FEaTuRE Procurement
in the West, slashing costs often meant full- ticipate sales also led to stress on his production
time and part-time employees were tossed cycle. “The complete lack of forecasting and
rapidly overboard like so much excess baggage unrealistic demands from the automotive in-
on a sinking ship. “The recent financial crisis dustry definitely did not help,” he says. “When
caused a lot of suppliers, from upper-end raw they want parts, they demand a 2-week delivery
materials to the near-end factories, to restruc- on an 8-week product cycle.”
ture,” says Frank Zhang, Commodity Man- Gaurav Munjal, Chief Executive at Hero Cy-
ager for the APAC sourcing of Honeywell cles Ltd. thinks that big companies, especially
international. “They cut down their capacity, those located in Europe, the US or Japan have
decreased the payroll list, peeled up backup
Frank Zhang
squeezed on margins so much that their Asian
resources and transferred investments - all of
APAC Sourcing
suppliers debate whether to work to meet their
which makes it difficult to recover normal ca-
Honeywell Intl
demands at all. “I don’t think Asia is short or
pacity when order demands come suddenly.” material,” says Munjal. “I just think everyone is
This meant remaining staff had to do the
company’s exact same job with less people on
Companies
being cautious and is squeezing the small ven-
dors.”
board, less fall back revenue and less time to
cut back on
fill panicked orders when the inevitable wave
everything;
Over Capacity in 2010?
of restocking began. While many companies struggle with being
To add insult to injury, when exports and which makes unable to meet demands, a recent report from a
demand showed signs of recovery, manu-
it difficult to
China state planning agency warns that at least
facturing companies in China couldn’t seem half-dozen industrial sectors are already expe-
to hire their employees back. In Guangdong
recover when
riencing massive overcapacity issues in 2009.
province, several manufacturing companies
orders start
Anticipating future stimulus-drive construction
reported massive labor shortages due to com-
peting markets. A manager for a plastic-mold-
coming.
projects, cement makers, have already added
600 million tons to their existing 1.9 billion tons
ings manufacturer Vaupell in Guangdong, says of annual production capacity. Whether this
that when they went out to hire laborers in Shenzhen, they found that will get filled eventually is speculation, but in some cases the verdict
many of the bigger companies had already hired everyone they could is already in. Aluminum smelters are running at only two-thirds ca-
find in a effort to meet demand. pacity down from nearly four-fifths last year. Sustainable technology
Many suppliers also began to switch and broaden their receiver production capacity is also spiking: the number of Chinese compa-
base as certain industries they served began to flounder. Lawrence nies making wind power equipment has quadrupled to more than 80.
Gavin of Adelphi says that his automo- In fact, some of China’s leading large-
tive company was competing with IT scale wind power businesses have been
manufacturers for the same services
of a single company. “There are only
bigger servings,
lobbying the government to slow the
growth of the industry because of al-
so many suppliers in the world,” says
smaller appetite
leged overcapacity.
Gavin. “Many suppliers simply didn’t Both issues have wide-ranging im-
want to have to work with the indus-
PERCENT
pacts. Lack of supply means nothing to
tries that were having trouble.” The
120
sell, which puts people out of business.
competition for supply within sectors
UTILIZATION RATE OF INDUSTRIAL
CAPACITY IN CHINA
Over capacity and market glut means
is also fierce, with cell phone makers in
07 `08 `09 EST.
that factories will eventually run idle, or
particular experiencing cutthroat com-
90
work at a decreased profit margin. Both
petition for products from a small list of the problems come from extremes
of chip suppliers. Already, Nokia has that define this uncertain period of
announced losses of over USD$834 economic recovery; a combination of
million due to competition with Iphone
60
over optimism or extreme pessimism,
for chips. perhaps best described by early 1900’s
Inconsistent, small orders coming economist John Maynard Keynes as “an
from businessmen who see the future as 30 urge to action rather than inaction.” The
unpredictable is perhaps one of the big- future of the global supply chain, and
gest problems contributing to the back perhaps the world economy itself, will
up in parts. Zack Zebrivious, Product/ rely on both governments and business-
0
Process Engineer for SSI Technologies STEEL ALUMINUM CEMENT men figuring out how to find a balanc-
Inc., says that erratic orders from an
Data: European Chamber of Commerce in
ing force in the face of fluctuations.
automotive industry that could not an-
China, Morgan Stanley
www.chainaonline.com JANUARY/FEBRUARY 2010 43
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