supply chain matters: the asian battleground

China has been viewed as a low-cost manufacturing hub for products designed and sold in the West. However, as China becomes increasingly prosperous with a rapidly growing middle class global companies are no longer producing in Asia solely for shipment to developed markets. In fact, low-cost Asia has become a source of fast-growing product demand and an important hotbed of innovation. China will undoubtedly continue to be a major production hub for many years because of the manufacturing and supply chain infrastructure it already has in place, but an increasing portion of that infrastructure may soon be devoted to meeting local needs, as opposed to the demands of Western consumers. As a result of these developments, many companies are finding that the traditional approach of having supply chain decisions in the East made by leaders in the West is no longer effective. Instead, multinationals are increasingly bringing more decision-making supply chain functions and activities to Asia to facilitate more strategic and cost-effective supply chain operations that span Asia. To lead these efforts, companies pursuing this strategy need world-class talent with end-to-end supply chain experience in the region or they run the risk of slowing their growth plans in Asia and hurting their business in other parts of the world.

The reasons to go local

The complexity of global operations makes it more difficult to centralize leadership decisions for the supply chain in the corporate headquarters, halfway around the world from operations. In part, this is because the time differences between East and West can hinder the quick decision-making that is sorely needed in a world of increasingly complex and volatile supply chains. When the earthquake hit Japan in March 2011, it was past midnight in New York City. Companies needing to wait for executives based in Europe or the United States to wake up could end up behind the queue for components in short supply. An Asia-based supply chain leader said he was able to call up his suppliers right away after the disaster, quickly ascertain what the critical items were and make the decisions necessary to secure supplies. Direct knowledge of markets and people provides huge advantages to an organization. As one former supply chain leader for a prominent computer manufacturer proclaims, Decision-makers should be in an Asia time zone. Credibility, knowledge, proximity, optics presence makes the difference. Another practitioner with experience in China working for a leading technology company said, I was closer to the action and, thus, was more effective, as I could make quicker decisions to redirect supplies or to adjust production to maximize utilization. Although it can be difficult to find experienced, senior supply chain leaders in Asia, those who are based locally can offer valuable benefits and critical regional knowledge that even seasoned international leaders cannot deliver from overseas headquarters. This can include a greater understanding of the cultural nuances necessary to conduct business negotiations, a process quite different in the East than in the West. One supply chain leader in Hong Kong explains, Being based here helps me as a European

to understand our Asian suppliers better not just cultural differences, but also the differences in business climate. This helps me to close better deals. And while being able to negotiate for the best cost with regional suppliers is important, even more critical is being prepared for unforeseen circumstances. Asian supply chain leaders on the ground in their native regions are often more able to respond with speed and agility in crisis situations. Asian executives with extensive local networks can quickly find alternative suppliers and leverage deep personal relationships and goodwill to secure special short-term arrangements. For example, an Asian leader in Singapore revealed that his relationship with his Japanese supplier was so strong that following the 2011 Japanese earthquake and subsequent tsunami, his supplier not only gave him priority, but also persuaded other Japanese suppliers to do the same. When flooding hit Thailand in the second half of 2011, a supply chain leader in Malaysia was able to obtain priority allocation due to the personal relationship built over the years with the decision-maker at a key supplier. In many industries today, suppliers contain costs through increasingly lean operations that keep modest excess inventory, leaving little buffer to prevent supply shortages when volatility hits. The most successful supply chain leaders are those who have been able to plan for such events and have very strong relationships with suppliers so that they get more than their fair share of components in times of shortage. Supply chain practitioners who have lived for many years in Asia, with its growing supply base, are more likely to also have knowledge of alternative suppliers if a primary supplier falls through. Even though companies recognize the value of having strong native talent in the region, they still struggle to find enough Asian nationals who possess technical expertise in supply chain operations, as well

as a strong understanding of vendor management and modern outsourcing techniques. A common lament is that the local supply chain executives are not strategic, but merely order-takers executing instructions from headquarters. Indeed, many lack college or polytechnic education, let alone M.B.A. degrees. Many rose from the ranks, often in one functional silo, so they have not developed in the broader view of both business operations and the complete supply chain necessary to be an effective supply chain leader. Complicating matters further, surveys have shown that a supply chain career is not seen as highly desirable by young graduates in Asia, making it difficult for companies to recruit promising talent. Given the importance of the function, companies will need to redouble their efforts to attract top graduates to supply chain roles by doing a better job of highlighting the career opportunities the function presents, by providing a more dynamic career path, and by paying promising supply chain talent commensurately with what they would receive in other roles.

leverage the supply base to collaborate on ways to innovate and differentiate their products. At the same time, these leaders keep abreast of emerging suppliers and, importantly for Asia, are savvy about the intangibles in maintaining relationships with suppliers to ensure they are getting the best prices for their volume. Effective at talent development. The best supply chain leaders bring their functional skills to bear on talent development, exposing new talent to different areas so that they are engaged and gain a broad perspective. They also encourage employees to challenge the status quo and drive continuous improvements in all areas of the value chain. While they view supply chain certifications as helpful, they also value business acumen more than narrow technical skills. They recruit from multiple sources, as appropriate, including from top consulting firms so as to obtain vital analytical skills. They expose their up-and-comers to senior-level meetings and allow them to sit in on leadership committee discussions, coaching them on how to engage effectively with senior business leaders. Creative problem solvers. These leaders think boldly about solutions, and do not dwell on the obstacles. They work to arrange expedited takeoffs for cargo planes, maybe even getting municipal authorities to extend runways to accommodate freighters. They might think of transporting products in bonded train cars from Asia to Europe or leveraging their global brand in securing waivers from inspections when crossing state lines or anticipate situations when drums of pharmaceutical chemicals would get contaminated if opened. They also implement supply chain approaches in innovative ways, such as providing call center agents to customers requesting service and developing predictive algorithms and triggers to route capacity from low-priority demand to higher-value activities.
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The six traits of the effective supply chain leader in Asia

Despite the challenges companies face in finding and attracting top supply chain talent, strategic and effective supply chain leaders can be found all across Asia. They tend to exhibit most if not all of the following six key attributes. These leaders are: Strong relationship-builders with suppliers. Strategic supply chain leaders work closely with their top 10 to 20 suppliers openly and collaboratively to mitigate supply shortages when demand exceeds capacity. Because of these close relationships, they hear bad news early and can get priority allocations of scarce items. These leaders collaborate and can point out improvement areas for suppliers. Increasingly, they

Dedicated collaborators. Successful supply chain leaders in Asia invite other functions to attend supply chain meetings. They encourage colleagues from finance, marketing and other departments to ask questions freely, thereby highlighting potential issues earlier rather than later. They are team-oriented and focused on supporting the business. These leaders know that getting buy-in for any supply chain initiative is absolutely fundamental, so they actively market their function and their team to the seniormost executives. They are able to explain the holistic view of the business and show why incurring higher logistics or supply chain costs can be excused if they result in higher working capital savings or greater sales. Top-tier supply chain leaders also collaborate with customers, getting to know their needs in order to be better able to deliver value. Technically savvy. Knowing and investing in enabling systems is a given for top supply chain leaders. When necessary, they make do with what they have but they make sure investments are allocated to build the requisite systems. They also have a knowledge of and appreciation for forecasting. Often, the sales function drives many back-end activities and costs, but is rarely penalized for excessively bad forecasting. Effective supply chain leaders push to allocate higher incurred expenses to those units making consistently bad forecasts. Sensitive to emerging trends. Talented supply chain leaders are quick to spot and respond to changing times. Given the recent financial crisis, such leaders are already sensing the need for governments to raise revenues using methods such as import duties and tax changes. Supply chain leaders will have to deal increasingly with more diligent customs officials scrutinizing imported products to find reasons to apply higher duties. This changing environment is yet another reason to have dynamic demandsupply management capabilities rather than rigid supply chains that pose the risk of uncompetitive
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assets ending up in wrong locations. Top supply chain leaders are also responsive to such trends as sustainability and are able and willing to design not just for manufacturability, but also for recycling and other factors.

A pan-Asian future?
As companies look for local supply chain leaders with these traits, they should also consider the shifting landscape of the economies of Asia. Those who plan on China always being the inexpensive manufacturing location of choice for product designed and sold back in the West may be unprepared for future realities. Labor demand growth in Chinas major cities had outpaced supply as early as the first half of 2008. As a result, manufacturers have had to hike wages to attract workers, and the average age of workers is creeping up. Some studies project that Chinas working-age population will peak in 2015 and then decline. As the size of Chinas consuming class continues to increase, more and more of Chinas production capacity is being dedicated to meeting local Chinese needs. A January 2012 Reuters article noted toymakers in China are focusing on brand and quality to target the growing domestic market as external demand falls and price pressures erode margins. Companies that are looking strategically to the future may consider rethinking their production footprint and look throughout Asia, instead of focusing solely on China. They may also consider hiring senior talent that offers a broader understanding of the different cultural and business landscapes of Asias most populous nations including India, Vietnam and Indonesia, in addition to China since each country could play a major role in production moving forward. To develop this talent, companies should focus on rotating promising supply chain talent not just

through the various supply chain functions, but also across different geographies in Asia to develop the multifaceted, pan-Asian leaders they will need for the future. Over the longer term, as China and other Asian countries continue to grow as markets with significant local demand, more and more international companies may come to view their Asian regional headquarters as equal in importance to their existing U.S. headquarters. Eventually, as wage levels go up in China, these companies will eventually look for other, less expensive locations, such as Indonesia or Africa, to manufacture components to send back to China. Meanwhile, sustainability concerns, coupled with a decline in

the wage differences between Asian countries and markets like Eastern Europe, may also foster a greater mix between single global networks and regional supply chain clusters. Product innovation in Asia will find acceptance in the developed markets as well. Whatever happens, its clear that Asia will continue to be of growing strategic importance. Even as the landscape in the region evolves, the Asian operations of multinational corporations will play a growing role in fostering competitiveness and business growth for many years to come. Those companies that attract, retain and develop the right supply chain talent talent that is local, culturally pan-Asian and globally aware will be in the best position to seize the world of opportunity that the region presents.

ABOUT SPENCER STUART

Spencer Stuart is one of the worlds leading executive search consulting firms. Privately held since 1956, Spencer Stuart applies its extensive knowledge of industries, functions and talent to advise select clients ranging from major multinationals to emerging companies to nonprofit organizations and address their leadership requirements. Through 53 offices in 29 countries and a broad range of practice groups, Spencer Stuart consultants focus on senior-level executive search, board director appointments, succession planning and in-depth senior executive management assessments. For more information on Spencer Stuart, please visit www.spencerstuart.com.

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