In recent months, I have been reading a significant number of media articles concerning rising costs in China, and how this will result in higher prices being passed on to US and European retailers and consumers.
From our Shanghai office’s experience on the ground, I am happy to say that statements such as “every single retailer has and is paying more for the items they sell” or “Americans, Europeans and other buyers will have to pay more for those goods or seek lower-cost suppliers elsewhere” can be proven inaccurate by improved execution in upstream supply chain operations. The reality is, there are greater cost savings in China to be achieved.
Cost pressures are undoubtedly rising in China. I would note areas such as raw material prices, logistics freight rates, salaries and currency exchange risk. My question is, how many companies sourcing from China are considering alternative material selection, exchange rate risk balancing, and operational opportunities to eliminate unnecessary layers that contribute limited added value?
With increasingly volatile sales and realised margins, it is key that the retail industry become more engaged in supply chain operations beyond traditional sourcing and shipping. To achieve significant cost savings, retailers must actively look at strategies that identify waste in the value chain.
Major inefficiencies exist in areas such as logistics and distribution planning, as the majority of retail models do not utilise consolidation effectively. Optimised packaging methods are rarely used, which can cut both direct and indirect costs.
At the bare minimum, there still exists a lack of knowledge concerning the market price of materials and products.
With smarter business practices, every purchase order does not have to equal higher spend. By implementing innovative techniques to reduce operational inefficiencies, retail companies can maintain current pricing or lower costs.
I’ve seen this proven, as we set internal targets of sustainable or reduced pricing over a period of time for our retail partners that exceed the industry average. In some examples, we have identified cost reductions of over 25 per cent for both retail merchandising fixtures and products.
Here’s to a year that goes against the “market” trends.
☛ Bradley A. Feuling is CEO of Kong and Allan (Shanghai) Consulting