As the automotive industry in China grows, the demand for complex logistics solutions is increasing

-----By Thomas Hauck and Daniela Naeve

Latest forecasts predict that automotive production in China will increase up to six million units in 2005, replacing Germany as the world's third largest automotive producer, behind the USA and Japan.

Over the last ten years, vehicle sales increased by 141 percent, up to 3.5 million vehicles. But this is still the beginning. By 2010, the figure is expect-ed to rise to between six and seven million cars per annum. First Automotive Works Corp, Shanghai Automotive Industry Corp (SAIC), Dongfeng Mo-tor Corp, Chang.an Motor Corp, and Beijing Auto-motive Industry Corp, together with their foreign Joint Venture partners are the main players.

The majority of vehicles are still produced for the domestic market. Vehicle imports into China currently play a smaller role, but are expected to increase signi.cantly, triggered by the WTO-imposed reduction on import tariffs upcoming in 2006. Foreign manufacturers will have the chance to introduce models not yet produced in China to the local market.

Exports of completely built-up vehicles (CBUs) are forecasted to increase over the next five years from the current 4 percent to 20 per-cent. Car manufacturers in China currently face high levels of overcapacity and plan to intro-duce their models to global markets in order to open further sales avenues. Chery, for example, recently started to export vehicles to Europe and the USA. Honda is exporting its Chinese-built Jazz minicar to Europe.

In line with the export of CBUs, car manufac-turers will have to develop spare parts solutions in order to supply the aftermarket. Distribution centers are established at strategic locations in Europe and the USA to serve the local markets.

Up-and-coming component industry

Components are still seen as the major driver for automotive imports and exports. While im-ports are expected to stabilize due to local con-tent requirements for locally produced cars, all major multinational car manufacturers in China are evaluating to expand their global sourcing initiatives, aiming to bene.t from the relative low costs in China. Consequently, the accumu-lated export growth of automotive components was 800 percent over the last 10 years. Complex logistics solutions are required to ensure that global standards on quality and reli-ability of supply chains are adhered to.

European OEMs, for example, expect local Chinese suppliers to be as reliable, .exible and time-bound, in terms of reacting to the OEM call off, as their European counterparts.

Overcoming the challenge of supplying parts with the same reliability across more than 10,000 kilometers can be resolved with so called VMI (Vendor Management Inventory) systems.

VMI means that the Chinese supplier uses an external logistics provider in Europe to run a warehouse in the supplier's name and for the supplier's account close to the final destination.

This allows an ef.cient and effective reaction on the .nal customer's production call off, thereby overcoming the problem of managing the vast distance between the different continents. Mul-tifaceted IT systems support this process and ensure supply chain ef.ciency and reliability.

Another trend is JIT (just-in-time), JIS (just-in-sequence) delivery requirements as part of the procurement logistics, the main aim of which is to reduce the overall inventory levels within the supply chain, as well as improving cost levels. This requires the customer and the supplier, as well as the freight forwarding com-pany, to enter into a close partnership by shar-ing relevant production and call off data.

National inbound logistics and distribution

Triggered by great distances on one side and the still underdeveloped infrastructure on the other side, domestic transportation still presents one of the major challenges for all parties.

Road-sea combinations are especially popu-lar and cost-effective when used to overcome the obstacles presented by the current road and rail infrastructure. The Yangtze River connects the East-West route, while the North-South route takes advantage of the ocean.

All logistics solutions have one thing in com-mon: reliability and cost ef.ciency are the key requirements to automotive logistics solutions, as logistics costs still have almost twice as high a proportion on the overall product price than they do, for example, in the US.

Customers look more and more for integrat-ed logistics solutions, enabling the automotive industry to bene.t from ef.cient one-stop con-trol of complex value-added chains. Services are underpinned by an intermodal planning and process control system that effectively com-bines the economic and ecological advantages of rail, road, air and sea transport.

Thomas Hauck is responsible for the develop-ment of the vertical automotive market in China. With 1,100 offices around the world, Schenker is one of the world's leading providers of integrat-ed logistics services. Contact us at marketing.sha@schenker.com.