Creating an effective

China "cold supply chain"

Current status, challenges and
implementation considerations
Introduction

One-fifth of the world's consumers live in China—

more than in all of Europe and North America
combined. And with market reforms happening
regularly, the buying power and material success
of China's 1.3 billion citizens have never been
higher. Across the country, people are buying more
discretionary items. However, most of the new
Chinese citizen's spending is focused on the basics:
food, education, clothing, shelter and transportation.

In this Accenture thought leadership
piece, we look closely at China's
business relationship with one of those
basics—food—specifically the supply
and distribution of products requiring
temperature and atmospheric control.
This is an area of great concern to
Chinese companies, as well as the
many multinational corporations that
invest or plan to invest in China. After
all, China is experiencing all the
growing pains that are typical of any
expanding economy: underdeveloped
infrastructure, inadequate distribution
systems, culture clashes and limited
technology.
Companies aspiring to high In the following pages, we examine
performance understand that all of China's cold supply chain from five
these hurdles must be surmounted to perspectives: principal challenges,
ensure an effective "cold supply chain." recent developments, new market
To be a true high performer, a company drivers, key success factors and
must survive and thrive across economic implementation considerations.
and market disruptions, such as those
presented by China's cold chain
challenges. As corporations pursue
profitable growth in new markets like
China, Accenture's ongoing research into
the characteristics of high-performance
businesses has shown that companies'
supply chains can spell the difference
between success and failure in their
endeavor. An essential underpinning
of any growth initiative, the supply
chain is critical to execution excellence
and market creation.

2
Principal Recent New market Key success Implementation
challenges developments drivers factors considerations
Page 4 Page 6 Page 9 Page 12 Page 17
Minimal processing Growing market for New regulations Centralize purchasing Legal issues
chilled/frozen foods
Geography Infrastructure Optimize distribution High entry barrier
Modernization of investments and
Infrastructure Leverage 3PLs Slow return on
retail improvements
investment
Rules/regulations Raise consumer
Sophistication of Continued customer
awareness Applying leading
Shortage of third- food processing education
practices
party logistics (3PL) Focus on value
Improvements in Encouragement of
services providers
agriculture fair competition Measure performance
Technology
Relaxed, enlightened
shortcomings
regulation
Management
Urbanization
know-how
More sophisticated
Unlevel playing field
consumers

3
China's “cold chain”
challenges
The “cold supply chain” embodies a
chilled or frozen food's complete life
cycle: from the point of harvest or
processing until it reaches the
consumer—including pre-cooling,
freezing, storing, delivering, distributing
and retailing. Cold supply chain products
must be kept in a consistently chilled
environment, which requires the
cooperation of farmer, processor,
warehouser/distributor, transportation
provider, retailer and consumer.
Every year, cold chain logistics
problems in China result in massive
product losses—largely because only
15 percent of all perishable products
are transported by refrigerated vehicle,
compared to nearly 90 percent in
developed countries. The net effect is
that $8.9 billion in fruits and vegetables
are lost annually. This represents about
30 percent of China's annual output.
Product losses in most developed
countries are about 5 percent; in the
4
United States, the figure is less than also mean that the needs of less-
2 percent. In addition, millions of developed communities in China's
Chinese suffer various levels of food interior generally go unaddressed.
poisoning due to improper handling,
In fact, transportation infrastructure
inadequate refrigeration, and a lack of
is China's most daunting cold-chain
cold chain regulation or enforcement.
problem:
Contributing to both problems is the
comparative rarity of modern processing
practices: Only 25 percent of the food
Rail transport
Chinese citizens consume is processed, About 20 percent of China's 22 million
compared to about 80 percent in more- tons of perishable foods—mostly frozen
developed countries. meat and poultry—are moved annually
by refrigerated railcars. Refrigerated
Government exacerbates the problem. container services are available, but
China's cold supply chain is overseen the cost is often prohibitive.
by a complex mix of authorities,
including the Ministry of Railways, Road transport
Ministry of Communication, Ministry
Trucks carry about 25 percent of China's
of Light Industry, Ministry of Commerce
cold chain volume. However, a lack of
and Ministry of Agriculture. Another
refrigerated vehicles limits their range
impediment is geography: China's vast
and usefulness. For the Guangdong
territory and broad differences in
province alone, more than 50 percent
climate and temperature are a unique
of fish, fruits and vegetables cannot
challenge to the long-haul transport
be transported to the North due to
of perishable foods. Massive distances
lack of refrigerated vehicles. Traffic
control and restricted access to urban
areas compound the problem. And
although larger cities and coastal
regions have decent roads, byways in
the Western region and much of the
interior need major upgrading.
Inland water transport
China has about 50 reefer carriers
and a total capacity of 71,120 tons
to cover its 124,000 kilometers of
navigable waterway. This represents
about 5 percent of total domestic
freight volume. Principal inland
water challenges are inadequate river
port infrastructure, vessel traffic
management, navigation systems
and pollution cleanup.
Ocean transport
China's seaports struggle constantly
with problems related to bottlenecks,
navigation/scheduling, berthing, cargo
loading/unloading, inspection, customs
clearance, security, tracking/tracing
and storage. The country's 10,000
refrigerated containers are used
mostly for international trade.
Air transport
Poor coverage, high costs and
insufficient capacity mean limited use
of airfreight in Chinese perishable-
food transport. Only about 50,000
tons per year of perishable product
moves by air.
Infrastructure problems also are the
result of inadequate facilities and
equipment. For example, cold storage
capacity in China covers about 25
percent of total output, compared to
70 percent to 80 percent in developed
countries. Most of China's cold storage
facilities are vastly out of date, forcing
product to be moved manually and
hand-stacked. Location compounds
the problem: Cold storage warehouses
generally are in major port cities, but restrictions and licensing complexities.
few are close to their supply bases. In Even after WTO entry, foreign 3PLs
developed countries, most cold storage must apply for licenses from multiple
facilities are near their supply and bureaus and ministries.
production bases, which allows for
Technology shortcomings affect every
timely treatment and processing.
aspect of China's cold supply chain.
Fragmented, unclear rules and Most acute is the need for precise
regulations exacerbate cold chain commodity sorting and atmospheric
problems. There are no country-level control during transport. Fortunately,
laws or regulations governing food technology is popular in China, and
safety in storage, transportation, the Internet is becoming more common
distribution and retail. Trade rules and in business activities. However, most
customs regulations are extremely use the Web for communications,
complex and vary from region to research and advertising. No company
region. Some have been upgraded participating in a recent Accenture
in accordance with World Trade survey offers direct product purchasing
Organization (WTO) guidelines, but through its website.
many remain complicated or vague.
Lastly, China's cold chain challenges
For example, there is no countrywide
often stem from people. On the one
process for reviewing or resolving
hand, many Chinese companies lack
grievances. Enforcement tends to be
the management know-how and
arbitrary and opaque. Plus, Chinese
talent to establish efficient operations.
lawmakers have been slow to curtail
More than 90 percent of companies
longstanding issues associated with
requiring cold chain services have to
favoritism and local protectionism,
build them in-house. On the other
and to respond forcibly to ongoing
hand, the preference of Chinese
corruption and smuggling problems.
consumers for fresh foods has slowed
In China, the need for capable third- the development of chilled/frozen
party logistics services providers (3PLs) product and facilities. Of course,
is acute. The country has more than fresh foods are highly nutritious and
510,000 such companies. However, palatable, but practical issues associated
most offer basic transportation and with safety and portability limit their
storage services only. Local providers use. Increased acceptance of processed
are frequently unreliable and few and preserved product is a public health
work together to ensure widespread priority, not just a commercial issue.
coverage. Even the largest domestic
3PL has limited control over its
subsidiaries across the country. From
a storage perspective, most public
warehouses do not even have racking
systems. Goods are hand-stacked.
In the past few years, some logistics
companies—many with foreign ties—
have opened in China's port areas or
free trade zones. These companies
strive to offer one-stop-shopping
solutions. However, their efforts are
often hampered by regulatory
5
Recent developments in
China's cold supply chain
Fueled by rising incomes, China's
consumer goods market has experienced
strong growth. Retail sales rose 12.6
percent in 2005, reaching $820 billion,
and are expected to continue to rise
by more than 10 percent in 2006 and
9.5 percent in 2007.1 Foreign food
chains account for much of the growth.2
This is not surprising since food
purchases comprise nearly 40 percent
of a typical Chinese family's income
(Figure 1). China's large cities—Shanghai,
Guangzhou, Beijing and Chongqing—
have experienced the bulk of the
growth; however, the expansion of
food retail is countrywide.
6
In China's most recent Five-Year Plan
(2001-2005), chilled/frozen food was
given priority status. This partially explains
why the country's frozen food market is
growing at an estimated annual rate of
about 10 percent, and the annual output
of processed frozen food is growing at
20 percent. A good example is ice cream,
the per-capita consumption of which is
under one liter in China, compared to
about 6.5 liters in Europe and 12 liters in
the United States. Ice cream's growth
potential has attracted many international
companies to China.
To meet demand, Chinese retail is
modernizing and growing, particularly
in logistics. Again, global food-store
chains are leading the charge. Food
processing advancements are also
accelerating: The food processing
industry has grown at an annual rate
of 14 percent since 1981, according to
the China Food Industry Association.
With additional WTO-mandated reforms
and the expertise of foreign companies,
annual growth could reach 18 percent
within three years. WTO-mandated tariff
reductions are allowing more foreign
products to reach China. Improvements
in frozen and fresh food supply chains
also are probable following the opening
of the distribution sector under WTO
entry. Foreign traders and investors
should be able to gain greater market
access and be less subject to a double
standard.
Figure 1: Chinese annual per capita expenditures Food purchases comprise
Miscellaneous nearly 40 percent of a
Household goods
3.3%
typical Chinese family's
5.7%
income.
Health care
7.4%

Food
37.7%
Clothing
9.6%

Housing
10.2%

Transportation
11.7% Education/
recreation
14.4%

Source: China Statistical Yearbook (2005).

7
At the same time, China is seeking to
increase the export of its agricultural
products. Although China is the world's
top producer of fruits and vegetables,
it enjoys less than 3 percent of the
global export market. Toward this end—
and to correct the economic imbalance
that has evolved between urban and
rural regions—China's government has
placed special emphasis on expanding
agricultural output. More aggressive
agricultural practices should spur
enhancements to the supply chain,
leading to higher and safer supply
levels and better marketing.
Figure 2: Growth in China's urban population (in millions)
1600
1400
1200
1000
800
600
400
200
0
1952 1957 1962 1965 1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005
Source: China Population & Development Research Centre (www.cpirc.com.org.cn).
8
As shown in Figure 2, urban populations
have risen steadily, increasing more
than sevenfold, from 72 million people
in 1952 to 540 million in 2004.3
However, urban growth would occur
even faster, were it not for China's
longstanding attempts to limit
migration to cities through its
household registration (or hukou)
system. Recently, however, the central
government has reversed itself. It now
promotes a policy of urbanization,
which it hopes will increase consumer
spending. Because urban consumers
typically are more sophisticated,
demands for greater value should
follow suit, spurring more modernization
of the cold supply chain.
Urban consumers also are more attuned
to hygiene and safety, which partly
explains the success of brands like
McDonald's and KFC. In essence, these
retailers are selling the concept of
clean, safe consumption. The same
holds true for domestically grown
brands such as Bright Dairy, which
has invested heavily in cold chain
capabilities.
Total population
Rural population
Urban population
New market drivers
Every cold foods manufacturer or
retailer will have its own opinions
about whether China's challenges
(Section 1) are sufficiently offset by
its many positive developments
(Section 2). However, those insights
may also be affected by observations
in this section: an assessment of what
will likely happen to China cold chain
logistics in the near future.
First, it is clear that China's government
will play an active role in continuing
the improvement of cold chain networks
and capabilities. From 2000 through
2005 it is estimated that refrigerated
transportation volume went from
12.58 million tons to 17.67 million
tons. With government actions like the
following, such growth seems likely to
persist and even increase.
• Organizations such as the Shanghai
Refrigerated Storage Association are
working with government agencies to
establish industry safety standards
and regulations.
• The Chinese government recently
promulgated numerous laws, regulations
and standards governing the production,
marketing and distribution of food and
agricultural products. As sophistication
and transparency increase among
Chinese government agencies, this
framework will be enforced with
increasing vigor.
More investments in infrastructure also
are likely. Current estimates are that
transportation and logistics costs for
China's perishable foods constitute about
20 percent of a product's selling price—
five times higher than in the United
States. To combat this problem, China
continues to upgrade and modernize.
However, the concept of logistics as
an integrated system for buying,
making, moving and selling is only
beginning to gain acceptance.
On the transportation side, China's
10th Five-Year Plan mandated massive
construction of rail, road, port and
aviation infrastructure, particularly in
underdeveloped regions. As a result,
highway mileage in China increased
by 60 percent from 2001 to 2005,
and existing highways were greatly
improved. During the same period,
miles of railway track increased by
almost 50 percent. Figure 3 shows
the status of China's transport
infrastructure and the government's
investment plans for further
improvements. These plans should
be viewed as indicators rather than
concrete figures.
9
Figure 3: China's transport infrastructure (2004)
Types of Length of
transport transport routes
Rail 74,408 km (track
in operation)
Road 1.87 million km
Sea 34,000 shipping
berths
Inland 123,300 km
water
Air 2.05 million km
(civil aviation routes)
Source: China Statistical Yearbook (2004 and 2005); China Federation of Logistics and
Purchasing; The US-China Business Council.
Plans to upgrade warehousing and
storage are sketchier than those
associated with transportation. Cold
storage capacity in China is currently
estimated to be 6.5 million tons,
which represents less than 30 percent
of demand. Moreover, many storage
facilities need upgrading with
automated temperature controls,
multi-temperature compartments,
chilled docks, racking systems and
sophisticated warehouse/inventory
management systems.
Chinese consumers are noticeably
becoming more urbane and affluent.
However, a great many continue to
believe that frozen cannot be "fresh."
This mentality carries through to
supermarkets, where many consumers
are reluctant to purchase frozen foods
for home consumption.
10
Equipment Government investment plans
528,000 rail • Annual investments of about US$8 billion
containers • Half of all rail investments are planned for western China,
including the world's highest railway that will link Qinghai
and Tibet
• Focus on building eight vertical lines and eight lateral lines
8.93 million vehicles • Annual investments averaging US$80 billion by 2010
(average capacity is • Plan to build 400,000 km of expressway
about two tons)
1,500 vessels • Annual investments of about US$8 billion by 2010
(capacity of 37 million • 100 percent increase in deepwater berths
deadweight tons) • Specific deepwater port projects include Shanghai, Dalian,
Qingdao, Tianjin and Shenzhen
210,000 vessels • Annual investments of US$1.1 billion by 2010
• 20 inland river channels planned, totaling 15,000 km
About 900 planes • Construction or renovation of about 35 airports is planned
Because of this deep-rooted belief • Develop a uniform set of cold supply
that "only live is fresh," it will take chain laws and regulations to
a significant amount of time for improve transparency and unbiased
government, manufacturers and enforcement, or, in other words,
retailers to fully sway consumer create a more level playing field.
buying behaviors. Nevertheless, it is • Create more transparent, more
clear that Chinese consumers have a predictable laws and policies at
more robust and varied diet than ever the national level to help regulate
before. Note in Figure 4 the particularly supply chain activities.
strong increases in the consumption
• Crack down on smuggling and
of meat and other animal products—
corruption to ensure fair competition
from 3 percent in the early 1960s to
and attract more investment.
17 percent in mid-1990s—and the
concomitant drop in diets containing • Establish new mechanisms for
protecting consumer health and
starchy roots and pulses (edible seeds).
safety, including the development
To create an environment conducive of channels for voicing complaints.
to the rapid development of cold chain
capabilities, the Chinese government
must work harder to prevent local
protectionism and favoritism. However,
these behaviors will likely be a problem
for some time, even though the
government will likely:
Figure 4: Food calories available for human consumption
in China by commodity (1961-1995)

2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995

Other animal products Other vegetable products Vegetables Other cereals

Meat Alcoholic beverages Vegetable oils Maize
Milk (excluding butter) Sugar and sweeteners Pulses Rice (milled equ.)
Fish and seafood Fruits (excluding wine) Starchy roots Wheat

Source: China Statistical Yearbook (1998); Heilig, G.K., "China Food. Can China Feed Itself?"
The International Institute for Applied Systems Analysis (1999).

11
Key success factors
The China-based success of international
food manufacturers and retailers is
somewhat tied to how market-friendly
the Chinese government plans to be.
However, many companies will conclude
that China's chilled/frozen food market
is worth pursuing regardless of how
the government proceeds. A significant
reason is that many Chinese buyers
currently pay a premium for foods of
dubious quality and freshness, and
Figure 5: Commercial stages through which chilled/frozen food
products pass
Import/export
Farm
Farm
Processing
Distribution
Hotels, restaurants and
Retailing institutions (HRI)
Source: Accenture analysis.
12
that those high prices often are the
result of untimely processing, improper
storage and poor transportation.
High-performance businesses recognize
that a tremendous opportunity exists
in China to attract more buyers through
effective cold chain management.
These top performers understand that
creating and exploiting distinctive,
hard-to-replicate capabilities—in
particular, an effective and efficient
3PL
Customs
3PL
Processor
Processor
distribution center distribution center
cold supply chain—can enable them to
seize growth opportunities wherever
they may arise. The good news for
organizations aspiring to high
performance is that there are myriad
ways to make this happen.
Figure 5—a simple illustration of the
stages through which chilled/frozen
foods pass—represents a framework for
positioning supply chain improvements.
Shipping third-party logistics
services provider
Ground transportation third-
party logistics services provider
Wholesaler
3PL
Retail trade
Farm
Modern supply chain management
begins here—with simple measures
such as plucking and trimming fruits
at the right time and in right way:
washing, spray treating, waxing, and
employing proper packaging and
handling technologies. All of these
efforts can increase shelf life and help
maintain the quality of fresh product.
Also viable are corporate efforts to
establish regional wholesale markets.
In Shanghai, for example, an
intermediary platform for the country's
agricultural products has been
launched to hook the region up to an
international procurement network.
Leading practice: Bright Dairy
For six straight years, China's Bright
Dairy has been growing at an annual
rate of 30 percent. One reason is its
commitment to continuously improving
cold chain logistics. Bright's milking
operation is fully automated and
directly connected to an "immediate
cooling" capability inside its milk
tankers. When those tankers arrive at
the factory, milk is piped directly into
an enclosed processing facility. From
there, packaged product is moved by
Bright's refrigerated truck fleet to the
company's centralized cold-distribution
center. Bright then ships to supermarkets
and convenience stores, or directly to
consumers' homes. Throughout the
end-to-end process, temperature is
kept between 0 and 10 degrees
centigrade. Bright has even designed
customers' milk closets with
temperature-preservation materials.
Processing High-performance
To ensure cold chain integrity,
processors need to identify the key
businesses recognize
requirements of product handling, that a tremendous
and then plan and act appropriately.
Key imperatives are:
opportunity exists in
1. Know and understand the cold China to attract more
chain system.
buyers through
2. Consistently and diligently monitor
temperature during the processing effective cold chain
process. management.
3. Package for the entire transaction.
In this way, Bright Dairy exhibits a key
trait of high-performance businesses:
High performers are committed to
consistent improvement, not continual
drastic change. Furthermore, Bright is
able to achieve effective end-to-end
integration by ensuring that processes
are designed to be easily executed,
that strict performance standards are
met, and that key processes are
integrated from supplier to customer.
This distinctive capability is particularly
important to helping companies
succeed in China and achieve new
levels of supply chain mastery.
13
Transportation
Transportation management
improvements are essential across the
China supply chain. On the outbound
side, manufacturers and processors
can benefit by ensuring that products
that are packed together are
compatible; that cargo tracking/tracing
capabilities are enacted; and that
transaction delays at terminals, holding
points, packing centers, carrier depots,
and packing stations are minimized.
If diverse products must be shipped
together, then methods for monitoring
temperature, chilling rates, production/
sensitivity of ethylene, odors, off-flavors,
and product life should be enacted.
On the inbound side, extra effort must
be made to monitor and enforce on-
time deliveries. Strict inspection of
received goods is just as important,
with contractual recourse made
available for spoiled or otherwise
unacceptable product. Inspected goods
should be rapidly transferred to
appropriate temperature-controlled
storage areas, and unloading under
suboptimal conditions (such as excess
heat, imminent delays and personnel
shortages) should be avoided.
Distribution
Among the many ways companies can
improve cold chain distribution in
China, here are three specific areas:
Planning and forecasting
Balancing demand and supply is
particularly tough in emerging markets
where physical distances are great,
buying patterns erratic, and delivery
and product quality less predictable.
Deployment of planning/forecasting
technology is vital. However, unique,
situation-specific capabilities also are
needed to understand supply conditions
and make adjustments.
14
This is what a leading farm produce
trade center in eastern China is
seeking to address. It is working on an
analytical warning service covering
farm produce, animal products and
seafood. Professional analysts would
produce market studies and provide
advance notification of supply
problems and fluctuations.
Outbound management
The keys here are information and
preparation. That means developing
explicit transaction documentation,
including requirements and instructions
to involved parties; maximizing
knowledge of supply chain partners'
facilities and capabilities; and avoiding
product damage and environmental
exposure by packing for the entire
transaction.
Freight forwarding
International food manufacturers and
retailers are somewhat hamstrung
because the Chinese government limits
the provision of freight forwarding
services by foreign companies.
Companies can compensate to some
extent by strictly following and
monitoring temperature-controlled
line-haul trucking. Diligent tracking/
tracing capabilities also are key.
Retail
Regulations and policies that hamper
foreign distributors are being phased
out under WTO guidelines. This means
that eventually, most retailers will
deploy centralized distribution centers to
take advantage of economies of scale.
But until corruption and inefficiency
are curbed more fully, most retailers
will require a regional purchasing
center or direct-to-store model.
Third-party logistics
Most food companies doing business
in China have little choice but to rely
on in-house logistics groups to support
cold chain operations. However, many
would prefer to outsource these
operations and focus instead on their
core capabilities. In fact, Accenture
research confirms that high-
performance businesses revisit and
adapt their operating models to
sustain competitive advantages over
time, including embracing opportunities
to outsource noncore competencies to
service providers for which the work is
a core competency. Outsourcing can
help companies entering or expanding
their presence in China to gain access
to important new capabilities without
upfront capital investments. This is
particularly important when conducting
business in new or uncertain markets
like China. With outsourcing, a company
can quickly ramp up for business to
capitalize on opportunities in an
emerging market, and reap the
benefits of first-mover status. Before
this can happen, however, more third-
party services providers must become
available, with capabilities that include
cost-effective, integrated, end-to-end
supply chain management. In the
meantime, manufacturers, processors
and retailers must do it themselves or
rely on the few full-service players
that do exist, such as DHL Logistics.
Additional improvement opportunities
are not tied to one specific cold chain
function or business process. Some of
these are:
Develop China-specific key
performance indicators (KPIs)
Metrics such as distribution cost as
a percent of sales, product-damage
ratios and on-time delivery should
be calibrated to ensure high
performance relative to China's
unique circumstances.
Leading practice: Havi
As McDonald's' worldwide logistics
partner, Havi goes anywhere McDonald's
goes. In fact, Havi exemplified a key
characteristic of high-performance
businesses by its ability to anticipate
and respond to change: The distributor
foresaw McDonald's' move into China,
and had operations set up by the time
its client announced the move. Havi's
operations include regional distribution
centers in Beijing, Shanghai and
Guangzhou, with satellite facilities
in Shenyang, Wuhan, Chengdu and
Xiamen. Each operation adheres to
strict operating procedures such as
loading-speed requirements,
temperature recording, tracking
standards, temperature-adjustment
rules, goods-receipt processes and
quality checks.
Leading practice: Yum!
Yum! China Division is the largest
restaurant group in China, with more
than 1,500 KFC and 200 Pizza Hut
outlets. China is the only country
where Yum! builds its own distribution
centers to handle logistics services.
According to its general manager,
"There is no local logistics company
that can offer such a large-scale and
high-quality service, and our US logistics
partner is not in China yet." With direct
control of the entire cold chain process,
Yum! can ensure that all necessary
innovations are applied. For example,
every one of its trucks allows food to
be stored at different temperatures
with different refrigeration units.
Havi also has adopted "black box"
technology on its trucks to record truck
location, time of dispatching and arrival,
and storage temperature fluctuations.
Havi also insists that checks be
performed on packaging and shelf life
before stock receipt is considered
complete. Wherever possible, process
operations are integrated into Havi's
systems. This integration further
maximizes process standardization
and supply chain efficiency, helping
Havi reach even higher levels of
performance.
Other features include fully enclosed,
refrigerated loading docks; state-of-
the-art refrigeration; and automatic
dock shelters. Yum! also has world-
class distribution centers in Beijing
and Shanghai, and plans to build or
upgrade distribution centers in five
more locations, including Guangzhou,
Nanjing and Wuhan.
15
Benchmark leading practices
Cold chain practices in China should
be benchmarked against leading
practices in developed countries. This
will help cold chain players in China
identify performance gaps and find
new solutions.
Leverage special technologies
Non-electric cold containers are
available that use pressurized carbon
dioxide to reduce spoilage. Easy-to-
assemble insulated pallet containers
are designed to provide excellent
thermal protection for large payloads,
while polyurethane-insulated containers
are ideal for maintaining temperature
in shipments over long periods or
extreme temperature conditions. Special
packaging, materials and equipment
also are available to extend product
and shelf life.
Leading practice: The Government of Australia
Several years ago, the Australian
government partnered with private
industry to pilot a national, end-to-
end, cold-chain framework. The focal
points of the program were a quality
analysis of the export supply chain for
each exporter and the development
of quality management service
agreements between exporters and
their supply chain partners. With these
tools, contractors can avoid duplication
by integrating performance standards
and processes with those of their
supply chain partners. The pilot led
to a nationally accredited, voluntary
logistics management system that is
now open to all Australian exporters.
Buy-in has been received from
numerous airlines, shipping companies,
refrigerated transport companies,
freight forwarders and freight
terminal operators.
16
Foam bricks, for example, stay uniform Each of the above capabilities represent
in shape while frozen or thawed, and elements of what Accenture research
make tightly fitting packaging has found is a high-performance
configurations a cinch. The bricks also anatomy that all high-performance
surpass other refrigerants for cooling businesses exhibit. In studying the
longevity due to a slow, even rate of performance of hundreds of
heat absorption. organizations, Accenture has discovered
that the use of technology as a strategic
Invest in training
asset, a highly productive organization
Extensive distance-learning programs
and culture, and the deployment of
for line and staff are available for
inclusive but appropriately focused
nearly all aspects of supply chain
metrics are key to an anatomy that
management and can greatly improve
enables companies to out-execute the
an organization's productivity and
competition.
overall performance. Customization
can also be obtained to make these
programs even more applicable to
China-based training in areas such
as receiving, inspection, cold storage
and delivery.
By capitalizing on the expertise of
a qualified partner, the Australian
government embodied a key aspect of
high performance and enabled itself
to quickly and cost-effectively exploit
positioning advantages in the value
chain and achieve optimal scale.
Implementation
considerations
Although it seems as if supporting the
growth of fresh- and frozen-food
processing and storage is one of the
Chinese government's top priorities,
this hardly means that positive results
are assured. For example, there are
obvious risks and uncertainties
associated with the legal climate.
According to the China Retail
Association, national and provincial
governments must establish formal
cold chain policies, standards and
supervision/enforcement mechanisms.
But how quickly the government can
implement the legal supports needed
to make this happen is uncertain.
Equally uncertain is how successful
(or willing) provincial governments
will be at implementing policies set
by the national government.
High cost of entry is another barrier.
Currently, the capital required to set up
logistics companies in China far exceeds
the amounts needed to operate non-
asset-based services. The government
supposedly enforces these requirements
to control fraud. However, the approach
has not been particularly effective, but
no credit-rating or audit/inspection
system has been developed to replace it.
Complicating matters further, full-service
logistics companies must obtain different
licenses for different activities, such as
international freight forwarding, customs
brokerage, domestic transportation,
warehousing, local delivery and trading.
China's economic, political and cultural
environments make it difficult for
companies to emulate leading practices.
Companywide economic and operating
models often must be recalibrated,
which requires long-range planning for
an area whose economic and operating
future is not particularly predictable.
Most companies also will have to
accept a slower return on investment
than what they are used to receiving.
As we have discussed, a developed
cold chain infrastructure is largely
absent in China. This not only means a
significant outlay for those determined
to enter the market early, but it also
means that tomorrow's competitors
could benefit by leveraging an
infrastructure that was largely paid
for by earlier entrants. Early entrants
also assume the burden of "testing"
commercial feasibility in a highly
volatile climate. The cold storage
business, for example, is seasonal,
with monthly utilization rates varying
by up to 40 percent.
Lastly, China's marketplace already is
one of the most competitive in the
world—despite the immaturity of its
cold chain infrastructure. And
irrespective of the country's global
friendliness, the advantages favor the
country's domestic industries.
17
Nevertheless, significant opportunities In this way, effective cold chain
and increasingly open markets seem management in China can be viewed
inevitable, since waste, losses and as a key contributor to helping many
high prices are simply not acceptable. organizations achieve supply chain
The government also knows that mastery and, ultimately, high
excessive protectionism will hinder performance.
progress, given that constrained
Simply put, there is no point to
competition means constrained self-
growing, processing, shipping and
improvement. The Chinese government
selling if a quality, right-priced
simply wants to hold out until a
product doesn't reach the end user.
reasonably level playing field is created.
Domestic and international companies
This is why the value proposition of an
are all too familiar with this. Most
efficient cold supply chain is particularly
importantly, the Chinese government
strong: Effective cold chain management
understands this basic supply chain
will contribute to national savings and
tenet. Optimism is warranted, therefore,
efficiency, reduce waste, push down
because every party ultimately has
prices, and engender vast improvements
the same goal: an integrated, efficient
in public health. It also will help
cold supply chain that increases the
ensure the success of international
health of the marketplace, as well as
manufacturers, processors and
the health and economic wellbeing
retailers because efficient supply
of the consumer.
chain management helps other
businesses operate more efficiently.

18
Notes
1
AFX News Limited, "China GDP seen
rising by 10.5 pct in 2006, 9.5 pct in
2007," Forbes.com (October 15, 2006).
2
Source: China State Statistical
Bureau.
3
Zijun Li, "Rapid Growth of China's
Cities Challenges Urban Planners,
Migrant Families," Worldwatch
Institute (June 27, 2006).

About the authors

Jamie M. Bolton is a partner in the
Accenture Supply Chain Management
service line who manages the
company's North Asia Supply Chain
Management practice. He teams with
organizations across industries to
improve their performance through
strategic supply chain initiatives.
Based in Shanghai, he can be reached
at jamie.m.bolton@accenture.com.
Wenbo (Watson) Liu is a senior
manager in the Accenture Supply
Chain Management service line and a
director in the company's North Asia
Supply Chain Management practice.
He leads Accenture's logistics and
integrated fulfillment services in
Greater China. Based in Beijing, he
can be reached at
wenbo.liu@accenture.com.
About Accenture Supply
Chain Management
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Management service line works with
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industries to develop and execute
operational strategies that enable
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supply chain mastery, we combine
global industry expertise and skills in
supply chain strategy, sourcing and
procurement, supply chain planning,
manufacturing and design, fulfillment,
and service management to help
organizations transform their supply
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