Service business in China
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Service business in China

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This presentation shows various aspects on service business development in the Chinese market. It highlights approaches for spare parts logistics and human resource management to increase the service ...

This presentation shows various aspects on service business development in the Chinese market. It highlights approaches for spare parts logistics and human resource management to increase the service revenues and profits.

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Service business in China Service business in China Presentation Transcript

  • Service Business in China Optimized spare parts logistics for improving the service performance in the Chinese market PD Dr Heiko Gebauer, Eawag 29. November 2013
  • Over 15 years of experience on service business in manufacturing companies International service management Service strategy Service organization Commercializing industrial services Service offerings & value propositions Service innovation Controlling industrial services 1996 2013
  • Experiences on service business in China as part of the international service management Focus group Topics Chinese culture / negotiation styles Service offerings Human resource management Participants Kuka Robotics, Bühler Diecasting, Jakob Müller Machine AG, Studer …. Action research Topics Commercializing service offerings Service process documentation Human resource management and Participants Witschi Electronic, Oerlikon, Bystronic, Bosch Packaging … Individual projects Topics Setting up of a spare parts logistic hub in China Participant GFAgieCharmilles …
  • Agenda  What makes services in China so complex?  What are typical service requirements of Chinese customers?  How can spare parts logistics be organized in the Chinese market?
  • East meets West Boss Handling problems Contacts Opinions Source: Yang Liu (2010)
  • Chinese characteristics influencing business culture Forces shaping … Confucian values Communist ideologies … Chinese business culture Guanxi, Mianzi, Renqing are embedded in a social hierarchy system (limào), which provides internal harmony Long-term orientation versus short-term orientation, High power distance versus low power distance, Collectivistic versus individualistic, uncertainty avoidance versus risk seeking, masculinity versus femininity Working hard (chángzhēng), volunteering for working tasks, family orientation, Work-units (danwei) Western values Source: Gebauer (2007) Expatriate executives, Chinese managers trained in international business, individualistic attitudes (e.g., breaking with the harmony orientation, team diversity, individual preferences, performance based salary and bonus systems
  • Chinese business culture shapes the service management Service revenue as a percentage of total revenue (%) 25 21.2 20 15 10.3 10 5 0 European Chinese Sales companies of Swiss manufacturing firms Source: Gebauer (2007) Service managersdeliberatelyuse "free" customerservicesforestablishing a guanxinetwork and "giving face" to theircustomers The high power distance in China limits the empowerment of service managers and service technicians to offer product-related services proactively. Service managers and service technicians are highly reluctant to change their mindsets. The fact that the base economic actor is the family rather than the firm leads to a high fluctuation among service staff.
  • Agenda  What makes services in China so complex?  What are typical service requirements of Chinese customers?  How can spare parts logistics be organized in the Chinese market?
  • Service growth in China  China as a hyper market for services – >40% annual sales growth and installations – High staff requirements to keep up with the market – Medical equipments (e.g., Carl Zeiss Medical)  China as a continuous growth market for services – 20 to 40% annual sales growth and installations – Large installed base and long-term history – High staff requirements to keep up with the market – Textile, printing equipments (e.g., Rieter, Heidelberger Printing Machines)  China as stagnating market for services – <20% in annual sales growth and installation – Installed based attacked by competitors and service specialists – Reorganizing and downsizing the sales and service organizations – Vacuum systems and vehicle market (e.g., OerlikonVacuumSegment and Volvo Cars)
  • Service needs - Willingness to pay for services Company example Optimize the capital investments • Operational of services • Taking-over the maintenance function • Financial services Optimize the uptime of the machines (MTTR and MTBF) • Inspections • Advanced training • Preventive maintenance Ensure the proper machine functionality • Spare parts • Troubleshooting • Repair and hotline Description A Chinese companies that manufacture only for the Chinese market B Chinese companies are that manufacture for the International markets C International companies (joint ventures) C B A 0-1% 1-2% 2-3% 3-4% Willingness to pay for services in percent of the investments in machines and pieces of equipment per year
  • Individual analysis of service offerings and service processes (company example) Differentiation in the service offerings Service processes Standard service Spare parts Repair Installation Basic operator training European processes Spare part orders Spare part deliveries Field services Premium service Maintenance Preventive services Validation & process consulting Future services Advanced training and education services Chinese processes Spare part offerings (including negotiations) Spare part deliveries Machine installation Free parts process Free service arrangement (VIP customers) Payment handling
  • Individual analysis of service offerings and service processes (company example) Differentiation in the service offerings Standard service Spare parts Repair Installation Basic operator training Premium service Maintenance Preventive services Validation & process consulting Future services Advanced training and education services Service processes Documented spare part quotation process in China does not include the identification European processes of parts Input information for Spare part orders quotation seems to always be necessary in Spare part deliveries China The spare parts quotation process in Field services “VIP customers” resulting China considers in negotiations with sales deptartment Chinese processes Spare part offerings (including negotiations) Spare part orders Machine installation Documented spare Free parts process part order process in China does not include an availability Free service arrangement check Payment handling parts in China is done Invoicing for spare before parts delivery Spare part order process in China seems very time consuming through “invoice first policy” and supplier contact afterwards
  • Spare parts delivery performance Current situation and definition of parts distribution for Asia Customs CSC-Europe Local warehouse Delivery time CSC-Europe to local warehouses incl. customs Customer / dealer Delivery time from the local warehouse to the end customer / dealer Local availability of spare parts CSC availability of spare parts Calculation of current average delivery performance in hour (h) Average delivery performance Delivery time = CSC to local warehouse Delivery time + Local warehouse to end user X 1 - Availability at Local warehouse + Availability at Local warehouse e.g. : Average delivery performance for a Chinese province 46 h = ( ( 72 h + 20 h ) X ( 1 – 64 % ) ) + ( 64 % X 20 h ) Delivery time X Local warehouse to end user
  • Agenda  What makes services in China so complex?  What are typical service requirements of Chinese customers?  How can spare parts logistics be organized in the Chinese market?
  • Advantages and disadvantages of current logistics concepts for spare parts (1) Direct export of spare parts from Europe to customers in China Description Companies run a central warehouse carrying spare parts in Europe and have no local (2) Providing spare parts from local warehouses, and warehouses replenished from Europe, to customers in China Companies have a central warehouse and also run decentralised (local) warehouses in different regions of warehouses in China Inventory planning and control are conducted by the central warehouse based on state-of-the-art methods Inventory planning and control are the responsibility of local warehouses that use relatively unsophisticated methods Parts are exported and delivered directly to the Chinese customers from the central European Parts are delivered from the local warehouse to the customer if they are available locally warehouse Advantages China Parts are exported from the central warehouse if they are not available locally Short delivery times for parts that are available locally Low inventory and working capital costs Low operating costs for the central warehouse in Europe High availability of spare parts at the central warehouse Disadvantages High customer satisfaction due to short delivery times Low logistics costs: bulk replenishment from Europe is more cost-efficient than single express deliveries High logistics costs due to express transport mode High inventory and working capital costs Long delivery times caused by customs clearance High costs for operating and maintaining a network of delays local warehouses Low customer satisfaction due to long delivery times Limited availability of spare parts held by the local warehouses Source: Fischer, Gebauer and Fleisch (2012)
  • Typical logistic situation for spare parts delivery to China Increasing installed base of machines in Asia China often represents approx. 50% of the installed base (concentrating on three regionsBeijing, Shanghai, and Shenzhen There is no spare parts hub in China, parts are normally managed and stored by the sales companies, import of parts often with the machine Customersatisfaction decreasing due to parts availability (spare parts (SP) 15-80%, wear parts (WP) 50-95%) and long delivery times Beijing Shanghai Korea Japan Hong Kong Taiwan Business Center Thailand India Singapore
  • Potential solutions for spare parts logistics (1) Singapore as the central Asian hub (bonded and non-bonded (e.g., Sandvik) CSC-Europe Beijing Korea Shanghai Hong Kong Taiwan Thailand India Singapore Delivery to sales & service agents: Malaysia Vietnam India Philippines Pakistan Myanmar Indonesia Australia New Zeland Japan
  • Potential solutions for spare parts logistics (2) Extended and optimized local warehouses established at wach sales and service company CSC-Europe Beijing Korea Japan Shanghai Hong Kong Taiwan Thailand India Singapore Delivery to sales & service agents: Malaysia Vietnam India Philippines Pakistan Myanmar Indonesia Australia New Zeland
  • Potential solutions for spare parts logistics (2) Two semi-central hubs (e.g. Singapore as the Asian hub and Shanghai as the China hub (bonded and non-bonded) CSC-Europe Beijing Shanghai Korea Hong Kong Taiwan Thailand India Singapore Delivery to sales & service agents: Malaysia Vietnam India Philippines Pakistan Myanmar Indonesia Australia New Zeland Japan
  • Solution for spare parts logistics in China (Asia) Spare parts & service centre in Europe (CSC Customer Service Centre) Beijing Korea Japan Shanghai Taiwan Hong Kong India CSC Europe Thailand Regular replenishment of parts CSC Shanghai Customers Bonded stocks • Parts stocked at manufacturing cost • No VAT & duty Asian customers Singapore/ Malaysia Parts delivered to Asian or Chinese customers (90% availability) Parts returned (unused, used for testing purposes and repairable) Source: Fischer, Gebauer and Fleisch (2012) Non-bonded stocks • Postcustoms clearance • Temporary borrowing Chinese customers
  • Detailed solution for spare parts logistics in China (Asia) IT-Link Invoice for services CSC Europe SAP Delivery Customsaut horities Logisticspa rtner / WMS Bondedstoc k Value1 End User Delivery Temporary Customs border Invoice (USD) Value 2 Value1 + freight + margin Defective part by log. partner Credit note (USD) For defective part Document / Value transfer Payment VAT + duties Virtual transfer of part Borrowing (only China) Invoice (local currency) Non-bonded stock Value3+freight+margin+VAT Value 3 = Value 2 + duty + fees Defective part Sales Co. Delivery (physically) Daily process Monthly/weekly process process
  • Organizational roles & responsibilities CSC Europe CSC Asia Sales Co Location Switzerland Shanghai 10 different locations Role Planning Center Distribution Center Customer Access Responsibility Inventory ownership • Define strategic guidelines • Implement strategic for parts business in Asia guidelines • Plan inventory levels • Make logistic knowhow accessible to all Sales Cos • Define and monitor spare & wear parts business KPI • Match customer demands (delivery times) with performance • Select carriers • Monitor logistic partner running Hub warehouse • Manage return process • Monitor overall inventory levels • Manage escalation process • Sell spare and wear parts • Forecast wear part needs • Inventory of consumables • Inventory responsibility for local warehouse • Operational organization of country warehouse • Monthly availability meetings with Parts Manager CSCAsia CSC Europe Sales Co
  • Improving the human resource management for service staff Recruiting personnel Developing personnel Integrate a Chinese HR function in the selection of service managers and technicians Take small steps for continuous development Ensure adequate interpretation is made of the feedback from the Chinese HR function Concentrate on practical learning Describe the role profiles of service managers and service technicians Do not use criticism in discussions between service managers and service technicians Educate service managers in the selection of service technicians Apply the “tandem” concept Source: Fischer, Gebauer and Fleisch (2012) Use the role descriptions to guide development Work in small groups Educate service managers in using appraisal interviews Retaining and rewarding personnel Establish personal relationships between service managers and service technicians Define budgets for establishing personal relationships Use shares as an incentive Find a balance between non-monetary and monetary incentives Award an annual increase in basic wages too, and not only for attaining further qualifications
  • Thank you