China’s Evolving Supply Chain Infrastructure: A Work in Progress

1. China’s Evolving Supply Chain Infrastructure: A Work in Progress Dr. Linda G. Sprague, FDSI, FIOM Professor of Manufacturing & Operations Management China Europe International Business School (CEIBS)

2. China’s Evolving Supply Chain Infrastructure • As China’s industrial output grows at unprecedented speed, the country’s supply chain infrastructure becomes an increasingly serious issue. For manufacturers accustomed to lean operations, new lessons must be learned about the consequences when supply variability is a fact of life. In response, governmental and private actions are underway to offer relief – at least in the long run. • This presentation will trace the roots of the current supply chain infrastructure from the earliest days of the People’s Republic of China to the present. Examples of initiatives underway will be shown, and impediments to progress will be presented. Pre-lean lessons about dealing with these conditions will be resurrected.

3. Supply Chain Management: Some of the Issues * Ownership and Decision Points * Inventory Management and Control * Manufacturing Processes * Physical Flows * Information Systems and Flows * Infrastructure

4. Infrastructure The Foundation for Physical and Information Flows

5. Infrastructure Implies Legacy • Geography and Geology • Political and Economic Structures • Previous and Present Policies • Customs and their Consequences

6. China: 9,561,000 km2

7. China’s Political/Economic Structure From 1949, a Marxist-Socialist Centrally Planned Economy September 1982: “Build Socialism with Chinese Characteristics.”Deng Xiaoping at the opening of the 12th CPC Congress Since 1993: “The Socialist Market Economic System establishing a Modern Enterprise System.”

8. Previous and Present Policies (1) THE SPIRIT OF SELF RELIANCE

9. THE FOUR MODERNIZATIONS Agriculture Industry Science and Technology Defense

10. Previous and Present Policies (2) PRACTICE IS THE SOLE CRITERION OF TRUTH From an essay by Hu Fuming, sanctioned by Deng Xiaoping, at the Third Plenum of the 11th Party Congress in 1978, the basis of Seek Truth from Facts.

11. Customs and their Consequences Recent habit patterns from a centrally-planned economic system Older habits from a legacy of Empire Management by the numbers BUT very limited numbers

12. Characteristics of the Current Government • Hu Jintao, Tsinghua, BS in Hydropower & Water Conservancy • Wu Bangguo, Tsinghua, BS in Radio Electronics • Wen Jiabao, BS & MSc at Beijing Institute of Geology • Li Changchun, Harbin Institute of Technology, BS in Industrial Enterprise Automation • Huang Ju, Tsinghua, BS in Electric Machinery Manufacture and MSc in Geology

13. Characteristics of the Current Government, cont’d • Luo Gan, Institute of Iron & Steel, sent to Karl Marx University (Leipzig) for BS in metallurgy • Zeng Qinghong, Beijing Institute of Technology, BS in automatic control • Wu Guanzheng, Tsinghua, BS in thermal measurement & automatic control • Jia Qingling, Hebei Engineering College, BS in electric motor design and manufacture

14. China’s Physical Supply Chain Infrastructure Today • ChinaUSFrance • Population 1.256 billion 274 million 58.7 million • Size 9,560,900 km2 9,372,610 km2 543,965 km2 • Railways                      67,524 km             212,433 km         31,939 km • Waterways                    110,000 km            41,009 km          14,932 km • Pipelines (oil and gas)   19,093 km           609,000 km          32,292 km • Airports*                     40                         185                     13 • Highways: • Current: 55,000 km               79,091 km           9,900 km • + 2010 completion: 35,500 km • with >3047 m of paved runways  

15. Today’s Supply Chain Infrastructure,continued ChinaUSFrance Population Density: people/km2 131 29 108 Railways (km) per 1000 km2 7 23 59 Population per airport 31.4 mio 1.5 mio 4.5 mio Highways (km) per 1000 km2– current 5.8 km 8.4 km 18.2 km in 2010 9.5 km

16. National Major Arterial Highway Network (2010)

17. Lingang New City, Shanghai a new city within Shanghai to support the new deep water port, linking with the old port, the river system, the new Pudong airport’s cargo facilities, the new highway and the rail system

18. Lingang New City, Shanghai, continued The New City’s Industrial Park will provide state-of-the-art logistics equipment and services The Shanghai International Medical Zone will include hospitals, medical device manufacturers, a Clinical/ Medical Research Park and a Rehabilitation Center Shanghai Auto Industry Corporation (SAIC) will build a new production plant in Lingang Lingang New City is planned for 800,000 residents

19. Infrastructure: Telecommunication Telephone number in 1980: China 42108 Telephone number in 2005: China 021 2890 5160

20. The People’s Republic of China Sector Employment Workforce by sector (000,000): Source:China Statistical Yearbook, compiled by National Bureau of Statistics of China, China Statistics Press, Year 2004

21. Supply Chain Management in China:Evolution and Infrastructure Physical infrastructure is evolving rapidly but not to scale. Information systems: hardware and software are available BUT information systems depend on data.

22. Supply Chain Survival Tactics When lean may mean anorexic, it’s back to the basics: Physical Distribution Systems Warehouse Management Enthusiastic Inventory Control Traffic Departments…

23. Survival Tactics, Plan B • Stay near the coast. • Stick to already developed areas. 3. Outsource – but the profits won’t be yours.