Rapid growth in China’s auto industry has at times placed unreasonable demand on its logistics providers. Fengshen Logistics has developed to meet and exceed expectations
Guangzhou Fengshen Logistics is among China’s major automotive logistics service providers, currently serving a range of business units within the Dongfeng Motor Group – one of China’s ‘Big Three’ carmakers – with a full menu of outsourced logistics offerings, including responsibility for the entire chain of inbound and in-plant logistics at Dongfeng Nissan.
Along with performing value-added production services that are currently more common among third party logistics providers in the US or Europe than in China – such as subassembly, parts inspection and sequencing – Fengshen has also been among the first to execute more sophisticated transport operations, including a milkrun and regional distribution centre (RDC) network for parts delivery.
But while Fengshen Logistics has so far been successful in offering services that provide carmakers with more than what general manager Wu Jun calls “fast food” logistics during the recent boom in automotive production, the company is currently in the process of turning towards lean logistics processes, as well as providing more visibility to customers through electronic data interchange (EDI) connections to its transport management and warehouse management systems (TMS and WMS).
Even for outbound logistics, where services are less developed, Fengshen has its eye on bringing more advanced transport to China, with an increase in multimodal logistics, including rail and barge services.
While it may be common for Chinese automotive and logistics companies to list grand, if not unrealistic aspirations, Fengshen has already built a solid foundation in these areas, as is currently testing and rolling out its TMS and WMS as well as having subsidiaries in place with China’s national freight railway company.
Group pedigree, but not control
While still related to its OEM parent group, Fengshen is less of a daughter company to Dongfeng and more of a cousin twiceremoved. In brief, Dongfeng Motor has a controlling interest in Dongfeng Nanfang, which owns half of Fengshen Logistics (other owners include a Hong Kong-based service company and a private local enterprise). Dongfeng Nanfang (meaning ‘South’) is an automotive service company with several businesses including logistics, parts import and export, and service parts distribution.
Fengshen Logistics was born in its current form a little more than a decade ago out of a car upholstery and accessories company that was close to going under before Dongfeng Nanfang invested in it. In 2002, the rescued accessories company, then managed by Wu Jun, set up Fengshen (literally, ‘wind god’) Logistics, where he has been general manager ever since.
The logistics firm quickly overshadowed the business of its investing parent and Fengshen eventually acquired the upholstery and accessories business, making logistics its core competency. Like its other automotive peers, Fengshen Logistics has experienced spectacular growth recently. Just three years ago, it provided inbound logistics services to only two plants – Dongfeng Nissan in Huadu (Guangzhou) and the Dongfeng Peugeot Citroën Automobile (DPCA) in Wuhan. Today, the company serves nine plants distributed across the country, which Wu says will soon rise to a dozen. It has divisions in Xiangfan (Hubei province) and Zhengzhou (Henan province), as Xiangfan Fengshen Logistics, a wholly owned subsidiary, and Zhengzhou Fengshen Logistics, a partly owned subsidiary.
Fengshen’s major clients include Dongfeng Nissan, DPCA, Zhengzhou Nissan, Dongfeng Motor Corporation Passenger Vehicles and Dongfeng Yulong. So far, the provider hasn’t served OEMs outside the Dongfeng Motor Group, although some have shown interest, according to Wu. But part of managing growth has been deciding when not to take on new business.
“For one thing, our current clients are growing enough to keep us busy,” Wu explains. “For another, other OEMs may have a very different manufacturing system, and we also look to see if the interested potential clients share with us the same understanding of logistics, including in terms of operational mode, quality, cost and delivery.”
Although Wu Jun began his career with Dongfeng Motor, he was not involved in logistics before running Fengshen. While he admits that in the company’s early years it was important to secure business and train staff, he is now looking to redesign its management philosophy. “From this year, our focus is about efforts towards lean logistics,” he says.
Bringing a lean logistics focus to management has become imperative following recent growth, says Wu. He describes the pace of expansion in China’s automotive industry as “wild” and at times unreasonable. He does not believe that logistics providers have always kept up with the increases and says their performance has sometimes fallen short of expectations. “Normally, we would anticipate a timetable for the growth of a business. Sudden and insatiable demand makes it hard to avoid offering fast food,” Wu points out.
Despite signs of a slowdown in China, Wu believes that logistics providers must respond to meet the needs of an everexpanding production footprint. Dongfeng Nissan is building plants in Dalian and Zhengzhou, FAW in Foshan, while SAIC is going to Wuhan and even Xinjiang in the far west. “All LSPs will have to respond to the change from serving only one or two sites to serving an extensive network of China-wide sites,” he comments.
Wu believes that lean operations and efficiency will remain a major challenge for inbound logistics in serving multiple sites. As carmakers expand, the last thing that they want to see as a hindrance to growth is logistics. “In future we are even likely to see [Chinese] OEMs operate in a global network, as many are considering export,” says Wu. “Providers must give more attention to the quality of services as they become even more extensively involved.
Despite challenges, Wu has been pleased by Fengshen’s ability to keep up. “In the growth wave, our clients are no less challenged than their provider, so the OEMs’ approach has been to expect continuous optimisation from us rather than shaking our head and saying no,” he says.
Setting a trend for future outsourcing
Fengshen has set itself apart in the Chinese automotive logistics sector in part thanks to the willingness of its customers to outsource more services to it. Dongfeng Nissan has entrusted its entire inbound logistics to Fengshen, including lineside feeding, in-plant and engine plant logistics processes – a level of outsourcing to logistics providers that is quite rare in the country.
Fengshen Logistics is also heavily involved in sequencing and kitting parts, and performing subassembly for modules such as tyres and wheels. Value-added services also include parts inspection and acceptance on behalf of OEMs, rack planning for kitting purpose, the kanban checklist process, as well as designing, sorting and returning containers off the line.
Most of Fengshen’s clients have introduced reusable containers and standard pallets, but lack effective systems for managing them. “There is not yet an optimised solution to the return and reuse of containers for us and others,” Wu says says.
Wu anticipates that Fengshen’s intensive involvement in OEM production will be a trend for other LSPs in China as growth continues. “Eventually the scope of outsourced inbound logistics services will extend and the outsourcing process will accelerate,” he predicts.
Milkruns and the tier supply chain
Fengshen Logistics was also among the earliest providers in China to move parts by milkruns. In the past, Fengshen shipped parts from suppliers direct for lineside supply with no buffer warehouse, which meant the assembly line was liable to stop in the event of road accidents that delayed deliveries. In refining the milkrun operation, a buffer regional distribution centre (RDC) was introduced. “This RDC is a must-have,” says Wu. “China’s geographical vastness and unpredictable acts of nature constitute many uncertainties in road transport.”
Fengshen terms these buffer points as “frequent deliveries warehouses”, with some crossdocking as well as storage functions. Parts are typically held for only one or two hours, but those from more far-flung locations could be stored for up to 48 hours. “All the parts in the RDC go to the line completely according to plan,” states Wu.
Most parts are delivered by trucks, with a small portion of those larger in size and weight moved by rail.Most parts are delivered by trucks, with a small portion of those larger in size and weight moved by rail.
Apart from serving OEMs, Fengshen Logistics is also involved in serving some tier one parts suppliers. For example, it collects parts from tier two suppliers and ships them to the instrument panel supplier’s assembly centre; they are typically assembled adjacent to the plant and moved to the assembly line on automatic guided vehicles.
Fengshen also manages milkrun collection of parts made by Nissan and moved to the carmaker’s two parts consolidation centres in Guangzhou and Shanghai, for export to Nissan’s global plants. The provider is involved the other way too, with the delivery of Nissan’s imported knockdown kit parts from ports to deconsolidation centres and then to the line.
Increasingly visible operation
One area that Fengshen aims to improve is its IT visibility systems. At the time of writing, Fengshen lacks full EDI links to its customers. Indeed, such integration between carmakers, suppliers and logistics providers remains rare in China. Fengshen currently relies on its OEMs’ system for ordering parts, which generates instructions for suppliers and Fengshen Logistics on when to pick up parts from suppliers and when to deliver them to a plant. Before a system link is built, however, Fengshen receives these instructions through authorised access to a terminal.
But this is going to change. “As part of a lean operation, we must do something about information management and start a move towards integration to achieve full visibility of logistics services,” says Wu.
Some progress has already been made. Fengshen’s WMS has been operating for more a year, and a trial run is underway in southern China to test a new TMS. “After our TMS is put into operation, we’ll see more controlled management of the entire process from suppliers to lineside,’ he says.
When both systems are fully in place, Fengshen will connect them to the real-time data feed from OEMs and provide manufacturers with full visibility of their inventory movement and Fengshen’s logistics processes. “It’s difficult to imagine serving the growing network nationwide in future without phasing in such system integration,” says Wu.
Expanding in outbound and the aftermarket
Currently, inbound logistics makes up the majority of revenue for Fengshen Logistics, however the company plans to increase its vehicle logistics business. Given the current difficulties in China over official truck lengths, which are now being enforced at shorter lengths than most active trailers, a further move into low-margin vehicle logistics operations might seem questionable. Wu agrees, but says the aim is towards multimodal transport. Wu sees the use of rail in China as inevitable for transport distances greater than 1,400km.
“Road transport will not be gone completely, but we’ll limit it to inland transport within 1,400km and short-distance trucking,” he says.
In 2010, Fengshen set up Guangzhou Dongtie Automotive Logistics by working together with China Railway Special Cargo Services, a company established by the Ministry of Railways. Transport by water is also under way.
Nor can the aftermarket sector be left out in Fengshen’s ambition to be a ‘total solution provider’. Traditionally in China, dealers have kept large stocks to avoid running out of parts. But Wu says that China is moving towards more demand-led inventory management. “In theory it’s zeroinventory, although in practice we keep a very low level of extra stock, which is what Fengshen Logistics’ DOQD [day order quick delivery] promotes,” says Wu.
In the demand-led model, spare parts are expected to reach dealers within one or two hours following orders by the click of mouse, and greatly reducing dealer inventory and cost.
“Even though automakers like Nissan and Toyota have been doing well in this, it has only been happening in the last two years. This suggests it’s going to be an area where the whole sector will soon give equal attention and quickly catch up,” says Wu.
The sector might catch up in this case, but as in other areas of the supply chain, Fengshen is still well ahead.
