Supply chain solution unlocks Chinese potential

Related tags China People's republic of china

A leading global provider of synchronised supply chain and revenue
management solutions has helped a Chinese beverage firm maintain
its competitive advantage in what is a booming sector, writes
Anthony Fletcher.

The Manugistics Group claims that as a result of implementing a variety of solutions including Demand, Fulfillment, Strategy and NetWORKS Collaborate/Monitor since 2002, China's Swire Beverages, a major bottler for Coca-Cola, has achieved all of its internal forecasting and accuracy goals.

Swire selected Manugistics to build a specialised Advanced Planning & Scheduling (APS) system to dramatically improve planning and enhance efficiency and reinforce the Coca-Cola bottler's leadership position.

By enabling more accurate centralised production planning, raw materials purchasing, warehousing and transportation, the state-of-the-art APS system has enabled Swire's supply chain to support almost 100 per cent growth in volume and planning complexity in the last three years without incurring any significant supply chain disruption.

The success underlines the importance of good supply chain management, and illustrates how the Chinese food and beverage sector is pulling itself into line with western business practices. This is important because although China's food and beverage sector is booming, it is also gaining in complexity.

China, with its billion-plus population and break-neck economic growth, is seen a reservoir of untapped potential by companies looking for new markets. But a recent survey from independent research service China Economic Quarterly (CEQ), which looked at the performance of US companies in China, paints a picture of a market characterised not just by untapped potential, but by cut-throat competition and incredibly challenging conditions.

For example, the survey calculates that total China earnings for US companies rose from $1.9bn in 1999 to $4.4bn in 2003. When royalties and licensing fees are taken into consideration, profits stand at $8.2bn.

But this figure compares unfavourably with the $7.1bn that US companies made in Australia - population 19 million - in the same year, and $8.9bn in Taiwan and South Korea, which have a combined market of 70 million people.

Nonetheless, major firms such as Coca-Cola and Nestlé now record sales of over $1billion in the China packaged food market, which is now estimated to be worth over €30 billion. Swire Beverages' APS system should enable Coca-Cola to be in a position to further penetrate the Chinese consumer market.

This APS system relies on Manugistics'​ Demand and Fulfillment solutions for forecast planning, as well as Manugistics' Collaborate, Sequencing and Strategy solutions to help accurately plan inventory across its entire China network on a daily basis. The dynamic, web-based user interface of Manugistics' solutions allows planners to view and update key figures for developing planning forecasts.

Swire Beverages today produces automated weekly and daily production plans based around manufacturing constraints such as capacity and material availability. Demand planners are also able to evaluate hypothetical scenarios allowing for development of production plans.

In addition, the APS system creates timely collaboration between demand planners and sales and marketing teams to allow for more accurate forecasts in a large market with dispersed production facilities.

The specialised APS system developed for Swire Beverages addressed the need for greater efficiency in the face of rapidly growing competition from both carbonated and non-carbonated beverage producers. Other challenges faced in this market also include difficulty in accurate forecasting, which is reinforced by the seasonality of the beverage industry, consumer marketing initiatives, and the complexity of Swire Beverages nationwide network.

"Given the scope of this project, we were confident that our team could help Swire overcome their challenges and reinforce their leadership position,"​ said Manugistics president of the Asia Pacific Region Ken Wallett. "In helping Swire create a specialised APS system, we have proven our ability to deliver on large-scale, complex projects and to solve the incredible challenges that our clients face."

Swire Beverages is a Coca-Cola Bottler headquartered in Hong Kong with franchises in the People's Republic of China, Hong Kong, Taiwan and USA. Swire Beverages is part of Hong Kong and London listed Swire Pacific Limited.

In addition to manufacturers, the world's biggest food retail groups are also continuing to strengthen their positions in this massive market, buoyed by a recent relaxation of the regulations requiring them to use local partners. Carrefour and Wal-Mart are fighting for supremacy there, but Tesco is also likely to become an increasingly important player over the next few years.

Data from the Chinese Ministry of Commerce shows that Carrefour's sales in China were RMB16.24 billion last year, an increase of 20.9 per cent compared to the previous year. Wal-Mart, meanwhile, saw its sales in China rise by 30.5 per cent to RMB7.63 billion in 2004, helped by the addition of 10 new stores, taking its total to 43. Britain's Tesco only recently entered the market through a joint venture with Taiwan's Ting Hsin group, and has around 30 stores there.

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