Capstone project for Georgia Tech ISyE.

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SERVICE PARTS DC
Analyzing 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 Asia
We 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 Criterion
Category Customs Air Sea Land Infrastr. Human Market Labor Currency Land
Process Connect. Connect. Connect. Capital Access Cost Stability Prices
Bronze >5 hrs <3000 <300 Access developi Scarce <1 billion >5$/hr Fluctuate >600 USD
:Air flights/wk ports to < ng (depend people s often PSF
200m s on within 6
>5 days To <100 cust. Univ.) hrs of
:Sea cities flight
Silver 1-5 hrs 3000- 300-500 Access Develop available 1-2 billion 1-5$/hr Relatively 200-600
:Air 5000 ports to 200m- ed but people stable USD PSF
flights/wk 1bil cust. needs within 6
3-5 days improve hrs of
:Sea To 100- ment flight
150 cities
Gold <1 hrs >5000 >500 Access Highly Readily >2 billion <1$/hr Stable <200 USD
:Air flights/wk ports to 1bil develop Available people PSF
cust. ed (>5 top within 6
<3 days To > 150 ranked hrs of
:Sea cities Univ’s) flight

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Medals
Silver Bronze
Gold

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Singapore

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Assessment Plate: Singapore
Customs Process Air connections Sea connections Land connections Infrastructure
Human Capital Market access 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
Customs Process Air connections Sea connections Land connections Infrastructure
Human Capital Market access Labor cost Currency Stability Land prices

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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
Customs Process Air connections Sea connections Land connections Infrastructure
Human Capital Market access Labor cost Currency Stability Land prices

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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
Customs Process Air connections Sea connections Land connections Infrastructure
Human Capital Market access Labor cost Currency Stability Land prices

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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
Customs Process Air connections Sea connections Land connections Infrastructure
Human Capital Market access Labor cost Currency Stability Land prices

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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 Excellent Seaport
connections
• Approximately 50% of the profits made in
the auto industry come from service and
Proximity to
parts customers
• Global automobile spare parts logistics is a
Proximity to
$12.51b industry suppliers
• Complex supply chains, high number of
SKUs, multiple paths of material flow
• 98% - Ocean shipments, 1-2% - Air shipments.

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Automotive SP’s
• Echelon level: Towards customers
• To fulfill the needs of China consumers (China is world’s largest
Shanghai luxury car consumer)
• Suzhou and Wuxi, the two large industrial cities are within 700
mile from Shanghai.
Singapore • A wide level access to Australian and many other markets
• Efficient seaport and airport
Malaysia • Low labor and land cost
• Sea connections to major ports

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Medical SP’s Excellent Airport
connections
• Spare parts availability is extremely critical to
the business, time sensitive
Integrated
research network
• Global medical service parts logistics is a
$1.93b industry
Proximity to suppliers
• 90% - Air shipments, 10% - Ocean shipments.

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Medical SP’s
• Echelon level: Towards customers
•Proximity to Chinese market
•Excellent human capital and knowledge based
Shanghai/HKG environment
•Excellent Airport connections
•Knowledge based economy with available talent
(Biomedical research)
Singapore •Sound political environment, skilled labor,
excellent Air connections

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Aerospace SP’s
• Spare parts availability is critical to the
business
• Global aerospace spare parts logistics is a
Excellent Airport
connections
$2.6bil industry
Skilled
workforce
• 98% - Air shipments, 1-2% - Ocean shipments.
Proximity to
customers

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Aerospace SP’s
• Echelon level:
•Proximity to market in mainland China
•Excellent human capital and knowledge based
Shanghai/HKG environment
•Excellent Airport connections
•Knowledge based economy with available talent
Singapore •Sound political environment, skilled labor, excellent
(Boeing) Air connections
•Low tax rates, and research conducive environment

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Electronics SP’s
• Timely delivery is extremely critical to the
Excellent Airport
business connections
• Global electronics service parts logistics is a
Efficient customs
$6.7b industry procedure
• Complex supply chains, high number of
SKUs, multiple paths of material flow Proximity to
suppliers/customers
• 98% - Air shipments, 1-2% - Ocean shipments.

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Electronics SP’s
• Echelon level: Middle
Shanghai/HKG •Proximity to manufacturers in mainland China
•Excellent human capital and knowledge based environment
(STM) •Excellent Airport connections
Singapore (TI, •Knowledge based economy with available talent
•Sound political environment, skilled labor, excellent Air connections
STM) •Low tax rates, and research conducive environment
Malaysia(TI) •Manufacturing facilities
•Cheap land and labor

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Oil & Gas
• Annual growth rate of 12.9% for the period Excellent Seaport
connections
spanning 2006-2010.
• Oil & Gas SP DC’s are located in locations Sound business
that are best situated for where its business is infrastructure
conducted. (i.e. Halliburton)
Proximity to
• Localized sourcing: Greater speed to market Manufacturing
and faster response.

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Oil & Gas
• Echelon level: Towards customers
Malaysia
•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 land
Singapore
•World’s 3rd largest petroleum refinement center
•Sound political environment, skilled labor, excellent Sea and Air connections
•Low tax rates, and research conducive environment
India •Proximity to Middle eastern markets
•Cheap labor and land

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Summary
Automobile Aerospace Electronics Oil & Gas Medical
Shanghai Shanghai Malaysia Malaysia Shanghai
Hong Hong Hong
Malaysia India
Kong Kong Kong
Singapore Singapore Singapore Singapore 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 • India
• Adidas • Vietnam
• Pepsi • Indonesia
• Nestle • Philippines
• NEC mobile • Bangladesh
• Panasonic
• Philips
• Lufthansa