Best supply chain must be systematic, complete, and timely

• Source: Gasgoo.com
• [09:10 September 07 2009]
• Comments

Gasgoo.com:  The supply chain cost is highly concerned in the automotive industry. Profit will increase a lot if the supply chain cost is reduced. Is there any good solution to the cost down in supply chain management?

Gordon Xie: I will talk about the outbound cost, which means cost in the process of a vehicle moving from the factory to the consumer. First, the inventory management cost. There are inventories in the factory, distribution center and 4S stores. OEMs have paid high attention to inventory management cost in the factory and distribution center, but relatively less attention to 4S stores in which inventory management cost is high. If the inventory management cost in 4S stores can drop, the cost savings will be very substantial. The second is on-time delivery. On-time delivery from the factory to the distribution center and from the distribution center to consumers depends on the accuracy of orders. Inaccurate orders will cause the Bullwhip Effect. Third, transportation costs. There are static cost and dynamic cost. Static cost such as large-trailer transport’s oil cost and wages is inevitable. It can be reduced by optimizing the delivery rate of vehicles and working hours. Dynamic cost, such as the value-added services provided by the distribution center, is negligible.

Gasgoo.com: How to cost down in transportation?

Gordon Xie:  Different modes of transport can be used to reduce transportation cost.  In China, the major means of transport is by truck. There is irregularity in railway transport since the Chinese government gives priority to the transportation of daily necessities. Water transportation fails to become a major mode due to the ever-changing demand in the automotive industry. A boat can carry more than hundreds of cars at a time. The more cars, the less cost in transportation fees. Water transportation will be the development trend of transportation mode for OEMs. Some OEMs have succeeded in optimizing its transportation network by means of water transportation which will bring a big cost down in transportation. It is quite normal that the location of OEMs, spare parts suppliers are different, which is a major cause of the high rate of emptiness of cargo in truck transportation. The emptiness of cargo can be overcome by the cooperation between OEMs in sharing the resources of truck transportation. But trust between OEMs and operation system is important.

Gasgoo.com: There is a growing number of mergers and reorganizations in the automotive industry, what is the impact on the supply chain?

Gordon Xie: There are mergers and reorganizations among both spare parts manufacturers and OEMs, while the later will suffer bigger impact.

The merger intends to achieve a growth in revenue, product complementarily, resources exchange between regions, and cost reduction. There will be an expansion of production capacity and the volume of procurement. So a cost down in some common parts is much easier. Mergers and reorganization optimize the transportation network, so the transportation cost can be reduced. 

Gasgoo.com: But there are examples of failures in merger and reorganization in the past years.  Are there any difficulties in the process of merger and reorganization for the enterprises?

Gordon Xie: We have done a survey in merger and reorganization .There are failure and success cases. A lot of mergers fail to achieve the expected effect in sales growth, cost reduction, effectiveness of human resources. Before a merger is carried out, the enterprise must make plans on how to avoid the loss of key customers and employees, how to overcome culture differences between the enterprises.

Four points should be noted: First, a detailed plan in advance is necessary, such as the risks may be involved. Second, a special team responsible for merger integration must be set up, with team members from top executives who will be involved in decision-making. Third, to achieve success in a short period of time will bring confidence of the whole team. Forth, it is inevitable that some staff will leave the company after the merger. At this time, make sure that all the changes are fair to each side.