CHAPTER 4: WITHIN-CASE STUDY
4.5. COMPANY D
4.5.1 The Company Background of Company D
Company D was born in 1968 which restructured into a private enterprise in 2001. It officially got into white goods industry in 1980, with its vast distribution and worldwide partnership network. It now serves customers worldwide with a unique comprehensive line of high standard products. By 2010 with over 30 years of development, Company D employed over 50,000 employees worldwide, and became a major white goods manufacturer and exporter of China, with annual revenue of 107.1 billion of RMB (equivalent to 17 billion USA dollars), and quite big portion of which came from exporting and overseas businesses. While strengthening the white goods industry, through acquisitions, mergers and cooperation, Company D has further diversified itself into new domains such as real estate, automobiles, information technique, finance, and so on.
4.5.2 Change from in-house logistics to 3PL.
Prior 1997, Company D had a transportation department which kept more than 40 staff, and more than 30 drivers, and possessed its own logistics facilities such as trucks, lorries etc, which was in charge of dispatch, transportation and storage of Company D products nationwide. Beside transportation, warehousing was an obvious issue. Dispersed warehouses spread out in the entire country either managed by local dealership or collectively managed by both, had imposed big difficulty on logistics management, and costs of warehousing was out of control. What was worse was the inventory level on the system never matched the actual stock, which directly brought down the service levels.
From 1998, price war among Chinese domestic white goods market had become even more fierce, cost control had almost reached its fullest potential from productions and
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material purchasing. As one of major white goods manufacturers, Company D was inevitably involved in the battle, which had further reduced in its profit margins. Logistics was the only way left for Company D to get out from “profit ice age”. In 2000, according to “Price Waterhouse” and “Coopers & Lybrand” two internationally renowned business management consulting firms’ advice, Company D restructured its transport department and made it into an independent subsidiary business as Annto Logistics (Wuhu Annto Logistics Company Limited), and which was not only doing logistics for Company D, but also entitled to take jobs from others, therefore it refers itself as a 3PL service provider; in the same way, Company D also deserved the right to choose the most desired LSP through public bids, and chose the one with the best combination of price and service. Yet Annto Logistics had been always the winner of the public bid, this wasn’t only due to the blood relationship between these two businesses, but also mainly due to Annto Logistics’ dramatic improvement in its performance. After the original transport department became an independent subsidiary company, a separation policy of the right of management and property right took place on the existing vehicles, which meant though vehicles were owned by Annto Logistics, drivers bear their loss or profit, general maintenance and repairing costs and etc, which had extremely simulated drivers enthusiasm and productivity and efficiency. By end of 2000, transportation and warehousing cost of Company D had dropped 10% respectively. In-house logistics era was gone and contract logistics era had arrived in Company D.
4.5.3 Initiate 4PL from 3PL
In the end of 2002, Company D further restructured Annto Logistics into a 4PL provider, and renamed it Annto SC (Annto Supply Chain Solution Co., Ltd), which has been widely deemed as the first 4PL in the Chinese white goods industry. Gattorna (1998) argues that 4PL is often a joint venture between a primary client and one or more partners. Annto SC absorbed other two major shareholders, who are
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Kepple (Kepple Group) from Singapore and one local investment company. Company D and Kepple possess 35% of Atton Logistics’ shares respectively, and remaining 30% is held by the investment company. Kepple is a public listed international company which has strong background of telecommunication, network engineering, international logistics and etc. It has provided a strong technical support, and mature international logistics management experiences for Atton SC’s IS construction, especially during the transitional stage from 3PL to 4PL, and in return, Kepple entered into China’s logistics market through Annto SC.
By 2003, Annto SC had completed its 4PL reformation, by four steps:
Cashed out certain part of its fixed assets, majority of its commercial vehicles have been sold out or/and leased out. Instead, it took the historical chance of the fact the most Chinese 3PLs nowadays are still smaller in size and narrower in function, through selection Annto SC assembled a group of 3PL and who exclusively under the management of Annto.
Technically, Annto SC updated a series of IS with Kepple’s assistance, such as in-house developed bar-code technology which links up with SPA. This enhanced Annto SC’s traceability of goods locations and improved inventory transparency for its service users. It suggests that Annto SC has completely changed from a traditional asset based 3PL to a knowledge and technology based 4PL.
From 2003, Annto SC has been looking after Company D’s white goods sector’s entire supply chain network, rather than acting as a distributor as it used to be, and only left R&D and manufacturing to Company D, which has freed up much resources for Company D’s diversification ideology, to get into even more profitable areas such as real estate, automobile industries and etc. Since Annto SC manages the entire network by itself, information flow achieved in a timely manner reduced the unnecessary production wastes, which further reduced Company D’s production costs.
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across different industries such as FMCG (Fast Moving Consumer Goods), building materials, automobile and so on. Company D white goods section approximately makes up 50% of its business volume, which will be further reduced as 4PL will be adopted by more and more Chinese businesses.
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CHAPTER FIVE: CROSS-CASE STUDY
5.1.
INTRODUCTION
So far, to some extent the research has provided an understanding of the logistics outsourcing situation occurring within three individual Chinese white goods manufacturers. Through further analysis using cross-case study method, this chapter finds and presents both strengths and weakness of the strategies that are being used by these manufacturers. SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis technique is adopted as an assessment tool. In addition, at the same time, benefits of adopting LSP to these manufacturers are discussed further.