The sprawling Chinese conglomerate is growing quickly across its indigenous brands and joint venture operations, which include truckmaker subsidiaries and an in-house logistics company, Anji Automotive Logistics. Namrita Chow takes a look inside the group to see what direction logistic strategy is taking
China’s Shanghai Automotive Industry Corporation (SAIC) can almost be considered the great, great grandfather sitting at the base of an automotive supply chain family tree. With more than ten daughter companies, across carmakers, truckmakers, parts suppliers and logistics providers, many in joint venture operations, SAIC is clearly at the heart of China’s fast growing sector. For a sense of its scale, see the diagram on the opposite page.
In 2008 SAIC, including its joint ventures, sold more than 1.8m vehicles, but had already sold around 1.9m after September 2009 (including 767,000 passenger cars) thanks in large part to China’s massive stimulus package. It has projected sales to finish the year at 2.65m vehicles, with a market share of around 20% of the vehicle market. Of that, around 90,000 vehicles are “SAIC” branded, a 100% increase from 2008, which it expects to double again in 2010. So how does SAIC organise its logistics flow for these finished vehicles? “We have a subsidiary business, Anji Logistics, that handles this,” says Ye Zhang Hong, head of logistics at SAIC. There are three core divisions to SAIC’s automotive logistics flow: finished vehicle logistics, parts logistics (both inbound and outbound) and terminal logistics where finished vehicles and CKD (complete-knock-down kits) are imported and exported. Anji Logistics itself has two divisions: Anji Logistics, which deals with finished vehicle logistics, and a joint venture with Ceva Logistics, Anji-TNT, which deals with automotive parts logistics. While the split was applied last year, Anji-TNT still retains some finished vehicle activities, such as some warehousing. SAIC also has a partnership with Cosco, and some shipping is also managed by China Shipping Co.
A family of logistical differences
But as SAIC Motor has various automotive subsidiaries, some with international joint venture partners, many of the logistic decisions are made by the individual companies. Shanghai Volkswagen (SVW), for example, has its own import-export division. Other subsidiaries and joint ventures also manage their outbound and inbound flow independently.
“We do it by ourselves,” says Jerry Hong, head of procurement, purchasing and international business at SAIC’s subsidiary Huizhong, which makes trucks and various chassis parts. “We do it independently. Most of the SAIC companies have the same situation as us,” he adds. But across China OEMs and joint ventures individually place orders with Anji. “The logistics process is complex,” says Ye Zhang Hong. “We have two processes. The first one is where an OEM plant such as SVW needs some CKD parts. They send a message to Volkswagen in Germany. So we ask them, as an agent, to send these parts.”
The second way is through SAIC’s large network of joint venture parts suppliers. “They have a worldwide business route, and we can use their agencies to do this,” says Ye. Shanghai GM Wuling Automobile makes light commercial vehicles and small cars. “In China, our vehicle logistics supplier provides service of quality inspection, warehousing, transportation and delivery to the local dealers,” says a SGMW spokesperson. “With regard to vehicle export logistics, we first move cars through domestic logistics to the warehouse on departure port, then we export cars after quality inspection by container terminal and roll-on/roll-off ship.” As a subsidiary of SAIC, its main logistics provider is Anji.
SGMW exports vehicles using ships for destinations such as Africa and South America and a combination of ship and rail for Russia. For Rusisa vehicles go by ship to the Port of Vostochny before being shipped by train to other destinations. One of the main problems in transporting vehicles is unprecedented weather situations, says SGMW, such as sudden snow and ice.
SAIC’s eventual aim is to take greater control over its supply chain, as opposed to the decentralised management of its many pieces right now. “We want to cover all of the logistics business – finished vehicle, parts and international logistics. We want to build our business scope to cover the entire range,” says Ye.
But SAIC’s logistics team is involved in helping to brainstorm any bottlenecks or problems. “We think some bottlenecks are met by our customers and some by ourselves,” says Ye. “For example, for SGM [Shanghai General Motors] we have a product control and logistics division and we co-ordinate with them. We hold meetings to find any problems, sit down and find a way to solve them.”
Looking abroad, cautiously
The challenge for SAIC companies is in maintaining inventory levels for its global supply chains. Often its subsidiary companies export both parts and vehicles, however while the parts tend to go toward developed markets, its finished vehicles are typically exported to developing markets where China has political links, such as in Africa and South America. “The problem we’ve seen in the global supply chain is how to manage the inventory in the warehouse to customer,” says Huizhong’s Jerry Hong. “We are shipping 8-10 containers a week in the peak time, mainly to the US and Australia.” In 2008 Huizhong shipped around 400 trucks to markets such as Algeria.
For exports, vehicles are transported mainly by truck from factories across China to ports in Tianjin and Dalian. Using shipping services provided by Cosco or China Shipping, often by container, the vehicles made by the SAIC subsidiaries leave on ships bound for emerging markets.
But joint venture companies in China are here to satisfy the domestic demand in China, and do not engage in exporting vehicles much, according to Stephen Dyer, principal at AT Kearney (Shanghai) Management Consulting in Shanghai. “Many joint ventures in China are here for the domestic market. JV companies that have the product for developed markets want to produce for China,” he says. “Chinese companies exporting are not looking at developed markets.” From January to August this year, for example, a total of 221,110 light vehicles were exported to countries such as Algeria, Syria, Vietnam, Egypt, Iraq, Libya, Iran, Angola and Nigeria, according to data from Automotive Resources Asia, a division of JD Power & Associates. That represents a drop of around 58%.
A small number of MG TF roadsters, which are made under Nanjing Auto, itself acquired by SAIC in 2007, had begun assembly from kits at the Longbridge factory in the UK in 2008, but production stopped earlier in 2009 as a result of the recession. The company has said it anticipates restarting production in 2010. Sales in China of Rowe and MG brands have been strong, however.
Getting stronger at home
China’s government is on a drive to strengthen infrastructure, from logistics parks to container ports and the rail networks. An example includes the new Chengdu Railway Container centre in Sichuan’s capital city, designed to have an annual handling capacity of 2.5m containers. The station and logistics park are expected to form the largest integrated sea-rail inland port in central and western China, according to the Chengdu Municipal Government.
Construction began a year ago on the Nanning-Guangzhou railway which crosses through Guangxi and Guangdong Province. It will be 577km in length with 23 stations. Its design will allow trains to run over 200km per hour, and will meet the requirements for double deck container railway transport. Construction is scheduled to finish in 2012. The Nanning Yudong Logistics Park is being expanded and by 2015 will cover 1m square meters with capacity to handle 2.5m tonnes. Nanning is the last stop on rail services between China and Vietnam. Its proximity to Vietnam and China’s Guangdong province makes it a strong location for an intra-Asia intermodal transport hub, as Vietnam is the second largest export market for finished passenger and light vehicles from China.
A special drive to develop infrastructure in and around fourth tier cities has also commenced, particularly in western China. Registration data shows passenger vehicle sales grew fastest in the inner provinces such as Sichuan, Henan, Shaanxi, Jiangxi and Gansu, according to JD Power & Associates, stimulated by government policy.
The drive going west and inwards into China means Sichuan province in China’s west at the upper end of the Yangtze river is booming with investments for new railway hubs, inland ports and new manufacturing plants. A new RMB1.3 billion ($190m) port in Yibin at the confluence of the Yangtze, Minjiang and Jinshajiang rivers began construction in 2008.
By 2030 the port will cover 75km of coastline with 11 different port areas and will grow capacity to 4m TEU. All of this investment suggests that hurdles in the system will be overcome, says Jerry Hong: “Through construction of the railway, for example, the products from the west of China will be much more easily transported to the east coast and shipped out through China’s main sea ports.”
SAIC too is expanding its vehicle production scope and capacity. This year the corporation has further strengthened its commercial vehicle production venture with Iveco. In 2008, SAIC Iveco Hongyan Commercial Vehicle, produced a total 22,337 heavy trucks, exporting around 1,500 to markets such as the Middle East, Central America and Southeast Asia, says Elena Wang, spokesperson for Iveco China.
Under Naveco, a joint venture between Iveco and SAIC’s Nanjing Auto subsidiary, sales in 2008 were 63,406 units of which around 7,000 were exported to developing economies in Asia, Africa and South America, as well as to developed markets in Europe and North America. As SAIC expands production capacity and as exports grow, streamlining its logistics across its different subsidiaries will create savings and reduce waste in its supply chain and logistics flow.
A tale of two Anjis
Recently, Anji Logistics and subsidiary Anji-TNT had a major reshuffle of roles. Anji Logistics now handles only finished vehicle logistics where as Anji-TNT now handles automotive parts logistics for SAIC companies. This is the beginning of SAIC’s streamlining process. The biggest step in this overhaul has been hiring Yu De as general manager of Anji Automotive Logistics. “From last year SAIC wanted to re-organise its logistics so they asked me to take this job,” says Yu in his office on the 20th floor on Shanghai’s busy Caoyang road. He took up his new position December 2008.
Fluent in English, German and Mandarin, Yu De brings with him years of expertise gained from rising through the ranks at Shanghai Volkswagen Automotive, where he spent 14 years. He then spent the next three years at Shanghai Automobile Gear Works as Vice President. From 2005 to 2009 he was at a joint venture between SAIC, ZF Friedrichshafen and Bosch. He is young yet experienced, with a strong sense of business systems. Dividing the business between Anji and its joint venture with Ceva was the first thing Yu has done. “I think certain business fields should be clear,” he says. “From 2009 we now focus on finished vehicle logistics and the JV focuses on components, so it’s more obvious.” Anji Logistics itself employs around 5,000 people, while Anji TNT employs another 5,000.
“On the volume side we can move 3.5m vehicles direct from the OEM to the vehicle storage centre (VSC). If the VSC is near to their dealers our capacity can reach 6m,” he says. To do this, Anji has a fleet of owned trucks, ships as well as a joint venture with China Rail. Anji Logistics owns 5,000 trucks, each capable of carrying 8-10 cars. “[We own assets] so we can control our fleets,” says Yu De.
Yu believes that part of the reason Anji is winning customers across China is because it owns so much of its network, and is thus able to manage its freight movements more effectively. “Anji Logistics gets lots of orders from OEMS as we can control our transport,” he says.
For example, November brought unprecedented levels of heavy snow across northern China. “We could organise to send more trucks to those areas,” says Yu. As a subsidiary of SAIC, Anji cannot afford to disrupt the flow of vehicles and parts. Any delays would mean heavy losses for the carmaker.
Every Anji truck has a GPS system plus the company uses an internal transport network services (TNS) system. The TNS system makes the network transparent allowing Anji to send back vehicles when and if needed. “At anytime, anywhere I can see where the truck is and what speed it is travelling at,” he says. But the system is still insufficient for Yu De and he is planning to implement a stronger one in the future.
To minimise waste, Anji combines vehicles from different carmakers on its ships. “Most times we share containers, but sometimes Lexus or BMW ask for specific requirements,” says Yu. “But if they don’t ask we normally put vehicles together.” So does Anji plan to spread its activities into the global logistics arena? “For the next few years we are focussing on China’s domestic market, but not export,” admits Yu . Nevertheless the company has been expanding. Five years ago Anji’s only customer was SAIC. While today it remains Anji’s biggest customer, it works with other carmakers such as BMW, Toyota, Honda and Nissan. “In the next 3-5 years I hope SAIC will only account for 50% of our volume,” he says.
The main issue regarding working overseas or using transnational rail networks is co-operation between partners, he says. For example, he finds that using rail to transport vehicles from China to Europe via Russia is operationally effective, but is hindered by a lack of good relations between logistics providers. “From the technical side there are no problems but it’s the co-operation that is the main problem,” says Yu. To further streamline the system Yu De is brainstorming with experts in the field. “This year we have invited lots of experts from SGM, SVW and SAIC,” he says. Plus he has been travelling all over the globe meeting with experts from other logistics providers. But still he appears less convinced by the asset-light model so common in many Western markets. “In the US for example,” he says,“the focus is on management but in our company we focus on management and operations, including our trucks and our fleets. “For us service satisfaction is our major task, and second is making money.”