Question

Please answer the case study question in detail

1-What are the advantages of using DCH International Logistics? What are the advantages of having a bonded warehouse? How can it help doing international business?

2-Why does La Cafetiere want to enter the Chinese market and what are the supply chain issues faced?

3- How could DCH redesign the logistics flow for La Cafetiere? (explain the benefits of a solution)

DCH Logistics -Planning for La Cafetiere

Abstract. The study demonstrates the approach of global supply chai1t restructuring by OCH Logistics, a world-rcno\\'11cd Hong Kong-based third-party logistics service provider (3PL) for its client La CafctiCrc in the area of warehousing and tr 111spo11ation as well as customer services suchas packaging) procurement> custom dccl::untion> bonded warehousing, hygiene and quarantine. The case enables insights into the advantages of having a local logistics services provider that knows the local market,environment and regulations specifically to shorten thcs-upply chain lcad­ time, reduce inventory level, and most importantly improve customer satisfaction as well as other comprehensive supply chain activities. Furthcnnore, the case develops common supply-chain issues multi-nationals face on an operational level., especially in China.

Introduction

Early in the morning,David Kuk, the Managing Director of Dah Chong Hong Logistics Company Ltd.(OCH Logistics) was enjoying a cup of Starbucks espresso. He was with Martyn Cooling, Operations Senior V ice President of la Cafetiere waiting in Hong Kong for the cross-border shuttle bus. They were going to visit the DCH Logistics International Logistics Center in Xinhui, Guangdong Provi nee, China.

Kuk and Cooling met each other in 2005 when both were attending HOFEX2• During that casual meeting, they explored the possibility of a strategic cooperation between DCH Logistics and La Cafetiere. At that time, Cooling confided to Kuk that in the past few years, La Cafetiere was experiencing some serious late delivery problems to its global sales agents and distiibutors. Kuk commented,that this was potentially a huge loss of reputation and profit, if La Cafetiere's products could not reach the international market on a timely basis, especially for a company that enjoyed over 70 yearsof history in Europe in the manufacture and disn·ibution of coffeemakers.3 While he was finishing his last sip of the espresso, he was asking himself,"What was going wrong with La Cafetiere's logistics flow? How could OCH Logistics play a role in the redesigning of La Cafetiere's logistics network?"

OCH Logistics

OCH Logistics is a world-renowned, Hong Kong-based, thi rd-pa1ty logistics (3PL) service provider that was 01iginally a logistics section of OCH Trading. In 200 I , DCH Logistics, previously called Sims Logistics was acqui red by Dah Chong Hong Holdings (OCH Holdings). The company designs and provides value-added supply chain and logistics solutions to international clients.

OCH Logistics' main target customers were companies that ( I ) were in the fast moving consumer goods (FMCG) business, (2) did not have a prominent physical presence,and (3) had little business expe1ience in China and Hong Kong but with large business expansion potential in the region. OCH Logistics competencies were in well established warehousing and distribut.ion centers, comprehensive lT system support, and professional logistics management personnel.

Its strong business re lations with the parent company ClTIC Pacificenabled DCH L-0gistics broad access toa global distJ·ibution network.Consequently, within a few years, it had built a firm business foundation in the Pearl River Delta (PRO) region and DCH Logistics became an official import agent in China handling customs, hygiene, and quarantine procedures for its clients.

3.        OCH International Logistics Center (Xinhui)

When the bus arrived at Xinhui, Kuk explained that the DCH International Logistics Center (hereinafter called Xinhui LC) started operations in 2006.Of its approximately 479,520 m2 floor space, 1 16,044 m2 was dedicated for common, import and export-bonded warehouses and affiliated centers for domestic logistics, dishibution, repackaging, and food processing. Kuk further explained that: The common warehouse occupies an area of 20,000 m2 and it is equipped with an advanced inventory management system (SLS).

The import bonded warehouse (the first in Jiangmen city) occupies an area of 68,000 m2• It is also equipped with advanced warehouse management and secwity systems and that enables it to provide customs clearance using the Chinese Customs' H2000 A utomated Declaration System . With this facility, the Xinhui LC is able provide bonded warehousing5 services such as storage of impo1ts and re-expo1t. of goods, including fuel which it supplies to international navigation of vesse ls and aircraft, as well as mate1ials and maintenance components.

The export bonded warehouse, which was set up after successfully establishing a processing center and impo1t bonded warehouse, was also the first of its kind in both Xinhui po1t and the Western Pearl River Delta.The expo1t bonded warehouse, which commenced operations in October 2006, covers 8,000 m2 and is equipped with an elec!J·onic secmity surveillance system as well as an electronic records management system and the Customs H2000 system . The expo1t bonded warehouse includes an office for processing all impo1t and expo1t fonnalities which allows it to work closely with the Jiangmen Customs Office and the China Inspection and Quarantine Bureau (CIQ).

The Xinhui LC was located next to Tianma Port, which was second in throughput volume to Yantian Port with a first-class freight terminal in Guangdong. Cargo only needed two homs to reach major manufacturing cities such as Zhongshan, Foshan or Dongguan and one day to reach Hong Kong.

Kuk fu1ther explained the role of the X inhui LC: The center integrates a ll logistics and related services into 01te site. It isstrategically importaJlt for DCH Logistics to cater for the national logistics network. It serves as a depot to transport products from Xinhui to other DCH's logistics centers in other parts of China for regional distribution. He continued to share why periphery cities chose to do business with the X inhui LC: Our climate and humidiry-controlled warehouses encompass 78,000 m2. Our rents are about seven times lower than those in Europe and three times lower than in Hong Kong. They are up to HACCP6 and 1509000 sta ndards, equipped with CCTV, and Global Positioning System for securi ty and tracking distri burion.Our logistics solutionssystem makes it easy for our clients to manage their inventory and enquire about storage and shipment information via Internet. We offer our clients a one-stop logistics solution including product inventory, shipping arrangement, freight forwarding, container haulage, vendor ma11agement, and other as-needed serv ices.

Kuk emphasized that other than the basic logistics services,bonded cargo consolidation wasone of the major value­ added services provided by the Xinhui LC. Clients often needed consolidation services for goods from multiple manufacturers, so that each manufacturer did not have to transport its parts from the Western PRO region to Yantian Po1t in Shenzhen for export.

Product packaging was another key value-added service for its bonded warehouses. Finished goods that were shipped in bulk required packaging into different retail configurations.He clarified that:"We not only pack and repack goods according to the requested size, volume and formrut but also do barcoding, printing, labeling, sourcing, etc.. Packing services are quite simple for us. We have access to plenty of expe1ienced temporary low cost workers from the local labor market."

La Cafetiere's Entry into China

Cooling was very much impressed by the development of the Xinhui LC. However, meeting the timely needs of the Chinese growing market had been a challenge to La Cafetiere. He explained that La Cafetiere positioned itself as a design-d1iven brand,a trendsetter in coffee and tea making products.Since the mid-1990s,it no longer engaged in actual product manufactmiog but relied on trusted OEM manufacturers in China, I ndia and A frica. The 40 direct staff in the UK headquarters were primmily involved in the design, development, sales/marketing, and disuibution of the La Cafetiere brand around the world

The two classic bestsellers ''La Cafetiere" and "Moka Express", as well as other sophisticated and innovative models of coffee makers and teapots kept the company uniivalled for decades New products, less than 3 years old since rollout, accounted for over 40% of annual sales turnover. More strikingly, geographical market expansion drove sales figures up, as Cooling desc1ibed: Prior to 2000,sales were still based on the UK market but starting in 2000 export sales had been developing in the US, Asia, Australia, and Africa . In the past three years, sa les have grown rapidly at a rate greater than 20% per annum, especially with the sudden rise of the China demand. We simply need more flexibility in production and distribution to cope w ith the new market.

The Logistics Flow

Cooling continued to share that since 2000, several Asian designers were employed in designing products specifically for the China market because it was the major development focus for La Cafetiere.However, the company began to experience late product delivery when manttfacturing was expanded extensively to China staiting in 2000.He added that each manufacturer was only responsible for a specific type of product with a specific design layout and using specific raw materials from tbe UK, but they were all located in cities aiound the PRD such as Yangiiang, Zhongshan and Zhuhai .When individual manufacturers finished their produ ction,they could not ship productsdirectly from the PRO ports but had to transport products individually to Yantian Po1t in Shenzhen for custom clearance in order to ship to the UK .He said: The lead-time for manufacturing coffeemakers in China is about 30 days. Shipmenc of finished products to the Port of Felixstowe takes another 30 days. Even !hough products are landed, we have to take another 3 to 4 days to transport products from our distribution center to sales agents in Europe. It is even worse for customers in Asia because they have to wait for another 30 days. Productshave to go through another round of custom cleara nce;despite the fact they are "Made in China".We have received thousandsof complaints from o:ur customersabout late delivery since 2004.To make matters worse, our Chinese manufacturers sometimes could not make on-time delivery during our peak sales period from September to December.

The practice in the ctment logistic nehvork is to produce minimum quantities of 3000 sets of coffeemakers to fill a 40 feet container in order to minimize the shipping cost per set. However, quality conuul is done in the UK, leading to the burden that products with quality problems would need to be returned to China.This involved complicated customs clearance procedures. Some products in the past t1<1velled back and forth between China and the UK several times.

6.     The Distribution Center in the UK

Across the ocean, La Cafetiere had only one distribution center (DC) near Chester in the UK for warehousing and logistics services, which the company had been using since the 1960s.Even though the capaci ty of the DC could load up to 200 pallets of finished goods, m uch space was used instead for keeping raw mateiials. Despite its 24 hours,6 days a week operation, the DC suffered from late delivery to its customers. As a result,Cooling revealed that his customers had been asking La Cafetiere to maintain a large inventory of each product item in the DC.

Cooling understood that he could request for mass production aod bulk shipment from the Chinese manufa cturers. This would reduce the average cost per set of prod uct. However, it was a fact that the DC simply did not have enough space to entertain a large quantity and diversity of"made toorder"products, particularly when many of itsclients tended to make orders in small quantities. He added that La Cafetiere once considered expanding the DC, but it found that it was too costly to upgrade such an old facility . Another practical aspect was that the company could not find the land needed for the expansion.

Operationally speaking, every order request and product delivery had to pass th rough the DC in the UK. As the shipping was not always punctual,when shipments a11'i ved .at the DC, its 15 employees had to move quickly to unpack, repack and ship the goods tocustomers around the world.The Logistics Manager,who was stationed in the UK, had to manage all aspects of the product dish·i bution from suppliers to end customers, including inventory and quality control. He realized that it became too difficult for his staff toadhere to the com pany policy of delivering products tocustomers in the UK and Europe within 24 how·s upon order receipt,even though products could aJTive at the DC on time.

Another source of stress was that the DC was unable to support the upsurge in demand in the China Market. In the best case, it took approximately 3 months for final products to anive to the Asia market. Thus, in addition to the nearly 3000 com plaints received so far this year, the logistics manager was already anticipating that more Lnte delivery com plaints would be received from its China customers.

7.     OCH Logistics' Experience

Cooling's concern reminded Kuk of a past project with Almond Roca candies in 2005. Its brand owner,Brown & Haley, also faced a similarproblem at the time when it was required toship packaging mate1ialsall the way from manufochtrers in China to candy producers in the US just for packing,but in fact, the candies were to be sold in China and Southeast Asia. Kuk helped Brown & Haley consolidate the logistics flow by primaiily offeiing packaging services in Xinhui LC together with an mrny of follow up a!1'angements, including quality control, warehousing, inventory, shipment, transportation and sales responses.But this time, how could he redesign the logistics flow for La Cafetiere? Kuk was trying tocome up with an attractive solution for La Cafetiere's late delivery problems. Jn addition be wanted to explain the benefits of a solution involving DCH Logistics. Over 600 professional staff in logistics teams i n Hong Kong> Macau and Main land China provide logisticsservices toclients in the business sectors of consumer products, catering products, health care products, phannaccuticals> gannent manufactuling,and catcling.

OCH Logistics operates ambient, temperature-controlled and refrigerated warehousing as well as a multi-temperature fleet of l 04 GPS-instalJcd vehicles in vaiious sizes of capacities from 2.2 wt. to 24 wt. tons. Storage control system and logistics procedures arc computerized by applyiJlg the Dallas Warehouse Management System and the Oracle Enterprise Resource Planning System. In addition to warehousing and distribution services, the company also provides other suppo11ing services, such as customsdcclarnrion , packing and re.packing> import and export shipment handling and cargo consolidations, food safety testing. etc.

Macau

In Macao> the logistics disttibution center in Coloanc is providing dry aild cold storage facilities so as to provide sen•iccs to hotels and casinos. The Group is the biggest logistics services provider for \Vynn Casino & Rcso11, and is providing its service to a growi ng nwnbcr of hotels and casinos.

China

In mainland China> OCH Holdings has developed au lntcmational Logistics Center in Xinhui> \'lh ich can providea one-stop professional logistics service to its princi pals and third-party customers incl uding storage, rcpacki n& c.ustoms clcnrancc, cargo forwarding and  olhc.r val ue-added services. The Cent re has difiCrcnt v.rarc.houscs, such as bonded warehouses for impo11and export, to cater for different needs of customers. CutTcntly, it is serving Lee Kam Kee, V inda Tissues Paper and \Val-Mart (China) and other reputable c.ustomc.rs in Mainland China. DCH Logistics is actively developing the freight forwarding business wi1h multi-national corporations for expo11ing their products using its consolidation service at the export-bonded warehouse.

La CafcriCrc was c.stablishcd in 1936 in London, UK. l11c company manu fucturcd and sold a variety of products for the housewares industty in the UK under the name '"Household Atticlcs".In the 1960s> the La CafctiCrc r::tngc of coffee and tea 111aki11g products were added and these now form the core business and build u p the brand name of La CafctiCrc in tbc UK and many cxpo11111arkcts. Besides its own branded products. La CafctiCrc also distri butes for Bi::iJc1ti, established since 1930s and now the world's largest manufacturers of stove-top espresso pots. l11c Guido Bcrgna (gB) rnngcof stainless steel> espresso pots and acccssotics arc aJso available together with an electrical range from Dc'Longhi> another long-establishe.d J talian coffee specialist.

The company currently employs approximately 40 direct staff who a1·e primmi ly iJwolvcd in the design development, sales/marketing and distri bution of La CafotiC:rc around the world. It depends on supply partne.rs in China. Lndia and Aftica to manufacture products on a confidcntiaJ excl usive basis. La CafetiCrcd ircc.tly scUs its products to customers in the UK> making use. of a combination of direct sales through national accounts, sales agents for smaller independent customers and telc-salcs for all kinds of accounts. In the US, a network of commissioned sales representatives has been developed whereas in other tcnitoriesJ exclusive sales agents and distributors arc appointed by La CafctiCrc. 1l1e International Sales Manager is responsi ble for dircctJy handling major US accountsand suixrvisingaccounts in other regions.

Answer 1

1. DCH international Logistics which is a part of OCH Holdings is one of the largest Logistics and supply chain solutions provider to international clients. They have dedicated common import and export bonded warehouse as well as affiliated centres for domestic logistics, processing and packaging. They also have advanced warehouses management and security systems which help in Chinese custom clearances. La Cafeteria is looking for Logistics provider like DCH which is advantageous for them for distribution in local Chinese and Asian Market. With Bonded Warehouses facility it is easy to store import and export goods with equipped advanced inventory system which helps in export import formalities easily with customs and Inspections office. It will facilitate and enhance the International Business by reducing the time taken by customs and inspection offices as well as inland transportation.
2. La Cafeteria is focusing on Chinese market as it is the fastest growing market and increased sales by 20% in China in the last 3 years. La Cafeteria is looking for simpler and flexible production supply and distribution in China to cope up with the market demand. The company is experiencing late deliveries in China since 2000 when manufacturing was expanded in china. They are facing issues of supply chain like complicated custom clearance procedures in china, High Lead-time, weak domestic logistic network, poor delivery because of sales and delivery agents,etc.
3. DCH Logistics can design and benefit the logistics flow of La Cafeteria in China through its large operating base in China. Their International Logistics Centre, Bonded warehouses, strong Port and Custom connections, strong domestic distribution network, regional distribution offices, official import agents in Chinese customs, etc. will all help in improving the La Cafeteria’s Logistics flow in China.