Rather than competing on price or on products, winning companies in China are setting themselves apart through providing value added service offerings, revealed a recent Barkawi Management Consulting sponsored Service Parts Logistics conference.
Organized by the China Supply Chain Council (CSCC) and co-sponsored by Arvato Logistics, the 2nd annual conference featured key logistics industry executives and experts on topics such as supply chain optimization, aftermarket parts and reverse logistics.
“To ensure success in your China supply chain, you need to have a complete offering, including parts and value added service for clients,” said Andreas Baader, Barkawi’s managing partner.
According to Barkawi estimates, the market for after-sales service is growing at a rate of 9% per annum and should reach 2 billion euros by 2010, with profit margins in after-sales organizations typically 3-5 times higher than in product sales.
Optimizing supply chains
Baader, talked in depth about how companies can optimize their service parts functions so that they can become a profit rather than a cost center, through better inventory management and transparency throughout the supply chain.
“From a B2B point of view, typically, the idea of value added services is to understand what your customer is doing with your equipment,” said Baader. “So you can sell a machine as well as selling labour, technicians, operators as well as selling consumables and business advice. The key is to understand and support your customer’s business through providing additional services.”
Many companies have already seen the light that service is the key differentiator in a market where foreign companies are struggling to compete with both each other and with their Chinese counterparts, who don’t always follow the rules.
Supply chains are becoming more complex
A lot of eyes are on the automotive sector in China -- according to Barkawi, by far the largest market for after sales service – yet the automotive supply chain comes with its own set of challenges.
“In the automotive world, volumes are growing as is complexity,” says Baader. Today 30-40% of the value of components in the car are electronic rather than mechanical and by 2012 this will increase to 50-60%.”
“What this means,” according to Baader, “Is that supply chains for high tech, computer and automotive components will become integrated. We expect more collaboration to occur since inventories to fulfill service will become less and less affordable and companies will look for ways to share the burden with their partners.”
Of course this complexity means that the need for specialist advice on supply chain optimization from companies like Barkawi will also increase, especially in China which by many accounts is fast moving up the value chain.
The challenge of emerging markets
Since Barkawi set up their office in China less than two years ago, their gamble to enter the market seems to be paying off, but of course there are obstacles.
“One of the key logistics challenges in China,” observes Baader, “Is that Chinese consumers have such high service expectations due to the availability of cheap labour, meaning that service networks in China are very dense. With price points in China much lower than in mature markets, this brings challenges for OEM’s.
While China obviously has significant growth potential for Barkawi and their clients, Baader also sees significant opportunity in India. Earlier this year the company set up an office in New Delhi, India with the goal of working with both their European and domestic clients.
In 2006, Barkawi was ranked by Manager Magazine as the number one global management consulting company in SCM and Logistics in Germany. According to Baader, the key differentiator between Barkawi and the major brand name consulting shops, is that Barkawi provides their clients with a mix of professionals who have a variety of industry and operations experience.
Combined with an increased focus on emerging markets such as India and China, the company’s strategic outlook should ensure their ongoing success.