China, India, and Service Parts Procurement

Just before I left for China last week, I had a good conversation with Tim Andreae of MCA Solutions. Tim is the marketing and deal front-man for MCA, one of the leaders in the service parts management arena (MCA competitors include Servigistics and Click Commerce). Our conversation focused quite a bit on what it would take to make service parts management -- and by extension, service parts procurement -- more of a mainstream business issue rather than a niche supply chain one. In my opinion, most organizations do not give service parts management the attention it deserves. To learn more about the impact that service parts cost reduction can have on an organization, check out MCA's online learning center which has some good information on the subject.

From a Spend Management perspective, those familiar with service parts procurement know that it can be a tricky category to source from low cost regions. This is because in a number of industries (such as A&D and industrial products) the order quantities typically are not high enough -- and the lead times are too short -- to justify sourcing offshore. But this morning, as I thumbed through China Daily, the "National English Language Newspaper" of China, over a Starbucks coffee (Beijing has over 40 Starbucks scattered around the city), I came across an article on how Volkswagen plans to increase its service parts sourcing from China. According to the article, "The carmaker expects to purchase spare parts worth US$1 billion from China to use in markets outside of the nation this year, up from US$100 million last year." China has serious ambitions to become a major service parts supplier to the world. The article later notes that, "The nation is on the road to be one of the world's biggest spare parts manufacturing bases. All of the world's major parts makers have built plants in China. There are more than 1,000 foreign-funded companies in China producing spare parts."

Clearly, in high volume service parts supply categories, sourcing from China might make sense in a number of industries. But I know from first hand experience that Indian suppliers are often more likely to consider lower volume production runs across a range of direct material categories (in contrast, Chinese suppliers tend to be the most competitive when production quantities are higher). Indian suppliers tend to excel at automotive supply categories as forged parts and fasteners, both of which are critical in the service parts supply ecosystem.

Jason Busch

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