As the number of cars plying China’s road increases, demand for parts has also been rising across the length and breadth of the country. However, the current model of OEM spare parts sales and distribution in China is poised for disruption, both from independent and ecommerce alternatives offering cheaper products, and plans to liberalise the sale of original parts. OEMs face a big challenge in both holding onto customers, as well as providing faster service and better visibility across the aftermarket chain.
Up to now, at least, Chinese customers have no choice but to buy genuine OEM parts direct from authorised dealers, which have limited competition from independent distributors or online retailers (which typically sell generic, non-OEM parts). However, government ministries have already made moves to break this monopoly, according to Wu Songquan, director of the automotive industry policy research section of the China Automotive Technology and Research Centre, who spoke at the Automotive Logistics China conference in Chengdu.
“To break this monopoly the Ministry of Transport issued a document requesting the transparency and maintenance and repair of cars,” he said. “The opening up of the aftersales services will be a positive factor to the spare parts market. In future there will also be opportunities for imported spare parts.”
This liberalisation will also spread to online parts retailing, according to Ma Zengrong, general secretary for the China Automotive Logistics Association, a chapter of the China Federation of Logistics and Purchasing. “It will not be far in the future that people will be able to buy authentic parts from ecommerce stores,” he said. “That will help wipe out fake products, while traditional dealerships will also need to be prepared.”
Dongfeng Nissan speeds up serviceOne carmaker that is already preparing for a new reality in the service parts supply chain is Dongfeng Nissan, the major joint venture manufacturer and distributor for Nissan in China. Wang Gencai, chief of service part logistics for Dongfeng Nissan, admitted that the old model of distribution was no longer fit for purpose; he called on a new, customer-focused approach for managing the aftermarket business if OEMs are not to lose their customers to ecommerce or independent distributors. Logistics and inventory management will be a major part of an OEM’s advantage over independents.
“If you go to a dealership, and they don’t have a part, that would be a very bad experience,” he said. “If it happens more than once, it would significantly damage the brand image. If the price, quality, or supply is not as good as a corner shop, no one will want to go to an official dealer anymore.”
Dongfeng Nissan is already managing a highly complex supply chain. It has four major production bases across China with an annual production capacity of 1.35m cars, and manufacturers more than 70,000 different parts that find their way to more than 1,000 dealerships.
According to Wang, Dongfeng Nissan has put renewed focus on improving its customer offerings, including ensuring different departments at the company work with each other. Since a sudden change of demand can seriously affect a supplier, the carmaker has needed to ensure much closer communication and coordination across the supply chain.
“How much manpower, equipment, or vehicles should I as a supplier have ready? If there is a great fluctuation, we will have high inventory,” he said.
To manage parts supply, it is important for OEMs to analyse demand constantly, and carefully calibrate dealer inventory, with forecasting for parts supply more important than ever. In 2011, Dongfeng Nissan introduced an SAP-SPP (service parts planning) system that can predict needs, plan and balance inventory, manage parts replenishment and distribution planning. It can also manage lifecycle parts, and automatically adjust prediction results.
“If the system detects errors, it will automatically adjust the prediction for the next month… we have to adjust the parameters all the time,” Wang said.
Wang points out that specific campaigns, such as promotions, sales targets and deadlines, could temporarily change inventory requirements, but that otherwise the carmaker encourages discipline. Dongfeng Nissan dealerships hold a standard safety inventory for parts. If a part is sold, a system will automatically re-order the part. If a dealership wants to stock more than the standard safety inventory, it will have to explain to the OEM why they think the need will be different.
“In the system, regular and temporary stock is handled separately,” Wang said.
Warehouse management has been important to help Dongfeng Nissan manage its parts inventory, and it now uses 3PLs more to help. It is working to synchronise its management by better coordinating labour, and sorting parts according to the best-planned delivery routes.
Dongfeng Nissan now also has a dedicated daily dispatch. What used to take six days has been shortened to just one. “We can complete 98% of the same day deliveries using dedicated trucks,” Wang said.
Trucks have also been equipped with GPS systems so that the OEM and dealers have better visibility.
With the coming changes in China’s aftermarket, the carmaker will need to focus on innovative ways to communicate and service its customers. For example, Dongfeng Nissan will look to introduce an online parts store, and use social media to build new client-customer relationships, Wang said.
“There are lots of things we want to do in the future,” he concluded. It seems likely the company, as well as other OEMs in China, will need all of these ideas and more to remain successful in the aftermarket.
Rachael Hogg and Christopher Ludwig