Companies that actively promote and describe themselves as ‘supply chain management companies’ are still few and far between. Privately held PCH International is one that does. A disruptive supply chain model that Stanford’s Hau Lee thinks enough of to join the board of directors resulted in revenue growth of 170 percent in 2010 to $413m and a line of shrewd investors including Victor and William Fung and Singapore’s Temasek Holdings. Turloch Mooney sat down with CEO Liam Casey at the company’s operations centre in Shenzhen.
You have brought in around $30m in new funding for the company this year – where is the money going?
We’re looking at acquisitions that will add stickiness to the business. We cover the full end-to-end supply chain from concept to design, testing, manufacturing, packaging, fulfilment and distribution. We’re always looking at how we can improve competency in each of the different areas and at unique value-add areas where we can really differentiate ourselves. Whether it is an engineering, design and development or customer service and distribution kind of company, we’re looking at all areas that can take the business forward.
The other area we are looking at is increasing our focus in Silicon Valley in the US. We have just launched an Accelerator programme there where we partner with clients to co-develop products and adding talent in that area is an important objective.
We’re also looking at more facilities here in China. We don’t own factories here and don’t invest a huge amount in equipment, but we are going to add more kitting and fulfillment facilities as we scale up in China and start to offer domestic solutions on top of our export solutions.
Why are you such an attractive prospect for investors at the moment?
It’s a very exciting time in supply chain. There is phenomenal change and phenomenal opportunity. We are doing several important things that haven’t been done before. We take product development, supply chain management and distribution and add them all together. We have bolted fulfillment onto the front of a factory and distribution on to the end with our recent acquisition of TNS Distribution. This hasn’t been done at this level before.
In the past, products would have gone by ship to Long Beach and then to a warehouse somewhere from where it would be distributed across America. You were looking at between six to eight weeks of inventory sitting in the channel. Today we can take the product from our production line here in Shenzhen and get it to a customer in New York or California in as little as two days.
If you go online to a top website in the US and order a product, that order comes direct to us. We can have that order in the box in as little as 15 minutes from when you actually log on and get it to you within two to three days.
In supply chain, you often hear the phrase ‘restocking of inventories’. In our business, that term is history – it’s evil. When you have a two-day supply chain, you don’t need restocking of inventories.
I know that Hau lee will soon join your board. Would you say your supply chain model reflects his ‘triple A’ model?
Yes it does. When we started out we were a functional- based operation. But when we got to about 130 people, we recognised we were too big to be functional anymore. We became client focused and introduced our client teams. That was in about 2006.
Our competency wasn’t manufacturing widgets. The customers came to us looking for something and if we wanted to work with them, we would go and find what they were looking for. It could be one type of product today and something completely different tomorrow. Organising the business into client teams gave us the flexibility to handle this kind of business; it allowed us to align with clients and gave business the agility and adaptability that it needed.
What kind of products are we talking about?
We design, develop and deliver accessories for eReaders, smartphones and tablets for many of the world’s best-known electronics brands. Medical devices are also a growing business for us. Accessories are an area where we have developed a competency because it’s hard for a company that is developing a device to have the bandwidth to develop all the accessories as well.
If you walk into a retail store in the US or Europe and talk to the guys selling the devices, one of the most important things is what the attach rate is. That is: ‘I sold one laptop and two USB cables, an extra power supply, a carry bag’, and so on. We’re working with some clients at the moment and they have a 300 percent attach rate – that means I buy one device and I buy three accessories. The accessories provide margin and that is very important. They can make more margin on the accessories than they can on the device itself.
We will do everything – from concept, design, engineering, testing, manufacturing, quality control, and packaging right through to distribution and delivery. We are a single point of contact for the customer. They care passionately about design and the brand, so ensuring consistency and managing the ‘out of box experience’ is an important part of what we do.
This was a service that the brands didn’t have access to before. It was being done by third party companies and the brands recognised they were in the best position to make the attachments to their own products.
Tell us about your Accelerator programme.
The Accelerator programme is designed to give select hardware start-ups a competitive edge by taking a product from concept to production to market in the same amount of time that a Fortune 500 leader could do it. Through a rigorous application process, we select entrepreneurs with world-class ideas and offer them our expertise, mentoring and coaching, and the same services that are offered to Fortune 500 companies.
Our first Accelerator product, LARK, was launched in the US in May. LARK is an innovative silent waking system that uses the latest science and technology to improve sleep patterns and enhance sleep quality with a personalised sleep coach. We helped to bring the concept to reality by providing the start-up with the same services that we would for a major brand.
You regularly work with hundreds of suppliers here in the Pearl River Delta (PRD); you have been coming here for many years and spend a lot of your time here. What are your views on the future of the PRD as a global manufacturing centre?
The Pearl River Delta used to be a place to make cheap products. Then it became a cheap place to make products. When you do what we do, we think it is the best place to make these products.
In our business, you have raw materials going in the back end and finished product going out the front end. We have completely shrunk the front end to a couple of days. The back end is more fixed. The ecosystem of suppliers in the PRD is huge so you’ve effectively got the back end all around you and then a great logistics network for the front end. You also have a skilled, highly trained workforce with a can-do attitude. If you try to move that to somewhere like Vietnam, you’re leaving your ecosystem of suppliers behind and fulfillment is more difficult.
In our business, time is the number one currency. Dollar is second. If one of our clients misses a launch date, it takes points off the share price. So you have to be very careful with that. Our customers are passionate about design; they are passionate about their brand, and they are passionate about the consumer experience. They need quality services to support what they do. We’re not talking about producing widgets here; we’re talking about complex electronics and the accessories that complement them.
Shenzhen is a very misunderstood place. There’s great opportunity here with the right attitude. I speak at Shenzhen University and the first question I often ask is: ‘Who here is from Shenzhen?’ and everyone’s hand goes up. Then I ask who was born in Shenzhen and no hands go up. We are all the same – everybody comes here unsupervised from somewhere else looking for something different. There’s an amazing ‘can-do’ attitude and fighter instinct, and to me that makes it a very unique place.
How good are the ancillary services for the business here, such as supply chain finance?
The Chinese banks such as China Merchants Bank are the ones driving improvement in supply chain finance. They understand China and know where to look for risk in the supply chain. They are also learning rapidly about global business systems.
One of the things we’ve done is establish an operation that enables us to package and attach a brand name to the item at or very near the point of production. That creates huge value and also minimises risk. The other thing we’ve done is reduce transaction time dramatically, which also reduces risk.
Most banks don’t offer trade finance products that recognise this. They still offer antiquated trade products, like letters of credit, designed for old supply chain models involving a lot of money, long delivery times and a lot of risk. When your supply chain requires less working capital to make a product,
has no inventory, very fast transit times and great visibility, risk is dramatically reduced. Chinese banks understand this. Western banks need to catch up and develop new trade finance products to stay relevant and adapt in today’s market.
I know that you have also been vocal on the ways that better supply chain processes can help the environment. Could you elaborate on that for us?
We apply a ‘triple bottom line’ concept to business. The three bottom lines are social, environmental and economic – or People, Planet and Profit – and transparency and accountability in these three areas are crucial for long-term success. Applying this concept helps companies achieve successful and sustainable business models.
People are the most important aspect of any business. Respecting people, building personal relationships and treating people well is crucial in attracting and retaining top talent and inspiring best performance. The most successful companies enforce fair and beneficial labour practices, do not tolerate exploitation of workers, and enrich the community in which they operate.
In our organisation we have a diverse range of nationalities but just one culture built around a shared set of values – passion, integrity and teamwork. These values and a clear purpose of developing partnerships, delivering peace of mind helps drive the other two bottom lines.
Setting high standards for environmental performance is crucial, particularly in China where the majority of products are manufactured. We have the ability to have a huge impact on the environment. We can influence so many parts of the supply chain – the raw materials used, the packaging materials used, the manufacturing process, and so on. We can influence forecasting and the volumes of items that are produced and so minimise waste.
We are in a position to reduce the energy consumption of the factories. We want to be able to evaluate their energy consumption and show them how they can do better – with better equipment and better manufacturing models.
In today’s world it’s not enough to focus on profits alone. We stand between a production work line in Shenzhen and big brand western companies and it is part of our responsibility to partner with our customers to understand what is going right and what is going wrong.
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