The sharp rise in operational costs, especially spiraling fuel bills, has Tong Xin thinking more about streamlining the supply chain management for the restaurant where he works.

As member of the board of directors at New Asia Snacks, a Chinese-style fast food chain in Shanghai, Tong knows the expansion of the restaurant requires a more efficient supply chain for both cost and quality control.

"We are considering outsourcing the transportation and distribution services to third-party logistics service providers as we continue to expand into neighboring Zhejiang and Jiangsu provinces," says Tong.

With an amusing orange logo featuring a cartoonish chef's hat, the eatery - the biggest of its kind in Shanghai - is popular with community residents and office workers for its wide variety and affordable menu that is comparable to Chinese home cooking. It runs over 70 outlets, mainly in Shanghai.

Each morning, a dozen or more refrigerator vans can be seen traveling across the city carrying finished or half-cooked food to the different stores before customers are relishing a cup of sweet soybean milk and the ready-made steaming hot buns. The vans, run by the restaurant, are responsible for transporting supplies and food to all the stores from a 7,000-sq-m central kitchen located in the city's Yangpu district, where 80 percent of the menu's food is processed and made.

However, with the opening of the two new outlets in Zhejiang province in 2006 and 2007, costs start to soar, mainly because all the stock still has to be transported from the central kitchen in Shanghai. Given the increasingly high fuel prices, logistics outsourcing seems to be a viable way to cut costs, says Tong, although he does not elaborate on the specific cost increase.

"While we can do the distribution in Shanghai all on our own, it's too costly to do that in Zhejiang, even on a less frequent basis."

But he also acknowledges practical difficulties involved in finding a suitable logistics partner.

"The fact that western fast food giants like KFC provide a highly standardized diet at every chain store makes it easier for the food to be transported more efficiently. But it's difficult for a Chinese restaurant to do that with such a variety of choices. The cost is much higher."

What is more important, he adds, is that there are very few top-notch logistics services in China, especially ones who specialize in refrigerated freight or the "cold chain sector".

"In the FMCG (fast moving consumer goods) sector, the need for shorter turnaround time and food safety requires a highly efficient supply chain management including inventory control and timely delivery," says Tong

"Cold chain logistics, in particular, is of critical importance for fast food chains in order to keep the foods fresh and safe. Any company involved in this sector should have a strict monitoring system apart from investment in the necessary refrigerator facilities."

In the manufacturing sector, the trend towards logistics outsourcing is accelerating as a way to reduce costs but also bring new profit growth.

For Hao Mingming who works at an electronic components company in Wuxi, Jiangsu province, the cost-effectiveness of logistics service outsourcing is a new profit growth point for the export-oriented company, especially at a time when national exports have slumped.

With up to 80 percent of the products geared for the export trade, the company has suffered big losses due to the plunge in overseas orders. It primarily produces liquid crystal display units used for cell phones, but prices are only half compared to two years ago, while costs in energy and labor continue to climb.

"We would be squeezed further if we have to run the transportation and inventory control all on our own, given the current level of fuel and labor costs." Hao says.

Instead of having different suppliers send their raw materials to the warehouse by themselves, the company employs a professional logistics partner. Hao says it is more efficient due to the just-in-time inventory control system operated by the transporter.

"Costs have been reduced by over 10 percent," says Hao, adding that the company doesn't have to worry about supply chain management and can focus more on product design.

"Apart from cost reduction, we've also cut down our carbon footprint because suppliers travel less in their trucks and as a result produce fewer pollutants," says Hao.