As aftermarket demand increases in Russia's central and eastern regions, Anthony Coia reports how logistics services need to adapt.

As the development of Russia’s automotive market thrives, the geographical variation of the world’s largest country requires a range of approaches for delivering parts to its dealerships. At the same time, carmakers are striving for uniform processes and standards throughout their aftermarket supply chains.

Traditionally, Russia’s service parts networks have centred around Moscow and, to a lesser extent, St Petersburg. Although this is still the case, demand in Russia’s central and eastern regions is growing quickly, leading to the development of sub-warehouses among both OEMs and third party providers in cities such as Yekaterinburg and Novosibirsk.

Central supply, but moving eastward

Most OEMs have so far centralised their main warehouses in the Moscow region. PSA Peugeot Citroën, for example, serves 150 dealers across the country from a warehouse in Chernaya Gryaz, about 30km northwest of Moscow. That central hub is supplied with about 80% of parts from PSA’s main warehouse in Vesoul, France, while 20% comes from local suppliers, according to Jean-Marc Trinquier, spare parts logistics and warehouse director, Russia and the CIS, PSA Peugeot Citroën.

PSA ships about 400,000 units per month from its Russian warehouse to its dealerships. Approximately two-thirds of its business is in Moscow and the surrounding region as well as in St Petersburg.

Toyota Motor Russia (TMR) supplies aftermarket parts to 120 dealerships in Russia through a central parts depot in the Moscow region. It receives 70% of its parts from warehouses in the European Union and 30% directly from Toyota Motor Corporation in Japan, according to Andrey Scherbakov, director, parts supply chain and warehouse.

Renault Russia uses two central warehouses that are in the Moscow region. Renault operates its Moscow facility, which serves mainly dealers in Moscow and St Petersburg. Global logistics provider DSV operates the carmaker’s second warehouse, which serves the rest of Russia, according to Anna Blumkina, spare parts and accessories director.

Suzuki Motor Russia has a central spare parts warehouse about 70km from Moscow, near the town of Istra, serving Russia, Kazakhstan and Belarus. Handling 11,000 SKUs, the warehouse has a three-month turnover period. The service level to dealerships of in-stock parts is 95% for all dealer requests, according to Ilya Sarkysian, head of spare parts.

Logistics service providers are also developing their aftermarket infrastructure in Russia. Tablogix Russia, which provides warehousing and distribution services, has a 50,000-square-metre parts warehouse in the Moscow region and a 15,000-square-metre facility in Yekaterinburg. It also runs a crossdock in St Petersburg.

Kuehne & Nagel has service parts warehouses serving cities with populations of more than a million, including Yekaterinburg, Rostov-on-Don, Novosibirsk and Nizhny Novgorod.

Those hinterland and eastern cities are gaining more importance in the Russian aftermarket network. Whereas the Moscow region is still Suzuki’s fastest growing market, Toyota’s parts-demand structure is shifting gradually to smaller cities and the east. “Moscow accounts for 35% of our demand, but is declining to 30%. Likewise, St Petersburg is declining from 15% to 12%. Our challenge is to serve a higher number of destinations and lower volume per dealer,” says Scherbakov.

Tablogix’s Michael Hess, director of international business development, says that it is planning to open a 7,000-square-metre facility in Novosibirsk late this year or early 2013. Hess says that although its main growth is in the Moscow and St Petersburg regions, Tablogix has a higher growth rate in cities with populations of more than 500,000. “We also see the need for OEMs to have a sub-depot in Western Siberia, such as in Novosibirsk, in order to shorten lead times to dealers and to differentiate from the grey market by service level,” he says.

A limited role for rail

An obvious challenge for providers in Russia is its underdeveloped transport network, but LSPs and OEMs are working to improve the less-than-truckload (LTL) network. Rail is also used for some shipments, but there is a consensus that its service and price levels are uncompetitive. Air freight is also important for a region Russia’s size, but there are service gaps.

Hess says that Tablogix provides mainly milkruns in Moscow and St Petersburg and LTL deliveries to other regions of Russia. “During the winter, we need to use rail in order to serve the Far East regions of Russia, due to bad roads and weather conditions. Rail is neither cheaper nor fast, and accounts for only about 5% of our volume,” says Hess.

Likewise, Toyota and PSA use mostly truck transport to serve their dealerships, except for a few rail destinations. Suzuki delivers spare parts to dealerships by truck for 90% of its orders. “Many trucking companies compete in the marketplace, which significantly lowers the delivery price,” says Sarkysian. Suzuki uses rail transport to serve places where roads are not available, primarily in Siberia and the Far East.

Renault delivers to about 130 dealerships and uses truck for 85% of its orders, rail for 10-12% and air for 2-3%. It uses rail to serve the Urals region where roads are not developed. “Currently, we are trying to optimise our use of rail due to costs and delays. Our two main KPIs are quality and the avoidance of delivery delays,” says Anna Blumkina.

Increasing delivery frequency

While multiple daily deliveries are more common in denser markets, in Russia there is the challenge of balancing delivery frequency with high costs and disparate markets. Renault offers three types of service parts orders. Vehicle-off-road (VOR) deliveries are moved twice daily for all of Russia, while Renault delivers urgent orders daily. It delivers stock orders five times per week in larger markets and three times for others, according to Blumkina. “We distribute original spare parts only through our official dealer network,” she says. “About 90% is consumed within the dealer network itself, and 10% as wholesale sales rom our dealers o independent garages.”

diversity-2Kuehne & Nagel provides a range of dealer delivery services, including reverse logistics for document delivery and warranty parts. It uses truck and air to move parts from Moscow and St Petersburg. For dealer stock orders, it provides road freight LTL and full-truckload deliveries as well as milkrun, in-city deliveries in small trucks, according to Eugeny Rylov, business development manager, automotive.

For VOR orders, it uses airfreight to serve 58 destinations in Russia. Rylov notes that as customer satisfaction plays a more important role for dealers, more spare parts will move by air.

The PSA Group delivers its stock orders weekly and its urgent orders the next day. For those dealers located more than 1,000km from the warehouse, it may use air. Toyota also uses air for urgent orders for land transport that takes more than two days, such as to southern Russia and east of the Urals. “In April, TMR’s territory expanded to include the Far East,” says Scherbakov.

Suzuki offers express delivery from the manufacturer’s warehouse for parts not in stock. “Express delivery has been steadily developing, despite poor road conditions in certain regions,” says Sarkysian. It offers express air delivery for warranty orders to remote areas.

diversity-3For urgent orders, Tablogix offers express delivery for Moscow and cities within a 500km radius. For other regions, it uses airfreight for deliveries when possible. Besides restricted items, some regions have poor connections, such as one flight per week, or a lack of capacity. Kuehne & Nagel’s Rylov agrees: “Russian low-cost airlines have left the market, which limits the choice of carriers and increases our transportation costs.”

A changing landscape

Kuehne & Nagel’s Rylov foresees a further expansion of the spare parts network eastward. “The trend is to establish regional parts centres in Yekaterinburg or Novosibirsk for a faster supply of spare parts to remote dealers in the Urals area and Siberia,” he says. “Our main growth is in regional warehouse services that will enable the OEMs to maintain their spare parts stock closer to their dealerships.”

A number of changes are in the works for PSA. “We will be integrating more local manufacturers and decreasing our dealers’ inventory,” says Trinquier. He expects these improvements to reduce delivery time to dealerships and to increase service rates to 99% for high rotation components.

Toyota is working to improve parts availability by first request, with a target of more than 97%. Scherbakov says that it also wants to provide high delivery frequency and to minimise lead time, particularly for long distance dealers.

diversity-4Sarkysian points out that several problems exist in Russia’s transport market, including fluctuating rates and unfixed delivery dates. Suzuki’s solution is to contract with companies with fixed tariffs, and to use several carriers. “By using different transportation companies, we understand their pricing policies better and can choose the one that provides the best quality services at a reasonable price,” says Sarkysian.

Suzuki also tries to maintain stability in the network by offering a fixed delivery time of three days to dealerships. Suzuki’s contractually guaranteed delivery time with its carriers means that late deliveries are free of charge.

Kuehne & Nagel’s main challenge is to manage its pool of subcontractors to maintain a high service level at a reasonable price. “Since the road logistics market is very volatile, one of our major targets is to maintain rates at an acceptable level and to be able to absorb the market fluctuations,” says Rylov.

Suzuki finds that even express deliveries may take up to one week to reach dealers. Says Sarkysian: “Unfortunately, the state of Russia’s roads leaves much to be desired, as does its air infrastructure. For example, no transportation company has its own air fleet, which is due to the peculiarities of Russian law. Therefore, many factors affect the speed and the cost of delivery to different regions.”

Like other OEMs, Renault struggles to guarantee a high level of availability for spare parts amid an underdeveloped logistics service network. “Milkruns [in Russia] are almost non-existent,” says Blumkina. “Transport companies pick up from the warehouse and deliver to a central platform, from which small trucks pick up the order. This causes delays.”

Renault is addressing this deficiency by working closely with its providers to develop milkruns, reduce transport time and improve quality. Blumkina says that its quality objective is to have no more than 50 errors per 10,000 order lines.

Tablogix’s main challenges are traffic jams in Moscow. “We provide overnight deliveries in Moscow in order to prevent being stuck in traffic jams,” says Hess, adding that deliveries in roller cages make the transhipments easier. He points to other challenges including high warehouse rent prices and a shortage of labour in warehousing.

Targeting better service

OEMs and providers are making advances despite difficult conditions. Sarkysian says that Suzuki has improved its ordering procedure and warehouse operations in the past year with online tools that have enabled tracking and simplified ordering. “The quality of delivery has improved with companies expanding their range of services,” he says, adding that Suzuki’s delivery time has decreased by 20-30% on average for all dealers. Transport costs have also decreased.

Toyota dealers receive parts daily except for Kaliningrad, while Moscow dealers receive deliveries twice daily. “Daily deliveries enabled us to reduce our dealers’ inventories significantly by revising their stocking policy for parts and minimising their investments. The average stock depth in 2011 declined by 23% compared to 2008 and in some regions, by 55%,” says Scherbakov.

Renault has strongly improved its service rate. “Before 2011, we shipped stock orders only once or twice per week and three times per week for urgent orders. Early last year, we increased our delivery frequency to three-to-five times per week for stock orders and daily for urgent orders throughout Russia. These changes improved dealer satisfaction greatly as fast availability is the key to growing our sales,” says Blumkina.

Within the past year, Kuehne & Nagel has begun a full-scale distribution process in Russia. Previously, it concentrated mostly on import flows of spare parts and other goods, but has now established a pool of subcontractors for road transport. It also launched a pan-Russian air freight network for urgent parts delivery for a German carmaker. Because of these changes, Kuehne & Nagel now offers daily LTL transport to most of Russia with agreed lead times. The exception is the Far East, which it serves by air.

Rylov says that dealers can now rely on delivery times and can standardise their ordering procedures, committing more precise timeframes to customers. Furthermore, Kuehne & Nagel’s air freight service level has increased from 83% to 94% for most routes in Russia.

Tablogix has also worked on improving utilisation and lean management within its warehouses, while PSA opened a new 18,000-square-metre warehouse last year with a service rate near 94%, higher than any of its previous locations.

Toyota is looking to improve its aftermarket supply chain with a move towards leaner warehouse operations and better ordering processes at dealers. “Through dealer staff training and modifying our dealers’ parts management systems based on Toyota standards, we could create a lean supply chain and achieve high parts availability, smooth logistics volumes, and stable warehouse operations without delays,” says Scherbakov.

These approaches are evidence that carmakers in Russia must address the challenges of improving service parts logistics from various angles. Russia’s regional market expansion has made transport efficiency even more relevant, while more warehouse locations and operations will be a vital part of an effective service parts network in Russia.