Turn around the Parts Distribution Network for a Chinese Automotive Company

Logistics and Supply Chain

Manager:

Mr.E. B.

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  • Customer:

    Confidential

  • Role:

    Project Manager for the Turn Around

  • Location:

    China

  • Turnover:

    470 Mio. CNY in parts business

  • Time frame:

    9 months

  • No. of employees:

    approx. 300 for parts business

About the Customer

The Chinese client is the joint venture partner of a premium car company in Germany. The German (REMAINS CONFIDENTIAL) has a major interest in the Chinese partner being financially healthy and profitable.  That’s the reason for the German carmaker to put resources into various improvement projects and to support the Chinese company in R&D, Production, Aftersales and Logistics.

The Chinese carmaker’s main market is local China. 90% of the sales volume stays in China, 10% is being exported via CKD assemblies in a handful of foreign markets.
The client’s company structure is a conglomerate consisting out of various companies with different brands and products.

The focus of the Parts Distribution projects was on the main automotive area with two brands (sedan and mini busses).

Testimonial from Сustomer

Ch. G., CEO: “With an attitude of the project manager like:
Plan – act – deliver, or: what you plan you implement you deliver,
the whole company felt and feels very confident to achieve our objectives. Within one year we have reduced our logistics costs by 30%, improved our performance to our customers and that without any major business interruptions. So, we have the proof that it can work. And this success keeps our employees highly motivated. They believe in the plan and in the future. And our people are determined now to make it. They go for it: double the profit the next 5 years”

Situation (Challenge)

In general the meaning of Aftersales, Parts Business and Logistics is significantly low in China. Especially Chinese Automotive carmakers underestimate the meaning of Aftersales for a constant cash-flow and as a cash-cow for their dealership, the (REMAINS CONFIDENTIAL) itself and it’s suppliers. Logistics is seen as a cost factor and not as the enabler of a competitive parts business.

The client’s CDC and RDC network set-up in China was weak and extremely poor managed. Parts availability less than 60%, overstock and obsolescence in the warehouses and at the dealers more than 50%, service levels and quality standards were unusually low. The suppliers preferred to ship their parts to the independent market instead of supplying parts to the (REMAINS CONFIDENTIAL).

Material Planning, SCM, Parts Pricing, Customer Care were also unsatisfying. System support was low, most of the processes had to be done manually. This also was a factor for low parts availability, unhappy customers and not loyal dealers.

Furthermore the parts business for the sedan models was declining in 2014 and the business for the mini-busses also started to slow down. Due to the fact of China’s “new normal” but even more because of the poor performance of the client’s logistics, parts and aftersales areas the project initiative truly came right in time.

Solution (Achievement)

The first step was a profound analysis of the current situation. Since there was no transparency of facts and figures and the data could only be retrieved manually the biggest challenge was to motivate the employees to open their mind and their books.
Step 2 was a network analysis about the most cost-efficient distribution network. Result was the plan to consolidate the CDC locations from four to one location close to the company, where in-house parts get produced and most of the suppliers have their home or deliver parts to. For the RDC’s also a consolidation (from 7 to 4) and new locations were proposed.
In step 3 the consolidation of the CDC was implemented. A new location in a good environment, higher standards for building, equipment, service provider and IT was found, and the parts were moved from the existing locations to the new building without any major business interruptions.

Step 3 was accompanied by the initiative to have a clear and transparent stock structure in the warehouses. Obsolete and slow moving parts were moved to places with very low costs. They support the CDC as a replenishment location on a low cost basis and they enable the RDC’s to act as very lean and slim high performance hubs with a high throughput.
Step 4 is still in the implementation phase. It encompasses the consolidation and move of the existing RDC’s in optimized new locations.
Step 5 (in parallel to step 1 to 4) had to be to develop a business plan for the turnaround of the parts business until 2020. With putting the parts distribution on a new level the most important pillar has been done. Furthermore now there are actions defined and on the table with clear KPI’s to turn around the business decline within one year and to come back on the growth track. The actions defined are the levers in areas like: product policy, pricing, profit policy, inventory management, service requirements and service levels, warehouse and transportation costs, and most importantly how to increase customer satisfaction and dealer satisfaction.

Within one year there was the proof of how to reduce logistics cost by 30% by implementing the new CDC and RDC structure. At the same time the service levels, the quality levels, the motivation of the internal staff and the staff in dealerships has improved significantly. This testimony makes the client very confident for the implementation of the business plan till 2020 and achieving a doubling of revenues and profits like forecasted.

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