Logistics of Spare Parts in Asia

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SERVICE PARTS DCAnalyzing the regional requirements for establishing a service parts DC in Asia

Anshuman Gupta GTID: 902858894 Heng Jiang GTID: 902755298 Jinbin Lin GTID: 902897221 Muhammad Hyder GTID: 902896898 Xinyan Zeng GTID: 902864269

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Agenda

• What we’ve been doing for the last 3 months

• Analysis of major logistics hubs in Asia

• The What, When, and How of Service Parts

• What we’ve developed for you

• Key for success

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What we’ve been doing…

• Researching on different service parts industries

• Interviewing industry practitioners and academia

• Analyzing regions in Asia w.r.t service parts DC’s

• Developing recommendations for the investors

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Key logistics hubs in AsiaWe identified 5 major regional logistics hubs

• Singapore • Hong Kong• Malaysia• India• Shanghai

We have evaluated all regions based on an assessment criterion.

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Assessment CriterionCategory

Customs Process

Air Connect.

Sea Connect.

Land Connect.

Infrastr. Human Capital

Market Access

Labor Cost

Currency Stability

Land Prices

Bronze >5 hrs:Air

>5 days:Sea

<3000 flights/wk

To <100 cities

<300 ports

Access to < 200m cust.

developing

Scarce (depends on Univ.)

<1 billion people within 6 hrs of flight

>5$/hr Fluctuates often

>600 USD PSF

Silver 1-5 hrs:Air

3-5 days:Sea

3000-5000 flights/wk

To 100-150 cities

300-500 ports

Access to 200m-1bil cust.

Developed but needs improvement

available 1-2 billion people within 6 hrs of flight

1-5$/hr Relatively stable

200-600 USD PSF

Gold <1 hrs:Air

<3 days :Sea

>5000 flights/wk

To > 150 cities

>500 ports

Access to 1bil cust.

Highly developed

Readily Available (>5 top ranked Univ’s)

>2 billion people within 6 hrs of flight

<1$/hr Stable <200 USD PSF

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Medals

Gold Silver Bronze

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Singapore

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Assessment Plate: Singapore

Customs Process Air connections Sea connections

Market access

Infrastructure

Human Capital

Land connections

Labor cost Currency Stability Land prices

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Singapore: The Highs• Strategic geographical location

• Access to a market of 3 billion people within 6-7 hours of flight

• Ranked 4rth by World Bank for low effective personal and corporate tax rates

• Ranked as top place in the world for ease of doing business by World Bank and has the best labor force in the world (BERI)

• Singapore is one of the major biomedical research and manufacturing centers in the world

• Highly efficient customs procedure

• Politically stable

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Singapore: The Lows• High inflation rate of 5.3% has resulted in high labor costs

(Historical average is 2.8%)

• The property prices have risen dramatically, 7.2% in Q1 2012

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Hong Kong

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Assessment Plate: Hong Kong


Market access

Infrastructure

Human Capital

Land connections


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Hong Kong: The highs

• Access to a market of 3 billion people within 6-7 hours of flight

• Ideal gateway to mainland China and Southeast Asia

• Ease of doing business is second only to Singapore

• Very efficient customs clearance procedure

• Logistics professionals are available

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Hong Kong: The lows• Hong Kong is ranked as world’s third most expensive

city, the labor costs are high (Automation of DC’s is an increasing trend)

• Due to limited space availability, land prices are very high, surging up to USD 1080 per square foot

• Skilled labor is not readily available but Govt. is working on improving the situation

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Malaysia

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Assessment Plate: Malaysia


Market access

Infrastructure

Human Capital

Land connections


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Malaysia: The Highs• Emerging logistics hub with the aspiration from Singapore

• Increasing number of Air and Sea connections with major cities in the world

• Ranked as the 4th best place to do business among East Asia and Pacific region

• High economic growth rate forecasts

• Manufacturing plants shifting from China

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Malaysia: The Lows

• Currency is not traded internationally

• A possible access to a market of 3 billion people within 6-7 hours of flight

• The customs process is not very convenient but it is being improved. Govt. has implemented the policy of “PEMUDAH”, which means "simplify" in Malay.

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India

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Assessment Plate: India


Market access

Infrastructure

Human Capital

Land connections


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India: The Highs• GDP has grown at an average rate of 7.2% for the past 12 years, although

the growth is slowing down recently (7.5% FY-2013, IMF)

• Links to Middle Eastern markets i.e. UAE, Saudi Arabia and Iran

• 187 minor ports and 13 major ports spread across the nine maritime states. 250 Airports with paved runways

• Recent measures to standardize the state tax code are very positive

• World class IT support system

• The government in India is actively pursued policies to promote foreign direct investments into logistics sector

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India: The Lows• The currency is on the down-fall and depreciated

against USD last year by more than 20%

• Lack of Highly skilled labor

• Infrastructure is not as well developed as some other Asian countries like China, Singapore etc.

• Logistics professionals are not readily available.

• Unionized workforce

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Shanghai

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Assessment Plate: Shanghai


Market access

Infrastructure

Human Capital

Land connections


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Shanghai: The Highs• Access to a market of 2.5 billion people within 6-7 hours of flight

• Very close to Korea and Japan markets

• Shanghai is the major production center in China for the machinery, chemical, metal and transport equipment

• Suzhou and Wuxi, the two large industrial cities are within 700 mile from Shanghai.

• Regional Financial center

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Shanghai: The Lows

• Non-efficient & unpredictable customs procedure

• Due to complex Govt. regulations, getting a construction permit is difficult

• In the future the growth would slow down

• Labor costs are on the rise

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Service Parts

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Service Parts DC’s• Objective: To provide a high speed service at an affordable cost to the customers

• The location for a DC should offer a desired mix of facilities

• Distribution centers are part of multi echelon systems

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Service Parts (SP’s)We identified 5 major Service Parts industries

• Automobile• Medical• Aerospace• Electronics• Oil & Gas

Each industry has its own special requirements

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Automotive SP’s• Approximately 50% of the profits made in

the auto industry come from service and parts

• Global automobile spare parts logistics is a $12.51b industry

• Complex supply chains, high number of SKUs, multiple paths of material flow

• 98% - Ocean shipments, 1-2% - Air shipments.

Excellent Seaport connections

Proximity to customers

Proximity to suppliers

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Automotive SP’s• Echelon level: Towards customers

• To fulfill the needs of China consumers (China is world’s largest luxury car consumer)

• Suzhou and Wuxi, the two large industrial cities are within 700 mile from Shanghai.

Shanghai

• A wide level access to Australian and many other markets• Efficient seaport and airportSingapore

• Low labor and land cost• Sea connections to major portsMalaysia

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Medical SP’s• Spare parts availability is extremely critical

to the business, time sensitive

• Global medical service parts logistics is a $1.93b industry

• 90% - Air shipments, 10% - Ocean shipments.

Excellent Airport connections

Integrated research network

Proximity to suppliers

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Medical SP’s• Echelon level: Towards customers

• Proximity to Chinese market• Excellent human capital and knowledge based environment

• Excellent Airport connectionsShanghai/HKG

• Knowledge based economy with available talent (Biomedical research)

• Sound political environment, skilled labor, excellent Air connections

Singapore

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Aerospace SP’s• Spare parts availability is critical to the

business

• Global aerospace spare parts logistics is a $2.6bil industry

• 98% - Air shipments, 1-2% - Ocean shipments.


Skilled workforce

Proximity to customers

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Aerospace SP’s• Echelon level:

• Proximity to market in mainland China • Excellent human capital and knowledge based

environment• Excellent Airport connections

Shanghai/HKG

• Knowledge based economy with available talent• Sound political environment, skilled labor,

excellent Air connections• Low tax rates, and research conducive

environment

Singapore (Boeing)

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Electronics SP’s• Timely delivery is extremely critical to the

business

• Global electronics service parts logistics is a $6.7b industry

• Complex supply chains, high number of SKUs, multiple paths of material flow

• 98% - Air shipments, 1-2% - Ocean shipments.


Efficient customs procedure

Proximity to suppliers/customers

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Electronics SP’s• Echelon level: Middle

•Proximity to manufacturers in mainland China •Excellent human capital and knowledge based environment•Excellent Airport connections

Shanghai/HKG (STM)

•Knowledge based economy with available talent•Sound political environment, skilled labor, excellent Air connections

•Low tax rates, and research conducive environment

Singapore (TI, STM)

•Manufacturing facilities•Cheap land and laborMalaysia(TI)

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Oil & Gas• Annual growth rate of 12.9% for the period

spanning 2006-2010.

• Oil & Gas SP DC’s are located in locations that are best situated for where its business is conducted. (i.e. Halliburton)

• Localized sourcing: Greater speed to market and faster response.

Excellent Seaport connections

Sound business infrastructure

Proximity to Manufacturing

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Oil & Gas• Echelon level: Towards customers

•Malaysia has163 oil fields and 216 gas fields.•Attractive incentives by the government and availability of high skilled labor

•Good Sea connections, cheap labor and landMalaysia

•World’s 3rd largest petroleum refinement center•Sound political environment, skilled labor, excellent Sea and Air connections

•Low tax rates, and research conducive environmentSingapore

•Proximity to Middle eastern markets•Cheap labor and landIndia

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Summary

Automobile

Shanghai

Malaysia

Singapore

Aerospace

Shanghai

Hong Kong

Singapore

Electronics

Malaysia

Hong Kong

Singapore

Oil & Gas

Malaysia

India

Singapore

Medical

Shanghai

Hong Kong

Singapore

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Key for Success

We believe that the analysis presented would serve as a guideline to the investor. The ultimate location of the DC is dependent on the

business patterns, prospective markets, and inventory profile of the DC.

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Companies shifted from China to other countries

• Nike• Adidas• Pepsi• Nestle• NEC mobile• Panasonic• Philips• Lufthansa

• India• Vietnam• Indonesia• Philippines• Bangladesh

Logistics of Spare Parts in Asia

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