Excerpt from: China Supply Chain and Logistics Strategy
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| December 18, 2006 | | Supplier Behavior and Multiple Supply Chain Alignment | In many of today’s supply chains the customer and supplier (including transportation service providers) often operate according to different objectives. This results in innefficiency and unresponsiveness to customers. The following is a proposed solution for dealing with the problem of mis-aligned objectives between Chinese transportation service providers and your end customers.
Transportation procurement methods should be the mirror image of your demand chain leadership strategy. As was discussed in my previous posts, companies selling in the China market need to conduct a detailed analysis of the buying behaviors of their target customers, followed by an assessment of how their behaviors can be segmented according to different supply chain service responses.
The approach taken to sourcing of trucking transportation is the reverse of this, whereby companies in China can employ different transportation procurement strategies appropriate for the different behaviors of their service suppliers. The key is then to align the appropriate supplier behavior and corresponding procurement strategy with the service response (corresponds to their behavior) demanded by your targeted customers in China.
Adopting this method towards transportation procurement in China will positively affect the final cost and service levels obtained in this market. Since your transportation sourcing strategy becomes the mirror-image of your customer facing demand chain strategy, the expected results will be higher service at a lower cost to serve.
China Transportation Supplier Behavioral Segmentation
Segmenting your transportation supplier base in China is the first step towards achieving supply and demand chain alignment. Please keep in mind that each company will be faced with a unique set of transportation suppliers and customers. The segmentation exercise below is one potential outcome of the segmentation process, rather than a statement proclaiming absolute fact on China’s transportation supply base.
Tier-one providers ‘risky mom & pop ops’
- Millions of single owner drivers
- Take ownership of their assets
- Competitive pricing and unreliable supply
- May be seen as the creative force behind China’s transport industry
- Rarely deal with multinational companies directly
- Team up with tier two and tier three companies
Procurement Strategy: Focus on risk-value equation. Expedite.
Tier-two providers ‘Rising stars’
- Private operators with limited truck fleet
- Subcontract to provide regional coverage
- Office locations in multiple cities
Procurement Strategy: Focus on strategic sourcing analysis. Plan.
Tier-three providers ‘national stabilizers’
- Domestic and overseas players with national network
- Most transportation is subcontracted
Procurement Strategy: Streamline processes for low cost and high reliability.
Tier-four providers ‘multi-national collaborators’
- Mainly multinational companies
- Obtain business mostly from tier-three
- Subcontract most business
Procurement Strategy: Work closely with collaborative suppliers.
| Reliability of Supply
| Relationship with Supplier
| Dominant Supplier Behavior
| | Risky mom & pop ops | Low
| Loose
| Innovation, flexibility
| | Rising stars | Low
| Tight
| Action, speed
| | National stabilizers | High
| Loose
| Stability, efficiency, logic
| | Multi-national collaborators | High
| Tight
| Cooperation, harmony, participation
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