Operations and Logistics in China Practice

Executive Summary

Trade often promotes economic efficiency according to conventional economic theory. International trade can, at times, disrupt the economic and social stability of a nation because it influences the distribution of wealth within a national economy, especially due to variation in wages and prices (Kam, & Tsahuridu 2010, p. 16). The participation in trade between China and western countries-its entry to the World Trade Organization (WTO) and adequate human resource management practices prompted its economic growth. The position of China as the world’s industrialized center has created significance and immense escalation of its logistics and supply chain management practices. In exploring the management of logistics and operations in China, the paper highlights the features of unique supply chains such as human resource management, integrated logistics services (ILS), information and communication technology (ICT) and specific logistics expertise (ISLE) of industries as well as challenges, issues, critiques, and trends in management of logistics and operation practices.

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Introduction

The United States has been tremendously influencing china to revaluate its currency, making china allow more imports, particularly from Western countries, in order to balance international trade. However, the direct investment in China by foreign nations has been increasing from the past years. For instance, in 1990, several foreign industries relocated their industrialized base to China to exploit cheap labor (Lanfeng 2011, p. 375).

In addition, since the year 2000, when China joined the WTO, these foreign firms have taken advantage of the business openings in the potentially vast market in China. Therefore, logistics has emerged as a momentous growth sector in many countries. China, reputed, as one of the manufacturing centers in the world, is among the countries with stipulated growth for logistics and supply chain services. The expansion of the logistics service market in China has surpassed the rate of development of logistical infrastructure, resulting in logistics supply chain problems.

Preliminary Information about China

Inadequate modern logistics infrastructure in china exposes its logistics operations to jeopardize. More outstanding is the diverse dearth of logistics and operation management skills, as well as information system in-capabilities have made it difficult for the progress of the supply chain in China. Shortage of skillful workers, poor operation management besides inadequate logistics infrastructure is mainly responsible for the damage and decline of stocks for perishable goods resulting in high levels of loss experienced in china (Bolumole 2001, p. 92). In addition, these predicaments have created and prompted foreign companies with skilled personnel and modern logistics systems to develop their market strategies in china. The next section presents the literature review of logistics and operation management.

Literature Review

The paper explores the main logistics potentials and HRM in the logistics service firms in China. The report findings propose that even though the HRM practices have influenced positively on organizational performance, it has affected individuals within organizations who possess the abilities and expertise required in such organizations. It also focuses on integrated logistics services, complex logistics, and supply chain problems, and specific logistics expertise (Kam, & Tsahuridu 2010, p. 21).

In addressing the above issues, it will, in effect, reports the findings of a tentative research project, which studies features of unique supply chains-best practices, challenges, and trends in the management of logistics and operation practices. Combined delays, red tape and the bureaucracy, environmental uncertainties, lack of enough logistics personnel and lack of government support have increased administrative costs such that Western multinationals can use about twenty percent of the costs of their Chinese operations to be logistics-related, compared with an average of about ten percent in the West.

Better practices

First, Human Resource Management in China was a major problem in the management of logistics and operations. The transition China to a market economy and the desire for china to create a state-run economic system in the late 1970s has enhanced the independence of Chinese firms (Yu 2006, p. 11).

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As a result, they adopted some Western techniques of management practices, which placed a greater emphasis on specific human skills. Moreover, China’s logistics experience has positively influence logistics supply chain operations. Specific operation experience is very crucial in the Chinese logistics market. Zhang and Goffin (2001, p. 80) noted that most foreign logistics chain supply providers in China are not familiar with china’s geographical area, thus invariably increases their operation costs. Therefore, many have to develop their industries by collaborating with Chinese companies.

Second, offering integrated logistics services means ultimately dealing with various logistics issues related to diverse parts of the supply chain such as distribution, procurement, warehousing, and manufacturing. Therefore, integrated logistics best practices cuddle the operation tradeoffs, which allow concurrent progress in service quality and economic performance. The key role of operation specialists is to provide transportation and warehousing services, contrary to the latter, that gives various logistics services. Consequently, the ILS capability puts together all logistics activities in a scheme, which ”simultaneously work to minimize total distribution costs and maintain preferred customer service level”. For example, the research conducted by Zhang and Goffin (2001, p. 90) in eastern China concluded that effective integrated logistics services influence companies’ performance by providing quality management practices that enhance the performance of the firms.

Third, Information and Communication Technology (ICT) is a very important resource for proper operations and logistics practices. The vital role of ICT in logistics supply chain operations is the provision of apt and precise information, improving decision-making processes, and facilitating the sharing of information among supply chain partners and within the firm. As a result, China has tried to incorporate ICT, such as ”Intranet, Extranet, Internet and Electronic Data Interchange” in its logistics industry, to enhance the integration of supply chain activities (Yu 2006, p. 3). The utilization of ICT skills and knowledge to augment LSC operations is becoming an essential resource for LSPs in china. Moreover, the formation of a joint venture by various logistics groups offered logistics services to the ICT industry in China.

Challenges/Issues/Critiques

There are several logistics challenges that face global organizations seeking to do business in and with China. There is inadequate modern logistics infrastructure. For instance, Yu (2006, p. 14) confirms that the costs incurred due to loss and damage of goods are significant and common during transport in mainland China, as vehicles used for freight transportation are usually open-backed trucks covered only by tarpaulins. With the handling of goods with hazardous components increasing in China, lack of logistics infrastructure and expertise to deal with industry-specific needs is quickly becoming a primary concern (Bolumole 2001, p. 100).

The logistics infrastructure is more fragile and disorganized compared to that of Western countries. Moreover, even if on a ”unit basis, shipping costs may seem lower than in the West, there is a huge cost to the macroeconomy” (Kam, & Tsahuridu 2010, p. 31). The effects of these infrastructure challenges on logistics have been due to constant venture in public and private sectors in China because the country had adopted an open-door policy.

However, new logistics barriers emerged. The severe and Underdeveloped information and communication technology’ (ICT) infrastructure affected distribution channels. With the advancement in technology, large population, and participation of China in the WTO, several Chinese expected more opportunities in almost all the sectors of the economy. However, it sounds unbelievable that logistics supply providers (LSPs) operating in China-with a large population that could provide enough logistics professionals faced challenges related to human resources (Yu 2006, p. 7). As such, there was little dedication, contribution and high turnover on the side of employees because most private companies in China had exhibited low trust relationships between management authority and the employees (Bolumole 2001, p.95).

The behaviors and rapports affected many supply chain and logistics practices, including time and total quality systems, which are vital for the creation of operational suppleness and the openness of the services. For instance, both international and domestic LSPs identified insufficient skills as one of the main challenges of operating in China.

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The shortage of experience in quality management also influenced operation and logistics practices in China. Recent research in supply chain management in China indicates that inefficient information support systems are impediments to supply chain development in China. The reason is due to little sensible training in information and communication technology (ICT) skills and warehouse management (Lanfeng 2011, p. 378). If a person has to transport products on the road, he/she has to switch to logistics providers without joint integration, and hence a lot of paperwork is involved.

According to Yu (2006, p. 5), undertaking any logistics project in China depends on the strength of contact of a particular company within the Chinese bureaucracy. Such bureaucracy that characterizes the Chinese circumstance raises the market value of logistics experts with a profound understanding of the local culture. For instance, ” different provinces have different regulations” that limit the trade by increasing the cost of logistics (Zhang, & Goffin 2001, p. 76). Moreover, initially, the government was reluctant in supporting policies related to import tax in some sectors as well as forcing the foreign multinationals to send their goods through the state-owned wholesalers.

In addition, logistics and supply chain operations in China also continue to experience higher levels of risks compared to western nations. For example, David reported that, on average, ”Chinese manufacturer keeps goods in a warehouse for fifty-one days with over two percent damage in shipment” (Yu 2006, p. 13). Some international Logistic Supply Providers operating in China expressed concerns about logistics security because people are involved in loading trucks. Moreover, ”they are usually small, independent operators, untrained and perhaps unattainable” (Bolumole 2001, p. 90).

China has been transforming from old trends to the modern trend of logistics and operation practices due to its rapid growth. Indeed today, the Chinese government no longer requires any multinational corporation to use the distributors because of the well-established economy (Lanfeng 2011, p. 377). Consequently, foreign multinationals in China have developed their own ways of getting information and distributing their products at a fast rate to the consumers. China’s logistical system is so complex compared with the Western nations that most westerners are developing the skills to make it operate in their favor.

With the initial trend, people expect that operation and logistics practices in china will continue to worsen due to the lack of enough qualified logistics personnel. Foreign firms in China will, in effect, engage in outsourcing opportunities for operations and logistics techniques (Yu 2006, p. 9). Furthermore, training in supply chain management remains nightmare china’s logistics, as there is little realistic training in ICT skills and warehouse management besides developing competencies at a strategic level.

The emergence of joint schemes is a key trend in the logistics and distribution sectors in China. Many top logistics supply chain providers are building competitive national distribution chains aimed at specific industries. Companies are fetching for the best logistics firms to provide them with the sensible logistics solution required for the new market development (Lanfeng 2011, p. 376). The unique necessity of constant stream by automotive manufacturers makes their logistics operations more challenging to handle. Such specific logistics constraints of the automotive industry have forced the manufacturers to seek joint ventures in order to fortify ”their logistics activities by combining logistics and automotive industry expertise in their supply chain” (Zhang, & Goffin 2001, p. 83).

Conclusion

The supply of products to a customer is the main aim of any logistics operation. Logistics managers have the responsibility of ensuring that goods continuously reach the customers in time and at the right place. The Logistics and supply chain operation in China involves ambiguous and socially complex processes. Therefore, it is very difficult for organizations to build their core capability to gain competitive benefits (Yu 2006, p. 6). The secured ICT System in China is required for its highly competitive logistics industry. However, socio-cultural factors, market demand and supply, environmental uncertainty, and other internal issues common to China’s logistics market would continue to challenge its ability to contribute towards initiating logistics supply chain capabilities as it takes the momentum to develop its growing economy.

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References

Bolumole, Y., 2001. The Supply Chain Role of third-party logistics providers. International Journal of Logistics Management, 12(2), pp. 87-102. Web.

Kam, B., & Tsahuridu E., 2010. Does Human Resource Management Contribute to the Development of Logistics and Supply Chain Capabilities? An Empirical Study of Logistics Service Providers in China. Research and Practice in Human Resource Management, 18(2), pp.15-34. Web.

Lanfeng, Y., 2011. Logistics Barriers to International Operations: A Case Study of Japanese Firm in China. International Conference on Economics and Finance Research, 4(1), pp. 374-379. Web.

Yu, L., 2006. Major issues in supply chain management for international firms in China. Research on Logistics Review, 46(1), pp. 1-15. Web.

Zhang, L., & Goffin, K., 2001. Managing the transition-supplier management in International joint ventures in China. International Journal of Physical Distribution & Logistics Management, 31(2), pp. 74-95. Web.

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