An ever-changing picture. How logistics providers are relentlessly developing their networks despite the slowdown in Chinese production
Although the world’s largest vehicle-producing nation has experienced a slowdown in manufacturing over the past year, carmakers, tier suppliers and logistics providers are strongly developing their supply chain networks. Tier suppliers and manufacturers are looking increasingly at developing consolidation points to facilitate full truckload (FTL) deliveries, as well as exploring the benefits of taking more control of the logistics for supplier deliveries.
Global logistics providers, meanwhile, continue to invest substantially in China through local joint ventures in an effort to penetrate more of the market for domestic logistics, freight forwarding, imports and exports.
Delphi aims to take control
Delphi aims to take control Among the tier suppliers making significant changes to its logistics processes is Delphi Automotive Systems. The supplier manages more than 80% of inbound logistics for its 18 manufacturing sites in China. Its major supply base is in the Yangtze Delta area, which includes Shanghai as well as the Jiangsu and Zhejiang provinces in eastern China. From this region, says Helen Tu, China and ASEAN logistics manager, Delphi conducts weekly milkruns to its two crossdocks in Shanghai. “Within the past year, Delphi has made huge progress in our fastest growing inbound service – conducting milkruns for multiple plants in China via one platform,” says Tu.
Tu says that the benefits of Delphi’s milkrun system include reduced inventory, freight costs, and packaging, as well as fewer damages and improved truck utilisation. It has also balanced its receiving windows and reduced receiving costs, thus improving order-to-delivery performance. Besides its milkrun network, Delphi also arranges less-than-truckload (LTL), rail, air, and water transport on a delivered basis for suppliers that are located outside of the region, which accounts for 20% of its inbound parts.
The milkrun network is also being helped by a trend which sees Delphi managing more of its inbound logistics, especially for its domestic supplier base. Delphi has been changing its delivery terms from DDU (Delivery Duty Unpaid), in which the supplier is responsible for delivery, to ex-works or FCA (Free Carrier), whereby Delphi handles most of the logistics.
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For Delphi’s outbound deliveries, although some OEMs want to manage their pickups from plants, Tu notes a trend whereby carmakers ask Delphi to build consignment stock near to their vehicle assembly lines and to provide them with more value-added services. Just-in-sequence delivery is Delphi’s fastest-growing service, which it supplies to some of its key customers, including Shanghai Volkswagen and FAW-Volkswagen. “Within the past year, we began providing this service in order to support our customers’ lean and customised manufacturing,” says Tu.
Tu says that Delphi’s biggest challenge is that most logistics providers in China lack transport management systems (TMS), without which it cannot achieve good visibility of its supply chain. She reveals, “instead, we rely on a lot of manual labour that yields poor data quality. In order to improve our visibility, we are now working with IT providers and key LSPs in order to develop one integrated system that will improve our supply chain management efficiency.”
Lear tackles logistics cost issues
Tier one supplier Lear Corporation operates approximately 30 plants across China. Rui Zhu, materials and logistics director, says that for its local inbound logistics, Lear categorises its plants by region and then sources local services to the same logistics providers. “For our inbound imports, we map the business lanes, such as from the US or Mexico to China; from India to China; or from Europe to China. We consolidate the volumes and source one LSP to handle each lane for all plants,” explains Zhu.
In cases where Lear manages its inbound logistics, it uses consolidation, crossdocks and milkruns. When its suppliers manage Lear’s inbound logistics, it uses just-in-time and just-in-sequence methods for deliveries, among others. Zhu says that as Lear penetrates its business from seat assembly to main components, such as foam pads, trim covers and metal mechanisms, etc., its domestic and international inter-plant material movements are becoming more frequent.
Lear follows two benchmarks, one of which is for local trucking. “We have an average cost per kilometre, no matter where the supplier is located within China. When a project begins, we will check whether the new cost is within our range. Secondly, our inbound logistics ratio to sales is normally 0.5% to 1%. We track its monthly movement and analyse the variance,” says Zhu. As a means of making total costs more transparent, Lear itemises the invoices of its providers to give visibility on the separate costs for things like facilities, equipment, trucks, tax, oil and labour.
Within the past year, Lear performed a top 50 supplier analysis that led it to establish a consolidation port in Busan, Korea. Another improvement was moving its subassembly to Vietnam to benefit from its available capacity and low labour costs. “We also worked with the engineering division to redesign our parts so that they fit more efficiently for transportation and other logistics processes,” says Zhu.
Lear also reduced its outside warehouse last year by 13,000 square metres and saved $720,000 per year in rental costs. “We improved the utilisation of our internal warehouses and increased the turnover rate so that we could store more material,” reveals Zhu, pointing out that the increase in turnover rate has been more than 20%.
Other savings have come from the adoption of bigger trucks and containers for its outbound shipments so that the average logistics cost per unit would be lower, which saved $180,000 per year; recycling packages saved another $210,000 per year.
Fiat-Chrysler’s export network
Fiat-Chrysler exports production parts overseas from 120 suppliers in China. For this operation, the OEM uses three major container freight station (CFS) consolidation centres in Shanghai, Tianjin (northern China), and Shenzhen (southern China) to guarantee full container consolidation for Chinese suppliers. From these port locations, Fiat-Chrysler ships to Europe, the Middle East and Africa, North America and Latin America.
Marco Wang, head of parts export operations for Northeast Asia and Asia Pacific SCM at Fiat-Chrysler, says that the carmaker aims to establish the best standardised packaging solution. It is also striving to increase its on-time delivery rate from suppliers to CFS and achieve a high rate of container saturation. For the past year, its container saturation has remained at a stable level of 85%.
Among Fiat-Chrysler’s main challenges are trucking rates and service levels from the suppliers to the consolidation centres. “The service is not good because the trucks are loaded improperly. Problems include improper stacking, mixed cargo and multiple stops. Thus, they cannot guarantee on-time delivery to our CFS,” says Wang.
Similar to Delphi, one solution has been to consider shipping as ex-works or FCA, which it is now using for a small number of suppliers. By assuming more control, Fiat-Chrysler is increasing its delivery quality and reducing its costs, says Wang. This includes using milkruns for suppliers in the same area, so that Fiat-Chrysler can reduce its transport rates and meet its cut-off times more accurately. Another challenge is that the customs inspection procedure affects the timely departure of shipments. “Although customs has improved, it still takes time, due in part to the inspection requirements; customs inspection alone can take two or three days,” says Wang.
Fiat-Chrysler’s parts exports have been growing; it began shipping 1,000 TEUs in 2007 and the forecast for 2012 is for more than 10,000 TEUs. Wang says that its fastest demand growth is for an efficient consolidation centre with more value-added services. Within the past year, Fiat-Chrysler integrated its logistics services to one logistics provider instead of two or three, which has helped to improve rates, according to Wang. The carmaker’s China Project also pools together materials from other Fiat Group companies to improve logistics efficiency, including Fiat Powertrain, CNH, Iveco and Magneti Marelli. Chrysler’s VMI suppliers also joined last year.
Following the growth of China’s car parc in recent years, aftermarket logistics are an increasing focus for 3PLs as well as manufacturers. Anji-CEVA’s network includes nine aftermarket warehouses, which together with its inbound warehouses total
450,000 square metres. It distributes aftermarket parts to 2,220 dealers in more than 320 cities in China. Gefco also plans to begin spare parts deliveries in the Beijing area with its joint venture and to provide stock management from its local distribution centre.
Changan Ford Mazda runs six parts distribution centres of which Chongqing and Shanghai are for fast-moving parts and Wuhan is for slower moving parts. Its others centres based in Beijing, Guangzhou and Zhengzhou are in east-central China. William Zhou, customer service vice-director and parts supply and logistics deputy director, says that since March, it has been running overnight trucks to its dealerships for inventory replenishment, which reduces costs significantly. By shipping overnight, it can include all dealer shipments so that it achieves full truckloads. Zhou says that with increasing vehicle sales and a growing number of vehicles, aftermarket demand is growing rapidly throughout China, especially in ‘tier three’ cities, which include Dalian and Changchun and the smaller ‘tier four’ cities such as Datong and Hohhot. “As service levels and standards are rising, so are the requirements for fast, direct, door-to-door logistics services,” he says. The main challenge for Changan Ford Mazda stems from domestic logistics suppliers, most of which lack professional expertise. “We developed long relationships with these logistics partners and gradually trained them,” Zhou says. As a means of improving its service parts logistics efficiency, the carmaker is in the process of optimising its packaging box size, which Zhou says will reduce its costs by $1.9m on freight and packaging.
Gefco builds on joint ventures
Logistics providers continue to develop their services in China. One good example is France’s Gefco. Until recently, most of Gefco’s services in the country were geared towards its current parent group, PSA Peugeot Citroën and its affiliates in China. Together with a local joint venture, Dongfeng Gefco, it has been responsible for inbound logistics services for PSA’s joint venture with Dongfeng. Gefco has also handled door-todoor services for imported PSA vehicles, with the joint venture handling domestic transport.
Gefco’s main growth has been its overseas solutions as freight forwarder with its establishment of eight branches in China covering air and sea solutions. According to Christophe Poitrineau, director of East Asia zone, Gefco’s primary lanes involve South America and Western Europe. Gefco works with Dongfeng Gefco to manage suppliers for PSA and Mercedes- Benz in China that export parts to plants to South America and Russia.
“Our overseas solution between China and South America has led to a cost decrease during the past two years,” explains Poitrineau. “The outbound network solution will provide a decrease in lead-time between China and other countries. We will implement the project soon and lead times should decrease by about 30%.”
Gefco also handles packaging for exported parts to Malaysia, as well as collection, inventory management, picking and container stuffing and final deliveries, including tracing and order management, quality control and customs clearances.
For its inbound logistics services, the fastest growth is in central China. For global automotive solutions, south China is growing the fastest, according to Poitrineau. “Our vision is to offer this kind of integrated door-to-door service to other customers, including non-automotive customers,” he says.
Poitrineau adds that Gefco will expand other services next year, including spare parts solutions and domestic distribution of vehicles. “CKD exports will also be a service through which we intend to accelerate our development,” he says.
Poitrineau sees further scope to expand Gefco’s business across China geographically. “We need to extend our network in western China, especially our border solutions with Kazakhstan that include customs clearance. We also need to extend our multimodal rail and road solutions with which to serve Russia.”
According to Poitrineau, Gefco is working further on a new project for both inbound and outbound solutions in the domestic market through a new joint venture, Shenzhen Minsheng Gefco Logistics (SMGL), which will begin operations in 2013. “Next year, Gefco will be providing all of the inbound and outbound logistics for the new plant Changan PSA Automobile in Shenzhen through SMGL,” says Poitrineau. “Production is on schedule to begin in mid-2013.”
Together with its joint ventures, Gefco expects to be able to offer more door-to-door services in China for both inbound and outbound logistics, as Poitrineau hopes to build on several successful implementations.
“One example has been our activity in Shanghai, in which we manage orders for PSA from the suppliers to final delivery to the plant, including collecting, labelling, picking, tracking customs clearance, and final delivery. Everything flows on the same integrated software,” he says.
For finished vehicles, Gefco also wants to develop the import vehicle network of Dongfeng Gefco and later SMGL to more domestic distribution and export in 2013. “We also aim to develop outbound export solutions for cars from China to Eastern European countries – mainly Russia and the Baltic States – via Kazakhstan and Russia,” reveals Poitrineau.
Go west, 3PLs
Perhaps the most important 3PL in China for automotive is Anji-Ceva, a joint venture with Ceva Logistics and SAIC. Ceva also handles international forwarding independent, with the joint venture responsible for all domestic Chinese operations.
For parts imports, Ceva Logistics uses the ports of Yingkou, Shenyang and Qingdao, which are all in northeast China. “We are experiencing faster growth in imports and exports that is being fuelled by global platforms. In particular, Korean exports to China are showing good growth,” says David Dudek, who until recently was vice-president, automotive, Asia Pacific at Ceva Logistics.
Ceva Logistics’ fastest domestic growth is in eastern China for transport of milkruns and full truckloads (FTL). It transports milkruns to the Shanghai area, loads them into ocean containers and ships them by short-sea on a daily basis. It also ships by barge on the Yangtze River between Chunking, Wuhan and Shanghai.
“We see great potential in the government’s ‘go west’ policy and we will begin to see new plants and investment in the west as well as the north and south,” says Dudek.
Dudek says that Ceva Logistics’ objectives are to reduce logistics costs by providing integrated solutions. “We seek a balance between costs and service. For example, we are outgrowing our warehouse space, so more frequent deliveries keep inventory lower,” he says.
Dudek adds that Ceva Logistics is working with Anji- Ceva to provide competitive service and costs to automotive customers through shared networks. “By increasing the volume, we are able to spread costs and improve service and efficiency,” he says.
