A sur vey analysis of supply chain adjustment for Taiwanese infor mation technology fir ms
5. Conclusions and r ecommendations
Little research has focused on the interrelationship of supply chain dynamics and freight transportation demand, this article compared supply chain adjustment practices at forty-five IT firms in Taiwan and investigated five Propositions.
As to Proposition 1, the survey indicates that Taiwanese IT firms are indeed involved in international collaboration. Firms actually diversify and adjust their manufacturing activities in their supply chains with respect to space factors. There are also quite a few manufacturers who have established offshore factories for cheaper, cost advantage production input factors.
Proposition 2A and 2B are supported. The firms apply different supply chain adjustments to the products according to their product life cycle. Basically the supply chain adjustments in
‘space’ do appear according to the stages of the product life cycle. The adjustments in space migrate from domestic ‘centralization’ to ‘diversification’ at various sites. As to the
adjustments in time, there are four basic types, which correspond to the various stages of the product life cycle.
Proposition 3 for supply chain adjustments that affect freight transportation
origin/destination and modal choice is supported. The supply chain adjustments in space will actually affect the transportation demand between origin and destination. In the meantime, if the postponement strategy is adopted, faster transportation services will be needed.
Proposition 4 contains two layers. Not until the firms decide to undergo the adjustments in
‘space,’does this proposition find support. However, once the firms decide on foreign investment, the transportation service availability becomes one of the considering factors for factory relocation. Additionally, when firms apply ‘postponement’ strategies, this proposition is also supported.
Finally, this study found that the transportation cost was not a major consideration for the respondents’ supply chain adjustments.
In general, this study discovered that the concepts of ‘centralization’/‘diversification’ in space and ‘postponement’/‘speculation’ in time do exist in the supply chain adjustments of
the IT manufacturing industry. How to establish the quantitative model for supply chain adjustment and freight transportation demand would be an interesting focus for future research.
The ‘OEM’ business model is popular among many Taiwanese IT manufacturers. Most of the products manufactured under this model have entered into the maturity life cycles. Firms not only have to lower the manufacturing costs, but also have to enhance the transportation efficiency to satisfy the fierce competition. Any product steps in the maturity or decline stages will more and more rely on faster transportation services when the manufacturing locations diversify. If the ‘postponement’ strategy is applied, the turnaround time gets shorter once the order is received. Fast transportation services will be necessary to meet the supply chain operations. In terms of the influences that the supply chain adjustments have on the transportation demand, the diversification in space will lower the total quantity in freight transportation in the host country. The postponement strategy will increase the demand for faster transportation services.
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R/M
Notes: DC=Distribution Center, LW=Local Warehouse, R/M=Raw Materials
Outbound logistics Manufactur ing logistics
Logistics Channel
Figure 1 Supply Chain of Manufacturing Industry
Time
Very few buyers Growing number of buyers
Peak demand Declining demand and then steep fall-off in demand Very few competitors Entry of new
competitors
Rapid change Less rapid change Some change but increasingly stable technology
Sales Volume
Figure 2 Profile of product life cycle.
Source: (Dicken, 1992).
10
Figure 3 The distribution of surveyed IT firms’ foreign investment.
1985 1990 1995 1999
Figure 4 The trend of foreign investment.
Dist3 Dist2
Requir ed deliver y time after or der ed
Level of customer service
t1
t2
t1 LOS1
LOS2
v
1v
2v
3Speed of transport services
C
A
Dist1 B
D
v
4T
T t2
Requir ed deliver y time after or der ed
Figure 5 The relationships among response time, transportation speed and level of service.
Table 1 The manufacturing product structures (by production values)
Unit: ％ Year Information
technology
Chemical Metal Consuming
Industrial
Total
1989 17.9 29.4 24.4 28.3 100.0
1990 18.6 29.0 25.0 27.4 100.0
1991 19.0 28.4 25.7 26.8 100.0
1992 19.2 28.2 26.8 25.8 100.0
1993 20.3 28.2 27.0 24.5 100.0
1994 21.7 28.6 26.5 23.2 100.0
1995 24.1 28.4 26.1 21.4 100.0
1996 25.2 29.1 25.3 20.4 100.0
1997 27.6 28.1 25.7 18.7 100.0
1998 30.3 27.3 24.9 17.5 100.0
Source: Directorate-General of Budget, Accounting and Statistics, 2000.
Table 2 Positions of Surveyed Respondents
Responsibility for logistics operation Title of the Position
No. of
Respondents % Yes % No %
Top Management 1 2.22 0 0.00 1 2.22
Senior Management 4 8.89 3 6.67 1 2.22
Department Managers 25 55.56 20 44.44 5 11.11
Supervisors & Engineers 12 26.67 12 26.67 0 0.00
Others 3 6.66 0 0.00 3 6.67
Total 45 100.00 35 77.78 10 22.22
Source: The survey in this study.
Table 3 Questionnaire Survey Response Profile Annual Sales
(million USD) No. of Respondents (%)
Less than 500 million 31 68.89
$501 million – 1 billion 7 15.56
$1 – 1.5 billion 5 11.11
$1.5 – 2.0 billion 1 2.22
Greater than $2 billion 1 2.22
Total 45 100.00
Source: The survey in this study.
Table 4 Reasons for Offshore Relocation
Reasons No. of respondents ％
Cheaper labor cost 41 44.57
Proximity of customer markets 22 23.91
Lower land cost 15 16.30
Easier to access new technologies 6 6.52
Skilled labor availability 3 3.26
Lower tax/tariff 3 3.26
Other 2 2.17
Total 92 100.00
Note: Only the most major reason is considered for each offshore factory.
Source: The survey in this study.
Table 5 The interrelationship analysis on the location selections, investment reasons and product characteristics for offshore factories
Unit: firm Reasons
Mainland China
Thailand Philippines Malaysia Singapore Mexico UK Japan United States
Cheaper labor cost
29 4 3 5 --- --- --- ---
---Lower land cost
13 2 --- --- --- --- --- ---
---Lower tax/tariff
2 --- --- 1 --- --- --- ---
---Easier to access new technologies
--- --- --- --- 1 --- --- 2 3
Skilled labor availability
--- --- --- --- 1 --- 1 --- 1
Proximity of customer markets
--- --- --- --- 4 3 3 1 7
Others --- --- --- --- --- --- --- --- 2
Total 44 6 3 6 6 3 4 3 13
Life cycle stage Unit: No. of offshore factories
Introduction 0 0 0 0 1 0 0 1 1
Growth 1 0 0 0 4 0 2 2 10
Maturity 21 3 1 2 1 2 2 0 2
Decline 22 3 2 4 0 1 0 0 0
Source: The survey in this study.
Table 6 Analysis on product life cycle stage and supply chain adjustments in ‘space’.
Unit: No. of products Stage of product life cycle Introduction Growth Maturity Decline Total
No. of products 2 19 35 9 65
Made fully in Taiwan 1 15 9 2 27
( % ) 50.0％ 78.9％ 25.7％ 22.2％
---Partial or not at all made in Taiwan 1 4 26 7 38
( % ) 50.0％ 21.1％ 74.3％ 77.8％
---Source: The survey of this study
Table 7 Analysis on product development and supply chain adjustment strategies in ‘time’
Unit: No. of products Stage of product life cycle Introduction Growth Maturity Decline Total
No. of products 2 19 35 9 65
Manufacturing Strategy
Speculation 2 12 25 2
No action 0 6 8 1
Postponement 0 1 2 6
---Logistics Strategy
Speculation 2 7 4 0
No action 0 9 5 2
Postponement 0 3 26 7
---Made fully in Taiwan 1 15 9 2 28
Manufacturing Strategy
Speculation 1 9 7 1
No action 0 5 1 0
Postponement 0 1 1 1
---Logistics Strategy
Speculation 1 4 1 0
No action 0 8 1 0
Postponement 0 3 7 2
---Partial or not at all made in Taiwan
1 4 26 7 37
Manufacturing Strategy
Speculation 1 3 18 1
No action 0 1 7 1
Postponement 0 0 1 5
---Logistics Strategy
Speculation 1 3 3 0
No action 0 1 3 2
Postponement 0 0 19 5
---Source: The survey of this study.
Table 8 Statistics on transportation service demand vs. product development
MS LS Location of Factory
No. of samples
Required Delivery time after ordered
Final assembly time after ordered
Average transport time
Mode Air
Choice Sea
No. of products in each group of transportation
cost/ sales price*
Stage of product life
cycle
(product) (day) (day) (day) % % I II III IV V
Introduction S S Taiwan 1 8.5 1.0 7.5 100.0% 0.0% 1 0 0 0 0
Offshore 1 8.2 1.0 7.2 0.0% 100.0% 1 0 0 0 0
Growth S S Taiwan 15 6.9 1.2 5.7 80.0% 20.0% 8 5 2 0 0
Offshore 4 7.5 1.6 5.9 75.0% 25.0% 3 0 1 0 0
Maturation S P Taiwan 9 4.9 1.3 3.6 89.9% 11.1% 2 3 2 1 1
Offshore 26 5.1 1.6 3.5 96.2% 3.8% 4 4 8 8 2
Decline P P Taiwan 2 5.3 3.7 1.6 100.0% 0.0% 0 0 1 0 1
Offshore 7 5.4 3.6 1.8 100.0% 0.0% 0 0 1 4 2
Notes: MS = Manufacturing strategy, LS = Logistics strategy, S = Speculation, P = Postponement.
* I: Unit transportation cost / product sale price≦0.01; II: 0.01＜Unit transportation cost / product sale price≦0.05; III: 0.05
＜Unit transportation cost / product sale price≦0.10; IV: 0.10＜Unit transportation cost / product sale price≦0.15; V: 0.15
＜Unit transportation cost / product sale price。
Source: The survey in this study.