance to their respective proportional share ownership in CMAC. KXL, a joint venture subsidiary of Rich, is a third-party cold-chain logistics (3PL) company, serving multi-national food companies as well as Rich's own warehousing and distribution needs in China. Aug 10, 2010 0:00 AM

Civet Logistics is principally engaged in the operation and management of Civet Port which is located in the southwest of Zhuhai City for port storag...

Civet Logistics is principally engaged in the operation and management of Civet Port which is located in the southwest of Zhuhai City for port storage and transportation businesses. Civet Port is equipped with one 1000 DWT multifunctional berth, two 500 DWT multifunctional berths and one container yard with site area of approximately 80,000 square metres. The total site area is around 100,000 square metres with annual throughput capacity of 150,000 TEU. The proposed acquisition enable the company to strengthen its market position in port operation industry, to create a favorable environment for its further expansion in the Pearl River transportation system and to benefit from services diversification which collectively will enhance the company's revenue stream, Chu Kong Shipping Development said in a statement. Pursuant to the equity transfer agreement, Chu Kong Shipping Development will procure Civet Logistics to settle its liabilities of approximately RMBB55.209 million ($63.458 million) within thirty business days from the completion date. Chu Kong Shipping Development said it plans to buy a 75% stake in Civet Logistics for an initial consideration of RMB77.69 million ($89.299 million). Aug 10, 2010 0:00 AM

Forwarders claim inefficiency and lack of facilities are clogging-up trade. The criticism comes as lines implement con...

Forwarders claim inefficiency and lack of facilities are clogging-up trade. The criticism comes as lines implement congestion surcharges at India’s leading container port, Nhava Sheva, and divert services. Strikes and congestion have also impacted other leading container terminals in India this year. Sanjay Tejwani, Director of Oceanfreight for DHL Global Forwarding India, told IFW the inadequacy of India’s logistics infrastructure could constrain the nation’s growth. "India’s exports, for example, could be rendered less competitive due to higher transit times and lower reliability," he said. Gracias Thevar, Country Manager of logistics services at GAC India, said delays at ports were common, key facilities proving unable to cope with the rapid growth of international trade in recent years. "The existing rail and road infrastructure forces cargo to move in and out of only a few major ports," he said. "The system is rife with inefficiencies, each adding to delivery cost and time – the two main measures of transport – which has an immediate and fundamental impact on the competitiveness of Indian goods abroad, and the cost of foreign goods in India." Tejwani said the slow progress of port and rail privatisation, and roads that are "well below acceptable standards" were limiting India’s potential to handle more international cargo, "resulting in congestion at ports and inland container depots and an increase in transaction costs". A spokesman for shipping line CMA CGM told IFW the congestion at Nhava Sheva was the result of the slow movement of imported containers to the various inland container depots. "Productivity at the terminals is also hit by delays in docking and sailing because of a shortage of pilots at Nhava Sheva," he said. "We need more pilots, particularly those licensed for larger vessels. This would reduce idle time at Nhava Sheva and improve quay productivity." Rail services into terminals are also poorly organised, he claimed, and CMA CGM is now using private trucks to reduce loading delays. "The delay for the export containers can be seven days if they miss the intended ship," he said. Aug 10, 2010 0:00 AM

SLOW STEAMING, the popular cost cutter and environmental public relations play for carriers, is not nearly so popular...

SLOW STEAMING, the popular cost cutter and environmental public relations play for carriers, is not nearly so popular with shippers who see rates going up and transit times going down, according to a report from the New York-based Seeking Alpha financial portal. Some shipping lines have slowed to 12 knots while clippers, fast 19th century square riggers, averaged 14 - 17 knots, the report noted. Maersk, with more than 600 ships, finds that super-slow speeds reduces fuel consumption and is believed to have saved the company more than US$102 million on fuel since the measure was introduced. Maersk spokesman Bo Cerup-Simonsen said: "The cost benefits are clear. When speed is reduced by 20 per cent, fuel consumption is reduced by 40 per cent per nautical mile. Slow steaming is here to stay. Its introduction has been the most important factor in reducing our CO2 emissions in recent years, and we have not yet realised the full potential. Our goal is to reduce CO2 emissions by 25 per cent." But slow steaming compels retailers to accept longer planning horizons which will increase wastage and the production of unneeded goods, said the report. Meanwhile the cost of shipping an FEU from Hong Kong to Los Angeles without a contract, or spot rate, was about US$871 in July 2009, a five-year low. In July this year the spot rate hit $2,624 - a five-year high. Lifetime Brands, which makes and sells products under brand names like Cuisinart and KitchenAid, said it was now paying about double last year's rates, and Costco said it was now back to 2007 rates. Shipping lines have pulled capacity out of service when the economy tanked and have been slow to bring it back in support of higher prices. To make matters worse, there are not enough containers to meet demand, again pushing up rates and prices, said the report. Mona Williams, vice president for buying at the Container Store, said the company was telling manufacturers to book space well in advance, and that it was moving delivery dates earlier. And for items that simply must arrive, "sometimes you can offer to pay a steamship company a larger amount of money, and they might take somebody else's container and not put it on," said Lifetime Brands CEO Jeffrey Siegel, but "in most cases, you just have to wait." Mr Siegel said he has begun to schedule items to arrive as long as three months before they need to be in stores. That means a higher cost for holding inventory than usual. Aug 10, 2010 0:00 AM

GLOBAL logistics provider Agility has officially commenced operations in Cambodia with the opening of an office in the capital Phnom Penh, to streng...

GLOBAL logistics provider Agility has officially commenced operations in Cambodia with the opening of an office in the capital Phnom Penh, to strengthen its network in Indochina. Agility Cambodia will offer services to both locally-based and network customers in Cambodia, with a range of air freight, sea freight, customs clearance, warehousing and local distribution solutions. A cross border trucking service initially connecting Ho Chi Minh in Vietnam to Phnom Penh and Bangkok in Thailand to Phnom Penh will be available, followed by services linking South China and Vietnam. Agility Cambodia will also focus on other key sectors including Project Logistics in the oil and gas sector and Fairs and Events, a company statement said. "Agility has a great opportunity to develop the Cambodian market as demand is growing for a broad range of freight and logistics services. We are seeing a significant increase in international trade from Cambodia to the US and Europe, as well as to the rest of Asia. We have also seen an increase in cross border trade within Indochina and between Asean countries," said Mike Gildea, CEO, Agility, South East Asia. To support its growth in Cambodia Agility has appointed Phang Sovong as general manager, Cambodia. Aug 9, 2010 11:00 PM

As China begins establishing cold chain national standards to boost the industry's development, the US is lending a helping hand to create a win-wi...

As China begins establishing cold chain national standards to boost the industry's development, the US is lending a helping hand to create a win-win situation for both sides, a US official said on Tuesday. A cold chain is a supply chain system for keeping perishable food in a low-temperature environment from processing to storage, transport, distribution, retail and finally to customers. Products involved including meat, seafood, vegetables and fruits, as well as medicines. With China further developing the cold chain industry, the US could make its agricultural products accessible to more inland Chinese customers and sell logistics equipments to Chinese companies, said Eric Trachtenberg, director of the agricultural trade office at the US embassy in Beijing. He also said that the US, as a major food importer from China, will have safer China-exported food once the cold chain industry in China is well established. Trachtenberg made the remarks at a press conference of the Second US-China Cold Chain Standards and Regulations Conference, which was held on July 27 and 28 in Beijing. China is a latecomer in the industry. The issue of national standards was only raised in 2006, according to Huang Jiujiu, department director of the China Federation of Logistics and Purchasing. The lack of national standards poses as a major barrier to development of the cold chain industry in China, said Trachtenberg. China has been cooperating with the US, the most developed country in terms of the cold chain industry, to develop its own standards and regulations for the industry. Commercial delegates and experts from both sides have visited each other and talk with each other to share experiences. The country now has over 200 cold chain standards, mainly developed by government departments and industries for specific products, said Liu Weizhan, secretary general of the National Sub-Committee of Cold Chain Logistics Technology. The standards for the cold chain industry are still in their infancy and there is no clear timetable on when they will be rolled out, said Dai Dingyi, vice-chairman of the China Federation of Logistics and Purchasing. Aug 9, 2010 10:00 PM

It is reported that Chinese container shipping company, Grand China Logistics Holding Co Ltd was approved by the National Development and Reform Commissio...

It is reported that Chinese container shipping company, Grand China Logistics Holding Co Ltd was approved by the National Development and Reform Commission to acquire parts of stakes from a Norwegian shipping company. According to the NDRC Grand China expects the share to be at least 50% and hopes to get involved into transporting special equipment, like drill platform after the purchasing. The deputy manager of Grand China said ''Though approved by the NDRC, there is a lot more work to be done and other relevant details have to be agreed upon, thus the formal agreement will be signed in September.'' The Norwegian company is in some aspects a shipping expert in drill platform transportation. Aug 9, 2010 10:00 PM

Vietnam occupies a vital geographical position in Asia, providing a dynamic and diverse cargo transport system. However, the logistics industry in Vietn...

Vietnam occupies a vital geographical position in Asia, providing a dynamic and diverse cargo transport system. However, the logistics industry in Vietnam has not developed as rapidly as in regional countries like Thailand and China. For this reason, Vietnam is very concerned about boosting the industry to aid its subsequent integration with the region in the near future. There are more than 800 mostly small-sized logistics businesses in Vietnam, and they remain modest in terms of capital, technology and manpower. In addition, logistics infrastructure is inadequate, and there are many legal barriers hindering the development of logistics in Vietnam. Gopal R , the director for transport and logistics practice of the Frost & Sullivan Company, said that the Vietnamese logistics industry has great potential for development, which domestic businesses have not yet made the most of. At this time, domestic companies handle just 18 percent of total import-exports, with the rest being catered for by foreign logistics companies. Inadequate logistics infrastructure including incomplete road systems running to seaports, warehouses, and airports has resulted in increased logistics costs. This disadvantage has hampered the development of the Vietnamese logistics sector. Vietnam must entirely open the logistics market for foreign companies in 2012 following its commitment to the World Trade Organization (WTO). This is a big difficulty for Vietnamese logistics businesses that have to compete with foreign companies that have greater capital and better competitiveness. Trinh Ngoc Hien, the deputy chairman of the HB Group, and the chairman and the CEO of the Vinafco Joint Stock Company, said that most domestic logistics companies were transformed from state transport enterprises and are inflexible in their business practices. Most Vietnamese logistics websites are simple as they just show their profile and services, rather than utilities like tools for monitoring orders, ship schedules and paperwork (factors that ship owners are very concerned about while choosing a logistics service provider). To keep up with the increasing demand for logistics, Gopal R said that Vietnam needs to improve and develop the nationwide logistics system and diversify transport systems to include road, air and sea routes to better facilitate transport. Vietnam takes advantage in trans-border transport and so it needs to make the most of this advantage to boost the development during regional and global integration. Experts said that Vietnam needs to consider investment in transport infrastructure as the basis for logistics development following the Seaport Plan for 2020 and the Direction for 2030, the Overland Transport Development until 2020, particularly Project VITRANSS2, regarding comprehensive research into sustainable development of the transport system, and the priority to invest in major logistics projects. In addition, the state needs to put in place policies to support and encourage private or PPP (Public-Private Partnership) investment, set up sound solutions on investment in manpower to stay abreast of the demand for logistics development, improve the law system to foster the development of logistics and domestic 3PL (Integrated Third Party Logistics Service) businesses, launch the EDI (Electronic Data Interchange) system and the non-paper transaction system at customs offices and border crossings, reform administration and make public services transparent. There is also a need to ally businesses and associations to develop together and make them more able to compete with businesses in the region and the world. It is expected that Vietnam will be among the top 30 or 40 world economies in terms of World Bank-reported Logistics Performance Index (LPI). It is also expected that the logistics cost as a percentage of the GDP (Gross Domestic Product) will reduce from 25 percent now to 20 percent in the near future and that the logistics service market in Vietnam will maintain the average growth at 20-25 percent annually. – VEN Aug 9, 2010 10:00 PM

Adjustments China makes in the domestic real estate market provide great opportunities for international capital, which is snapping projects there i...

Adjustments China makes in the domestic real estate market provide great opportunities for international capital, which is snapping projects there in the mode of funds. Mapletree Investments, a unit of Singapore-based Temasek Holdings, said recently that with the completion of the investment of Mapletree India China Fund, it would establish an about USD 1 billion fund to aim at commercial complexes in first-tier Chinese cities. The fund, focusing on both commercial and residential projects, is expected to be triggered within six to 12 months. "Mapletree has entered the Chinese market for a long period of time but till now, it has not gotten a proper opportunity to stretch out reach to commercial complex projects in Shanghai," Loh Shyh, the company's CEO for China, said in an interview. "It is time for it to take move now as real estate projects in the eastern Chinese municipality are mainly industrial and logistics ones." According to Mapletree, its core urban complex brand Vivo City will walk out of Singapore for the first time. Vivo City in Xi'an, capital of northwest China's Shaanxi Province, is scheduled to start operation this December. In addition, the Mapletree India China Fund has two projects in Beijing and one in Foshan, Guangdong Province. "The investment totals about USD 617 million, accounting for around 60 percent of the part for China," reiterated Loh. "The remainder is expected to be fulfilled soon as related negations have been started." Mapletree India China Fund, with a designed investment size of USD 1.16 billion, is launched to aim at development of office buildings, shopping malls, and residential buildings in China and India, two of the world's largest emerging markets. And of the total, 60 percent to 80 percent will be injected into the Chinese market. "The design period of the fund is '5 + 5' mode and when and how it will quit will mainly depend on the market situation," added Loh. "There is possibility for Mapletree to establish Reits in Singapore but it is not the key. The key is the return on investment." Established in 2000, Mapletree focuses on real estate and capital management in Asia. So far, it has stretched out reach to 10 Asian cities including Singapore. And the capital under its management and custody has exceeded SGD 13 billion. Aug 9, 2010 9:00 PM

The adoption of centralized shared services has become increasingly popular over the past few years in Mainland China. Many multinationals and, increasingly, domestic conglomerates are looking to this organizational setup as a way to improve process efficiency, improve transparency, and increas...

The adoption of centralized shared services has become increasingly popular over the past few years in Mainland China. Many multinationals and, increasingly, domestic conglomerates are looking to this organizational setup as a way to improve process efficiency, improve transparency, and increase operational control.   At the most basic level, a shared service centre (SSC) is a centralized department that services multiple business units. While the majority of back-office operations that have seen a degree of successful shared services are Accounting, Finance, IT, and HR, what is lagging are the Supply Chain functions - Sales Order Processing, Procurement, and Logistics. These functions are behind in the degree to which companies are able to setup internal shared service facilities.   In this article we explore the state of shared services specifically in domestic procurement within the mainland, identify some of the challenges faced by companies in implementing such business models, and finally summarize some of the key success factors to make this a workable business model. Current Market   Decentralized operational models with multiple operating entities, each with their own back office function are commonplace in China for a number of reasons.   For multinationals this is often a result of needing to have multiple joint ventures, overseas acquisitions generating multiple entities, or as a result of them looking at establishing operations in geographically dispersed locations to be able to obtain tax or other benefits from doing so. For instance, Siemens, a large multinational conglomerate with over US$ 80billion in revenue, operates with over 80 separate operating entities on the mainland. Akzo Nobel, a Dutch chemical conglomerate with US$ 15billion in global sales, has around 30 operating companies in China.   Under the "Zhenqi Fenkai policy ("Separating government from enterprises) which lasted from 1982 to the mid-90s state-owned enterprises were driven to decentralized operating models. A key part of the reformation concentrated on giving the SOE increased autonomy with administrative control being decentralized to local governments. This resulted in many operating entities being setup that work independently of each other, many of which sought to maximize the social benefit of employment rather than operating with a strong focus of operational back office efficiency. Even entrepreneurial companies that have emerged over the last decade, operate in relatively complicated operating structures as a result of a need to service local markets efficiently, and in order to maximize tax benefits and city/county level policies for the establishment of new companies.   Challenges   While shared services organizations should generally be in a position to improve service levels within, they often fail to do so. Interestingly, technical issues tend to be easier to handle than people issues. The biggest challenges tend to be around change management, communication, and strategy.   One of the biggest hurdles is a result of the "But I'm Different syndrome. Most business units fear relinquishing control of their operations and arguing argue that a one-size-fits-all solution will not meet their needs and that a disruption in delivery of products or services will result in slow-downs or even stoppages of manufacturing processes or work. Thus they would prefer to trade off low labour costs for the ability to establish operational control. However, with the right executive sponsorship from an implementation program, Business Units soon realize the benefits of process simplicity and standardization, and thus become more comfortable with the elimination of what were previously considered essential process variations.   Recruiting and developing a shared service organization can also prove challenging. The competition for labour is fierce with few procurement professionals used to working in a shared service procurement environment. Developing career roadmaps that separate out the development of transactional procure-to-pay processes to more strategic buying roles, is critical in managing employee turnover. Developing an operating model that is simple and robust enough to manage a critical level of process stability is crucial. Being able to recruit, train, and manage buyers should be a core competence of a shared service centre.   Defining pricing and financing structures can also prove to be difficult. Typically, organizations choose a system of chargeback, based on utilization or allocations, which distributes costs among the business units. A complaint of insufficient representation is quite common, which often puts the shared service centre on the defensive about the value it's bringing to the organization. Establishing and concurring on the most appropriate model within the business groups is a crucial step in the design phase when looking at the cost-benefit justification of a shared service centre, with the ultimate customers of the services - the Business Units - needing to be involved in the decision process.   Key Success Factors   The critical step in the establishment of shared services in procurement is the division of purchasing activities into operational or transactional activities, i.e.placing purchase orders and ensuring deliveries are on-time, versus the strategic buying requirements which look at demand consolidation, running tenders, and reviewing and developing suppliers. This separation is crucial to ensure that the strategic focus needed to obtain cost savings and manage suppliers is not interrupted by day-to-day problems.   Establishing a shared service procurement organization involves developing an organization that is seen as a customer-focused vendor of choice rather than a mandated procurement organization. A good place to start is with indirect materials since the business impact of any supplier problems, such as delivery delays, is not as critical as with production materials required in customer product.   Limiting choice also tends to be a quick way to lower customer satisfaction levels. While it is often tempting to try to drive volume-based savings by limiting product and vendor selection, the critical focus of a shared service procurement organization should be to ensure the inclusion of other key criteria such as quality, delivery times, and intangibles such as design services.   Maverick buying, or the purchase of items not through the standard process but in ad-hoc manner, should be reduced, but it is important to note that it is difficult to eliminate completely. Flexibility should be built into the procurement process to take into account that it is difficult for any organization to control for 100% of its purchases, but necessary controls should be implemented to ensure awareness of what is being purchased in this manner so that the necessary actions to reduce such instances can be performed by the purchasing organization. Finally, it is imperative for a shared service procurement organization to measure costs and service levels before implementation. Often, the priority is to get the processes to work effectively. Additionally, with the go-live of a procurement organization fire-fighting can become an imperative if orders do not get processed on time or suppliers do not deliver. However, it is important from the start that the shared service organization defines KPis in order to demonstrate value and procurement savings. Internal clients are often quick to criticize performance and demand higher levels of service, but clients should also understand what the baseline is and the length of time needed for the SSC to reach its ideal performance level.   Decentralized operational models are commonplace in China, and most companies have several separate operating companies with the country. Slow but Focused   Shared service centres have transitioned from being viewed as a pure trans-action processing organization towards a value-provider to the business. As a result of being able to consolidate metrics, generate analytics, and aggregate business information, they have helped management focus on operations. While Procurement has been much slower to consolidate into a shared service concept, by focusing in on being service-oriented and customer driven, certain aspects of an organization's buying can be consolidated. Aug 4, 2010 3:45 AM

Magistrali recently moved to Shanghai to be closer to one of the worlds' fastest growing markets. He talks t...

Magistrali recently moved to Shanghai to be closer to one of the worlds' fastest growing markets. He talks to CHaiNA about risk, commodities and managing more than 2 billion Euros of KONE's global direct and indirect spend.   Why has Kone moved the heads of the sourcing and supplier management organization out to China?   China has become a key growth market for KONE, representing more than 50% of the global 'new equipment' (elevator and escalator) market.Mega-trends such as urbanization and the aging population (which requires more horizontal and vertical transportation) are key drivers spurring this growth for KONE and our industry. Additionally our China based suppliers are playing an increasingly important role in driving innovation as well as supply to our global operations.   I have moved to China to ensure that we are well positioned to manage the enormous opportunities ahead of us, and although most of our global roles are still based out of Europe, this will increasingly shift to China based on our business requirements. How did you change your department when you moved to KONE in 2005?   Before arriving to KONE in mid-2005, the sourcing organization was highly decentralized and sub-optimized. We have since transformed our sourcing and supplier management organization into a globally integrated operating structure working in alignment across more than 45 business units worldwide.   Having globally harmonized processes, systems and ONE sourcing strategy has greatly enabled knowledge and spend leverage, and our team of more than 180 people has the principal reason for our significant contribution to KONE's bottom-line as well as top-line business impact since 2006.   Adoption of the category management business practice has also ensured cross-functional alignment with our internal business partners such as engineering and manufacturing so that we are all working to support our business requirements as well as common goals and targets. Part of sourcing is managing suppliers and fostering supplier development. Any tricks to the trade?   As supplier management and development requires a significant amount of time and energy, a basic perquisite to effective supplier management is having a manageable number of suppliers as well as a clear segmentation process.   We currently have less than 100 strategic direct material suppliers which represent approximately 80% of our global spend, having reduced our supply base by more than 45% since 2006.   Having the right sourcing and supplier management capabilities is another fundamental ingredient to driving the right value from strategic suppliers. This is especially true when driving supplier development initiatives, as this requires the right level of experience and competence to continuously identify and ensure supplier productivity improvements.   We also really focus on our Supplier Day (held this year in Shanghai) which brings together our strategic suppliers once a year and is also a key venue to strengthen the relationship with our strategic suppliers. We use this day not only to solidify our supplier relationships, but also to involve our top executives (including our CEO) as well as my peers such as the Head of Technology and Manufacturing, to communicate our business plans and direction. We do not use this venue to hammer our suppliers but rather celebrate our relationship.   Other 'tools' we use to develop our supplier relationships, include quarterly supplier steering meetings, our certification process, and our 2010 priorities reflect our ongoing pursuit to continuously improve our internal business partner (category management, risk/commodity management) and external partner (supplier development) relationships. Another key priority in 2010 is the roll-out of a 'best practices' integrated sourcing platform to ensure automation, transparency and continuous supplier performance in our journey towards sourcing excellence. Are most of your strategic suppliers in China or else-where?   Are most of your strategic suppliers in China or else-where?     Most of our strategic suppliers have global operations to support our global manufacturing operations. Many of our strategic suppliers have been requested to establish operations in China to support our growth, undoubtedly also lured by the incredible market growth opportunity, whereby other suppliers have been locally developed. What would you say are some of the biggest challenges to you job?   The volatility in the commodity and currency market as well as the global electronic components shortages are just some of the challenges we are currently managing. Fortunately we have developed relationships with some very capable suppliers as well as established robust systems that support us to properly manage and mitigate these risks.   Our global commodity team for example filters multiple data sources, including past and current market trends, to establish meaningful future projections that we forecast against. We have also developed a system that was particularly useful in 2009 to continuously monitor the financial health of our supplier chain.   The most important ingredient to an organizations success are its people, therefore ensuring that we continuously attract, retain and develop the best talent is both a positive challenge and tremendous opportunity. I am very conscious of the fact that leadership behavior, the right attitude and common values are the key factors to build a winning culture as well as a trust based, performance driven and fun environment to work in. Aug 4, 2010 3:00 AM

The following business case is purely theoretical / invented and should by no means be associated to any real existing life happenings. Let's consider a story between a large company (BIG) and a small company (SMALL), who are both on similar business grounds. Let's fix the parameter a...

The following business case is purely theoretical / invented and should by no means be associated to any real existing life happenings. Let's consider a story between a large company (BIG) and a small company (SMALL), who are both on similar business grounds. Let's fix the parameter at "Marketing, Sales & R&D, the recognized official engine for growth and profit, and let's consider that "procurement comes right after, as a second engine for growth & profit.   BIG is looking for an external acquisition. They have a challenging situation in terms of top line growth and bottom line growth. In both cases, the procurement department holds some responsibility in dealing with these challenges, possibly because they are not transforming supplier relationship management into product innovation fast enough, nor are they finding the right levers to continue to deliver margin enhancement programs. Hence BIG needs an external acquisition   In contrast, SMALL is able to deliver fast top and bottom line growth. This is also due in part to the procurement department, as they probably practice state of the art agility methods which include the agility to deliver profitable innovation and savings on a sustainable basis while optimizing the cost base. Hence, this is one of the reasons SMALL is being targeted. Approach and integrate   In the approach phase, SMALL pulls out a defense plan aimed at doubling their savings rate, which is the best way to avoid having shareholders switching over to BiG's offer.   That puts pressure on the procurement department which is living through a once-in-a-life time adventures; they are going into the battle to resist the invader while still investing all their energy into a short term "live or die" story.   After the take over becomes reality, pressure stays strong as ever. BIG has to demonstrate that while both base businesses are being secured, all defense plan savings are still being transformed according to plan. The last thing you want is to have shareholders tell you they are disappointed that the merger did not perform as well as SMALL claimed it would.   Meanwhile, both procurement organizations are working to understand each others organizational design, ways of working, market intelligence and price performance. ObvIous synergies need to be found on rate card alignment, volume leveraged improved prices, common tenders, specification rationalization, and other consolidation activities; all while generating the original defense plan level of savings.   As soon as the organizations start to integrate, the managers of SMALL will find excitement in discovering an enlarged scope and culture that comes from the newly combined company. The downside of this new integration is that the procurement office may find that company BiG makes a habit of segmenting roles and departments. This means the span of procurement influence within the company is smaller even though they are dealing with bigger spend management. Any sort of decision also takes longer consideration time as the number of stake-holders that the procurement team needs to convince is bigger. As a leader of the company, it is important to make sure frustration doesn't start to build on all levels of management and that you retain talent after the excitement phase dies down. This is especially true during the structure integration phase where you need to act swiftly to place your best talents in the best roles. Extended Uncertainty   World class procurement is harder to embed in mega size companies like BIG than in middle size blue chip companies; which makes SMALL attractive. The agility of small companies enable them to explore a wider variety of procurement levels, work more in cross functional teams, and balance their agenda better between innovation, risk management and margin enhancement.   Nevertheless, an even bigger company is still bound to find the right model for continued growth, avoid the downsides of a big organization and becomes a showcase for effective organizational design in high-complexity, high-spend environments.   The full integration will likely take two to three years, according to the flexibility of your country's legislation. This time will be necessary for the new organization to recover from times of uncertainty, but the pressure for improved delivery will keep them busy and create a wonderful adventure.   However, three years is also just about the right time for another external acquisition if the company has not grown at the shareholder's expected rate from an internal/ endemic top line growth perspective. This is a dangerous prospect, and even though the combined company opens up eras of marketing products, it is important not to fall into a never ending, ever faster, vicious circle of external acquisition which brings its load of downsides. It is also important to re-emphasize the need for procurement departments and other support functions to better balance their agenda towards partnerships for innovation with their suppliers to look for the next generation levers of internal top line sustainable profitable growth, the recipe for virtuous circle of growth.       Aug 4, 2010 3:00 AM

Interview with David Simchi-Levi from MIT Simchi-Levi teaches supply chain management on MA, MBA and PhD levels, and helped found the MiT partnership w...

Interview with David Simchi-Levi from MIT Simchi-Levi teaches supply chain management on MA, MBA and PhD levels, and helped found the MiT partnership with JiaoTong University's supply chain management program CLFM, where he is also a guest lecturer. Now, he discusses his list of challenges that companies need to watch out for in their supplychain.   You have your PhD in applied mathematics, what drew you to supply chain management as a field of teaching?   I am an applied mathematician, but i started working on supply chain issues well before it was called supply chain. When I used to work with companies and talk about supply chain they didn't know what that meant and usually said someone in the back office dealt with these operational issues. Now [supply chain] has moved into boardroom discussions. Also, in the last 15 years, i had a software company which developed supply chain solutions - it was a good cycle that allowed me to identify what companies needed to help them address their challenges. It also helped me bring case-studies and credibility to my classroom and shaped my research program.   So, what does your research focus on right now?   Over the last few years, my research has been about how changes in the economy affect supply chain strategies. In my view, there are six main forces putting a lot of pressure on executives managing their supply chain. First off, global supply chains with long lead time suggests that supply chain pipelines are full of inventory, which also means that companies need to invest in collaboration between geographically diverse facilities and partners. Second, customer demand is shifting, and there is a lot of pressure to increase service levels but it's not clear how you address this while minimizing inventory. Third, labor costs in developing countries are increasing - annually, the costs in China have raised 20%, in Mexico 5%, and U.S.3% over the last five years - so if a company made a bunch of sourcing decisions 4-5 years ago, they may need to reconsider them. Companies also have to deal with higher energy prices which affect their transportation costs. In the U.S.alone, total transportation costs increased by almost 50% in the last five years - in parallel inventory costs and levels have increased on average by 60% for US companies. The reason for the increase in inventory is clear. As transportation increases, companies try to bulk up their shipping amounts - which is great for transportation but bad for inventory. The last few problems are increasing levels of risk due to companies going lean and relying more on outsourcing and off shoring, which implies a diverse supply chain open to all sorts of disruption. There is also a huge volatility, not only in demand but also in commodity prices, which begs the questions of what contracts companies should sign - you don't know about prices next month. Lastly, companies are also facing pressure to become more sustainable - executives need to manage their supply chain in an environment that is uncertain.   You recently gave a lecture on the concept adapting "flexibility to maximize supply chain performance,   Flexibility is one of the major strategies that companies can take to address the challenges of the modern day global supply chain. Companies who invest in flexibility improve their supply chain performance by better matching supply to demand, increasing service levels, reducing costs and better utilizing resources. I just finished a survey of about 100 companies trying to figure out how many are investing in flexibility. We see more companies investing in flexibility in industries where before we never saw very many. For a long time, it was only hi-tech industries who were investing in flexibility, as their technology turnover was very fast, but it wasn't necessarily part of the CPG industry. Now, over 50% of the companies surveryed reported investing in flexibility.   In your opinion, which companies are implementing flexibility effectively and which ones are not?   Companies sometimes seem to buy into the myth that they only need one supply chain, even if they have multiple products, brands, and channels. This is a huge mistake. GAP has made this mistake - they have three brands - Banana Republic (which sells fashion items), Old Navy (low price clothing) and the GAP (high-end casual wear). These are three very different brands with three different customer value propositions - fashion is all about speed, whereas Old Navy is more about low price and hence low cost and the GAP is somewhere in between - so you need three different supply chains to address each one of these challenges. Most companies would say - well, it's too difficult to implement three different ones, but the problem with just having one is that a company finds itself basically responding to the average.   P&G is doing a good job - they have different supply chains for different product categories but also they take advantages of synergies between different supply chains in terms of procurement, manufacturing, customer service etc. They basically take cross sections to reduce costs, and increase efficiency - P&G does everything from beauty products to diapers - you need completely different supply chains while still finding points of commonality. Dell is facing some challenges. Their problem is that they've always been in the online business, but the real power today comes from selling to the retail channel - in developing countries, customers want to see the product before they purchase. The challenge faced by Dell is that customer value online is different from retail, so you need different supply chain strategies. Dell therefore needs to adjust their supply chain strategy. One could assume they will change, but you can't do that very quickly.   Aug 4, 2010 3:00 AM

One of my Silicon Valley clients is sourcing products from several factories in the Pearl River Delta. As part of the relationship with these factories, m...

One of my Silicon Valley clients is sourcing products from several factories in the Pearl River Delta. As part of the relationship with these factories, my client is committed to supplier development including offering training in new techniques. So when product quality at one of these vendors was not achieving the company's standards, the VP of Supply Chain dispatched a team of people to go to China and teach the factory problem-solving Lean Manufacturing techniques. He thought the vendor could leverage Lean methodology to improve the processes and address the quality problems, just as they would in US factories.   The team arrived in Dongguan and went to work giving an overview class on Lean techniques. The factory workers seemed attentive and interested in learning. The next day, the Silicon Valley Lean team gathered the people from the assembly line to begin the process of working on the quality problem. After 3 hours, the Lean team ended the session in utter frustration. No one participated. No one would identify problems on the line. No one knew how to approach gathering or analyzing data. No one volunteered.   So what happened? The training was adequate and the Lean principles and methods are sound and easily understood. Why weren't the Chinese factory workers participating?   This isn't the first time i have seen this happen. Westerners bring good ideas and processes into China and expect these ideas will be wholeheartedly embraced by the Chinese factory workers and management. Chinese say yes, and appear to agree with the instructions. When nothing improves or instructions aren't followed, the Westerners are surprised. They are bringing new techniques and ideas into low-tech manual factories, so why wouldn't the factories want to improve and adopt new ideas?   What these methodologies don't take into account are the cultural differences between the Western world and China. Lean manufacturing principles are based on Western ideas and principles including critical thinking and collaboration. The teachings of Confucius, on the other hand, suggest behaviors that oppose collaboration and criticism and the Chinese have been practicing these behaviors for nearly 3000 years. Children are taught Confucius values in elementary school and families practice them in their daily lives. For example, "saving face is way more important than concerns for quality. If a worker were to criticize the production line processes as the cause for quality problems, the supervisor would surely lose face. So it is very unlikely that anyone would offer criticism.   Being industrious and working long, hard hours is a more important concept to migrant factory workers than anything else. After all, workers have migrated to these factories in order to earn enough money to live a middle class life or return home to improve the lives of their families. The work ethic of the Chinese is legendary. If you take away time from their piece-work or time on the assembly line, you take away earning potential. Lean projects mean time away from normal work and are therefore not considered to be helpful. Lean manufacturing and other programs and methods including Six Sigma, Deming Quality, TQM, Quality Circles and others have a long and successful history at companies such as GE and Toyota. They are used to improve processes and address issues that need correcting through 1) Eliminating waste; 2) increasing flexibility; 3) Smoothing the flow; 4) Continuously improving.   These ideas hinge on enhancing productivity, taking away complexity and continuously improving. And this often leads to a reduced need for resources resulting in lay-offs or redeployment of the workers. The methodologies also rely on the workers ability to collaborate, contribute, analyze data and make changes.   In the US and Western Europe, Lean Manufacturing has become a way of life. Workers readily participate and are compensated even when they take time away from their workstations to work on Lean projects. They collaborate, contribute, analyze data from root causes and recommend improvements. In many cases, global companies such as Cisco, Apple, Ford and others, bring their Lean Manufacturing techniques with them to manufacturing sites across China. They teach Lean techniques and expect them to be practiced in their own factories as well as inside their contract manufacturers. But for the hundreds of thousands of other Chinese factories, the pathway isn't so clear. Lean Manufacturing is often met with resistance or at the very least passive non-participation.   Lean programs in the West are often lead by Manufacturing Engineering or QA or an internal consulting department. In China, the workplace is all about production, not the refinement of processes. Chinese engineers are assigned to production and only production. Chinese QA exists to assure that the customer's specs are being met. Internal consulting is an unfamiliar concept. These functions within Chinese manufacturing organizations don't have the time or the inclination to take on Lean projects, no matter what the return on investment suggests.   When I tour factories in China, the story of the Tortoise and the Hare often comes to mind. China's development frenzy is moving faster than anyplace else in the world. Everyone, It seems, is racing to compete for customers and to meet production schedules. But the culture is still moving at a very slow and steady pace and most often wins over new techniques and processes. Confucian values, such as respect for authority, saving face and working hard are the core inner strength of the Chinese worker. Lean principles are just too opposed to these values to be readily adopted. Of course, Lean Manufacturing principles, techniques and methods are gradually being introduced in the large global manufacturing sites in China and slowly adopted. Over time, this may lead to a broader adoption in smaller factories, as manufacturing matures in China. But for now, and the next 10-15 years, I see the tortoise winning the race. Aug 4, 2010 3:00 AM

A Story of Change   For over three decades I have been working with major multinationals through some tumultuous times, and it seemed that change ...

A Story of Change   For over three decades I have been working with major multinationals through some tumultuous times, and it seemed that change was never ending. New global computer systems, new manufacturing and warehouse systems, Total Quality Management, (TQM) Management by Objective, (MB0), World Class Manufacturing, (WCM) (now called Lean) and many, many more. I was invited by the editor to write an article on why some of these changes fail, but I quickly realized I would find it easier and hopefully more interesting for the reader to describe how change succeeds. During these last three decades a formula has evolved for me, which for the last fifteen years allowed me to turn failing and ordinary factories into benchmark sites.   I have successfully managed factories in ireland, USA, India and China. In every case the competition was fierce. Within multinationals each manufacturing source is constantly being compared. You fight to hold what you have, and try everything at your disposal to attract new investment.   To begin the change process at factories, I lay out the challenges, threats and also the opportunities that we may face should we go forward with implementing change. I create a vision that usually is something like "We will be among the best in the world among our competition. I tell them that I have a toolkit, which i can apply with their support, but before completing the formula I need their input. So i ask them 4 key questions: what is working, what is not working, what we should retain, and what we need to do to become a great plant. I bring in external facilitators to conduct this exercise with the entire workforce in groups no larger than 20, so that involvement and confidentiality is ensured, and i have the results printed in booklet form and every employee gets a copy. The results rarely surprise; rather they confirm what i am usually observing, but it is a wonderful tool to show everyone that their opinions matter.   Meantime, I am appraising managers at all levels, identifying who is going to embrace what needs to be done, and who will get in the way. It is my experience that at least one third of senior, middle and front line managers need to be separated. Usually, i take on board a small team of consultants I know and trust to help accelerate this process. It is absolutely essential that the people, particularly those at senior level, who are not going to make it are quickly removed. Otherwise, momentum will be slowed down, and undermined by their presence. The Leader must be absolutely ruthless in this, because the greater good, perhaps the very survival of your plant, will be jeopardized.   In parallel with this, we set about putting our Lean tool kit in place. I like to do things in parallel. So I get the purchasing department working with key suppliers to get new kinds of working agreements in place. Kanbans go to our warehouse to start more deliveries in smaller batches. Kanbans go to our factory floor in order to start with a key product that represents a substantial percentage of our total business, ranging from 30 to 70%.   I start with something substantial, so that a large number of people are involved, and generate excitement. The expert consultants I bring in teach people necessary skills including process mapping and get people working throughout the plant to generate improvements. We start to get people thinking about value streams, and usually within three months have one beginning to come together, and others identified to work on later. Bills of materials get redesigned to allow for back flushing, as a feature of my factories is that we only transact materials into the warehouse from suppliers, then to the shop floor when it moves there. We then use back flush to update the system when finished product is booked to the warehouse. The elimination of transactions for work in process (WIP) saves an enormous amount of time and frees up considerable resources. Meantime, we are also changing our financial reports so that every work center has data that they can make sense of, so that they can track their own performance. All data collected is analyzed. If it is not adding value and being used to inform and improve, it is eliminated.   With all of these programs in play and the non-contributing managers and key staff gone, my credibility becomes well established. What I have promised, I am delivering. I have laid out the challenges facing the plant, backing it up with clear evidence. I have asked the workforce to answer the four key questions, therefore taking their views on board, I am separating those not delivering. The factory is looking much better through the 5 S programs, and painting and refurbishment. Data not being used has been dumped, new reports from every department have been redesigned and now both inform and add real value. Space has been freed up in the warehouse and shop floor through the introduction of Kanbans. Value Streams are being created with people from all disciplines sitting together where possible.   Usually after three months great excitement has been generated, with many programs already in place. After six months a very substantial change in both the atmosphere of the plant, its appearance and in improved results is visible. After one year the change is truly spectacular, and then just keeps getting better as people become more familiar with the new way of working and with the various tools and techniques.   This is what works for me. I have achieved the most spectacular results within my (then) wider organization. The plant I was sent to close in the USA was declared a Benchmark site within two years. The Ireland plant survived and still thrives. In my last assignment in Shanghai, I also left a benchmark site behind. With my formula there is no failure, only spectacular success! Aug 4, 2010 3:00 AM