Insiders attending a seminar yesterday told Chinese manufacturing companies that supply chain management (SCM) will be decisive for their future success.

Ding Junfa, executive vice-president of the China Federation of Logistics & Management, said a good SCM is the only way to achieve the modern industrialization which China is seeking.

SCM refers to close co-operation and integration of enterprises along the supply chain to reduce waste and task repetition.

Many enterprises in the world are searching for better and more efficient operation - even those among the 80 per cent of global top 500 who have practiced SCM, Ding said at a summit on SCM in Shanghai.

"We suggest a trilogy for Chinese enterprises: concept change; supply chain design and gradually establishing a win-win customer and supplier alliance; and improve forward and backward market responsive velocity and manageability," he said.

According to Ding, studies found that if an enterprise uses third-party logistics (TPL) instead of self-logistics, it can reduce costs by 5 per cent, but if it re-engineers the logistics processing to meet the TPL demands and makes TPL extend to the whole enterprise supply chain, the reduction can be as much as 10-20 per cent.

Besides being key to enterprises, a well-developed SCM is key to China's economic development and its position in the global supply chain, said Ren Xingzhou, director of the market economy research institute of the State Council Development Research Centre.

Compared with developed and some developing countries, logistics costs in China are much higher, Ren said. Documents show that logistics costs only take 9-10 per cent of some developed countries' GDPs, compared with 21.3 per cent in China.

Taking storage into consideration, the turnover period of Chinese products is 35-45 days compared with less than 10 days for overseas companies. In addition, Chinese enterprises prefer using their own transportation teams with an empty rate of over 37 per cent. The loss on transportation is tens of billions of yuan, Ren said.

China, a main centre for manufacturing, should build on its core position in the global supply chain, Ren said.

"In the process, China looks for more service providers. Policy incentives are offered to develop domestic SCM service providers by the government. More international service providers are joining the construction of SCM in China," Ren said.

Park-Ohio, a world leading provider of logistics services is strengthening its presence in China, said Edward Crawford, the company's Chairman & CEO.

The company will provide SCM restructuring, which would relieve Chinese manufacturers from being vertically integrated and let them focus on their true strengths. The restructuring has been applied by the Liuzhou Engineering Machinery Co Ltd, he said.

The idea of modern logistics is gradually being accepted in China. According to a survey by Ding's Federation, 48 per cent of entrepreneurs think SCM is of great importance, a situation which would have been impossible even five years ago.

Thirteen central government departments, led by the National Development and Reform Commission, have established an inter-ministerial mechanism on the working of national modern logistics, its first meeting was held on Wednesday.

(China Daily May 13, 2005)