On April 12-16, Sterling Commerce will be hosting its annual Customer Connection 2010 Conference in Dallas. Sterling Commerce provides technology focused on business collaboration networks with a particular emphasis on supporting order management and fulfillment processes. The conference has an interesting lineup of keynote speakers including representation from Best Buy, Hostess Brands Inc. and other companies.

Infosys supply chain management team, who is one of other sponsors of the Supply Chain Matters blog is also a spotlight sponsor for this upcoming Sterling event.

I will be in attendance at next week’s conference and will be providing live blog postings from this event, including comments via Twitter. Our coverage will include interesting interviews with supply chain practioners, consultants and technology providers as well as commentary on current and future order fulfillment business process and technology applications. If you plan on attending this conference nest week, please seek me out.  I’d enjoy meeting and chatting with you on supply chain developments and challenges.

Bob Ferrari

There is yet another interesting follow-up to the 2008 milk powder contamination incidents that occurred in China.  Supply Chain Matters readers may recall our commentaries related to this tragic incident involving the deaths of at least six individuals and sickening of over 300,000 people, many of which were infants and children.  Our Supply Chain Matters commentary, The Tainted Milk Scandal in China-One Year Later, noted that Sanlu Group, China’s largest producer of infant formula neglected to make full and timely disclosure of the melamine-laced contamination.  One year later, two Chinese citizens were convicted and executed as a result of their involvements in this incident, over 20 percent of the country’s milk collection stations were shutdown and despite massive subsidies from the government of China, dairy farmers on the mainland suffered from lack of demand and consequent low dairy prices.

One of the indirect participants involved in this incident was New Zealand based Fonterra, which is one of the world’s largest dairy producers.  The company had 43 percent joint ownership of Sanlu, and Fonterra officials were the first to inform Chinese governmental officials, via the government of New Zealand, on the potential existence of contamination.  Fonterra paid a dire price monetarily and in reputation. It had to liquidate its entire ownership of Sanlu, which incurred a NZ $200 million loss, and rebuild some of its credibility as a supplier to major confectionary and food producers such as Nestle and Kraft who relied on Fonterra for safe dairy related product.

In a new twist to this risk related story, an article published in the Financial Times (free preview sign-up or paid subscription may be required) notes that Fonterra is resolute to now return to China, but in a different role. Chinese consumers continue to lack trust in the Chinese dairy industry and have been electing to purchase from imported non-Chinese brands. This includes sales of New Zealand based dairy products. The article notes that Fonterra being a dairy cooperative, itself has 10,500 New Zealand farmer owners, and a near 40 percent share of global dairy sales.  Now Fonterra sees a vast opportunity to expand in China’s dairy market, and is actually looking to build more dairy farms within the country.  While the company continues to have a small brand presence within China, it now wants to elevate that image.

When I read of this development, I though about the Asian adage that crisis often brings opportunity.  The 2008 occurrence of the Chinese milk scandal will continue to be on the minds of Chinese consumers and dairy producers.  Safety is apparently being viewed as dairy products produced under non-Chinese control.   Fonterra is taking a bold but perhaps savvy move to turn a financial and potential brand crisis into a new market opportunity.

I wonder how may other firms would take such a risk?

 Bob Ferrari

I came across an article in yesterday’s New York Times Business section, China Is Eager to Bring High-Speed Rail Expertise to the U.S. which I feel raises a rather interesting sourcing dilemma for governmental officials in California.  For readers who may not be aware, the State of California has plans to build a high-speed passenger train link between the cities of Los Angeles and San Francisco.  This massive project is in its planning phases, and the Times article notes that nearly 150 years after American railroads utilized Chinese laborers to build rail lines across the U.S. Western region, the Chinese government has signed preliminary cooperation agreements with the State of California and General Electric to be a potential bidder for construction of this initial high speed rail corridor.

This poses an interesting dilemma for California officials from two perspectives.  First, China’s rail ministry has been gaining worldwide attention for its engineering competence and reputation for overall speed in building high speed rail networks.  The ministry has undertaken and completed massive high speed rail construction within mainland China, and begun projects in Saudi Arabia, Turkey and Venezuela as well. Second, China’s ministry can compete on the basis of low cost through its leveraging of massive economies of scale in engineering, labor and construction equipment resources.  China has chosen to partner with General Electric to license its technology, and the preliminary agreement calls for GE to source at least 80 percent of locomotive and system control equipment among U.S. suppliers. China would source the remaining 20 percent, license its technology, supply engineers and is even willing to help finance the construction utilizing some of its $2.4 trillion in foreign reserves.

No doubt, the State of California can explore other alternatives including proven expertise from suppliers in France, Germany and Japan. A little over a year ago, Supply Chain Matters provided our commentary noting the reality that the U.S. is very late in competency to build intercity high-speed rail networks, and building a world-class line would have to have some dependence on a more experienced non-U.S. partner. if you need to build a world-class network infrastructure on an aggressive timeline, go to the experts who have the most experience in on-time delivery or operation of such a network. We also called attention to the opportunities for economies of scale, since the technology and supply chains for both the track infrastructure as well as these trains already exist. 

The State of California now faces a complex sourcing decision unlike many faced by other supply chain sourcing professionals. The China alternative presents strong positives in overall cost, competency and long-term financing, but may present rather dicey political sensitivities.  GE also does not have any track record per se in producing high-speed electric locomotives. Other proposals from France, Germany or Japan could bring proven locomotive, engineering and equipment expertise, but may not be able to match the cost advantage of China.  An interesting dilemma, to say the least, one that may require utilization of rather sophisticated project sourcing weighting expertise.  Then again, when governments are involved, political forces can never be ignored.

What’s your advice to the State of California?  Low cost, proven expertise or source for maximum American jobs and technology transfer?

 Bob Ferrari

Some of our readers may be experiencing an “attack page” message blocking access to this blog and web site.  This situation was caused by a technical difficulty that occurred on Wednesday, and this site has been since repaired.  

We apologize for this interruption and can assure you that this blog continues to exist, so please maintain this site on your Favorites listing.

 Bob Ferrari