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Powering logistics with IT
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Liu Fuzhong
DICHAIN Systems Co Ltd, a technology arm of local business conglomerate China Merchants Group, unveiled its latest logistics management system in Shenzhen late last month. The system is based on combined computer and communications technologies in a revolutionary move to push the local logistics business into the information age.
Dichain says that it has come up with the country's most advanced network system that puts entire distribution processes online. The information thus generated will enable sellers, buyers and shippers to better plan timing of shipments and allocate resources, therefore greatly reducing transaction costs, according to Dichain officials. The firm estimates that the technology breakthrough will save the country 300 billion yuan (US$36.36 billion) every year in distribution costs.
Experts believe that the new information-based management technology promises to upgrade the local logistics industry, an economic sector poised to be a new growth engine for the economy. However, the significance of the new technology goes beyond cost savings. It exemplifies the real power of information technology to enhance productivity.
New model of logistics
At present, most companies follow a traditional model of logistics management. They handle their own logistics, trying to make sure that corporate needs are met. Raw materials are shipped in by suppliers using one shipping company while finished products are shipped out again by another shipper.
The rationale is that manufacturers believe they can ensure timely delivery of materials and products by taking distribution service into their own hands. But the drawback is that they have to pay expensive transportation and handling fees. And considering all the risks, timely delivery is just not always ensured.
Shenzhen-based TV maker Konka, one of the biggest in the country, spent almost 100 million yuan shipping TV sets to its warehouses around the country. The shipping cost averages out at 20-30 yuan per TV set.
Shipping companies, however, are not better off with the surging shipping demand. There are hundreds of small shipping companies operating a total of 80,000 trucks. Most of the shippers operate on individual contracts. As there is no co-ordinated planning, trucks often overload when there are big contracts and return empty, as there are no contracts on the other end. Therefore trucking companies run the risks of too many orders or no orders at all.
Evidently both manufacturers and shippers are inefficient, as there is insufficient information to match distribution services exactly to the shipping need of manufacturers. One broken link in this chain of distribution service is, as experts say, information. And Dichain offers to fill up the value chain.
Dichain's business idea is to take over the supply chain and distribution management for their customers. By matching the supply and demand of distribution services, Dichain hopes to use the power of information technology to maximize the benefits of both the buyer and seller. According to Fan Li, president of Dichain System, the company is committed to building the most efficient information system in China to power fledgling local logistics industry.
Logistics management is a systematic methodology of efficiently allocating resources to achieve the best results possible, according to Fan. The Dichain system actually digitizes every single process of logistics management, generating information at every single step to feed into the decision model of the customer. "Information creates value and we provide useful information for our needy customers," Fan said.
The Dichain system, based upon the latest Internet and communications technology, offers integrated information of management functions including supply chain management, resource allocation, cargo tracking, target market analysis, customer relationship management. On top of that, the company also offers data management for customers, who want to electronically track, analyze and forecast their business. It is said to be the most advanced computer platform for logistics in China.
"Then the company plans the most economic route and timing to ship the goods. The truck will then load up other goods at the destination, as planned, and return." Fan said.
Earlier the company also launched a vertical business-to-business website to integrate resources nationwide. The vertical website offers market information to match buyers and sellers.
Officials say the integrated information service allows clients to perform all their supply chain and distribution functions. "We ship needed materials and parts exactly to the right place at the right time as instructed by our customer. And our customers need to keep no inventory," Fan said.
China Merchants now operates distribution service in almost all major cities in China. It is part of the group's strategy to lay both the virtual and physical network of logistics service.
New challenges
Dichain's move certainly sends the signal that local distribution and fledgling logistics business will witness intense competition ahead. Experts say that the question is how local distribution businesses can take advantage of the new information technology to upgrade their competitiveness.
Shenzhen Shenjiu Logistics International, one of the earliest Logistics companies in Shenzhen, recently announced they have connected their internal network to that of Matsushita Corporation of Japan. Thus the company has full access to the information Matsushita's logistics need in China. Shenjiu in fact takes over the full function of logistics service of Matsushita.
By identifying clear expectations of service quality, Matsushita also reduced logistics cost as it would have incurred much higher distribution cost considering the frequency of transportation and its unfamiliarity with local conditions.
According to Jian Zhizhong, president of Shenjiu, the company takes care of everything when their clients' products are off the production line.
Shenjiu, operating in a Western style, started by offering timely delivery and related procurement and customs services to foreign-funded companies in the Pearl River Delta region. Now the company has built up a clientele of over 1,000 companies.
At present most large Chinese companies are in transition. Intense competition after China joins the World Trade Organization will force many of them to adopt efficient supply chain and distribution management policies, experts say. Wang Zhitai, China's lead logistics researcher, predicts that efficient specialized logistics service will replace current in-house distribution system.
In fact a national logistics and procurement association was launched at the end of last month to promote cross-industrial, cross-regional and cross-functional logistics development nationwide. Chairman of the association Ding Junfa said that the association is committed to building professionalism in logistics service that covers electronic business, physical distribution, proxy system and multi-mode transportation.
Background information
Logistics service began during the Second World War as a systematic methodology to ensure timely supply of war materials. The methodology was soon implemented in the civil sector after the war. Business leaders then describe logistics as delivering the right products with the right quality at the right place, right time and right price.
In the 1960s, logistics was known as physical distribution, or delivery of manufactured products to the end user. Physical distribution moved competition from the manufacturing arena into the service area.
In the 1970s and 1980s, manufacturers realized that it was equally important to manage procurement of materials, transportation and inventory. Thus logistics service came to mean the entire supportive functions for manufacturing.
In the 1990s a new concept of logistics---supply chain management---emerged. The supply chain actually incorporates all processes from suppliers to the end user, including product design, procurement, manufacturing, distribution and after-sales service. It means a company must manage all other companies on the value chain to deliver the right products to the customer. And market competition is no longer company-specific. It is competition among different supply chains.
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