FAW Yunnan Parts Center

INTERVIEW DATE: 4 March 2000

INTERVIEWER NAME: Paul Gao

Interviewee Name Mr. Liu Yi

Position General Manager

Company and Address FAW Yunnan Parts Center Company

Telephone/Fax 0-139********

Background

∙ Mr. Liu has been in Kunming for the past four years. Prior to the set up of FAW’s Parts Center in Kunming in 1996, there was a privately owned parts operations

∙ The parts center is located in Yunnan No.1 Repair Factory, who is also FAW’s dealer, parts distributor and service stations (separate operations under the same parent). Mr. Liu is the only one from FAW working at the part center. All other people working for him are from No.1 Repair factory

Distribution channels

∙ IN the past three years, sales of FAW parts averaged RMB 6 million per year in Yunnan province (total FAW truck parts market is estimated at RMB30 million per year). There are three main channels:

∙ 13 service stations in Yunnan (one in Kunming), which account for 45% of the sales

∙ 9 parts retail shops (six are located in Kunming), which account for 30% of the sales

∙ Large fleet customers, which account for about 10% of the sales

∙ There is also small amount of retail sales

∙ Price structure:

∙ Price to service stations is B+2%

∙ Price to parts shops is B+5%

∙ Price to fleet customers is B+7-10%

∙ Inventory

∙ Mr. Liu keeps an inventory level of RMB 2.8 million (FAW requirement is RMB3.5 million based on volume of FAW trucks in Yunnan province

∙ There are 1000+ SKUs, including parts for light trucks

∙ Warehouse is rented from No.1 Repair factory. FAW needs to pay No.1 factory 5% of new parts going into the warehouse every month. This cost covers warehouse rental, local transportation cost from railway to warehouse

∙ Product ordering process

∙ Between parts center and Changchun

∙ Mr. Liu places order with FAW Trading Company in Changchun every month: for small common parts before the 25th of each month; for large parts, e.g., engine, before the 5th of every month

∙ Delivery time is normally 30-45 days after ordering. Normally it is delivered through railway in containers.

∙ Fulfilment ratio in Changchun is around 80%

∙ The Parts center is also allowed to purchase parts from Dalian Diesel and Wuxi Diesel directly

∙ Between parts center and service stations

∙ Service stations and parts centers are required to place their order 45 days before the required delivery time. However, in reality, this rarely works, service stations and parts centers would come to the parts center whenever they need parts

∙ Partly due to haphazard ordering by parts shops and service stations, order fulfilment rate at the parts center is low.

∙ Payment and bad debts

∙ FAW requires all service stations and parts centers to pay for the parts before delivery.

∙ Most of the bad debts are parts given to service stations as start up investment. FAW gave each service station RMB100K of parts as start up investment, and requires them to pay it back within three years. However, only 2 out of the 13 service stations have paid back the parts.

∙ Major problems with parts operations

∙ Chaotic distribution channels. Almost all of FAW’s suppliers sell directly to the market place at low price, which makes FAW Parts centers price uncompetitive

∙ 12 out of 13 service stations are losing money. Because all of them are State owned entities who cannot compete with private service stations who are offering better service at lower cost. Many service stations require customers to pay for warranty service in advance, and will only pay back the money to customers when they are reimbursed by FAW. This has created a very negative image of FAW service quality. Mr. Liu realises that FAW should establish service relationship with the more active private service stations, however, he is concerned about the bad debts outstanding from these service stations.

∙ Lack of coordination between FAW’s R&D, Sales, Service and parts functions:

∙ FAW has developed many new products in recent years. However, R&D and Sales functions have not prepared the necessary parts catalog, repair manual and notify service/parts departments of the new product launch and parts requirements. As a result, many new FAW products are sold without service/parts ready in the market place. One example is FAW’s “5 ton king” truck, which has been sold to Yunnan to almost a year, until today, there is still no parts catalog from the R&D department. Customers are complaining about lack of access to service parts.

∙ Liuzhou Truck factory, which is also under FAW group, re-fit trucks under the Jie Fang brand. But it often uses parts from outside the FAW group. It does not have its own service network, and relies on FAW for service. However, due to the lack of communication between Liu Zhou and Changchun, FAW service stations always have trouble stocking pars required for Liuzhou trucks. Because they are also under the Jie Fang label, this has created a lot of problem for FAW.

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