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South East Asia aftermarket logistics still growing despite downturn

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The Service Logistics business (a.k.a aftermarkets business) in Asia is on a high growth trajectory, fueled by ongoing shift of OEM’s manufacturing towards low cost destinations in Asia. While outsourcing service logistics to 3PLs has been going on for several years in key industries such as automotive, an evolution in terms of service offerings such as integrated or customized solutions for different industries is gaining traction. Industry players have understood that service logistics can complement revenue realization rather than being a cost factor – thereby many firms are now trying to transition their after sales from a cost center to a P&L.

Solidiance examined 6 key industries and interviewed over 125 executives – logistics managers and executives in each vertical to understand how they are currently working with 3PLs, what are the bottlenecks and issues they face in their related Service Logistics activity and what would be the best improvements they would like to see. Targeted industries were Aerospace, Electronics, Telecom, Industrial equipment, Medical equipment and Semiconductor equipment across 6 countries in South East Asia: Singapore, Malaysia, Thailand, Indonesia, Philippines and Vietnam.

Findings show that eighty three percent (83%) of the Service Logistics activity in the SEA occurs in Singapore and Malaysia (Penang). Singapore has a 60% share of the SEA market primarily due to its regional hub status. Further, the estimated total service logistics market in SEA is circa Eur. 410 M (FY 2008) (in-source & out-source). Semiconductor, Telecom and namely the Electronics industries are the fastest growing and most outsourced industries, the latter being the most attractive industry in terms of growth and size.

Further, the split in terms of percentage between in sourced and outsourced market revenue is similar among all the sectors in Singapore and the rest of the countries in South East Asia. A notable exception  is the aerospace industry where all the companies interviewed in Malaysia in-source the warehousing, mainly for IP purposes, which is still a important issue in this sector.

The
Aerospace industry is characterized by large warehouse requirements and regulations (FAA). In this sector, the majority of companies in Singapore are outsourcing their warehousing to 3PLs. The needs of industry players are highly specialized, and 3PLs need strong industry knowledge in order to serve them.
– For example, 3PLs must be able to appropriately handle large and unconventionally shaped parts, and be able to appropriately store carbon fiber parts which are temperature  sensitive.
– Most of the companies in this sector to rely on 3PLs expertise for warehousing and transportation so that they can concentrate on repairs. However, the key concerns –challenges for outsourcing will include – confidentiality and IP related issues.

The Electronics and Telecom sectors outsource their warehousing to 3PLs in a larger proportion than the other industries.
– In the Electronics industry, the existence of multiple sub-sectors results in large volumes of finished goods and spare part movement. Outsourcing is therefore the best way to improve efficiency of Service Logistics in this industry.
– As a result, most of the companies prefer to outsource their warehousing component to optimize cost, especially in Singapore.

Telecom players in Singapore mainly prefer outsourcing their warehousing to 3PLs in order to be more efficient in ensuring tight control in safety & security measures for telecom equipment.
– Moreover, 3PLs are able to customize and adapt solutions in pace with the fast changes in the telecom industry.
– Hence companies vie for long term partnerships/service agreements with 3PLs to optimize their long term contracts.

The Medical sector is characterized by high value parts and a relatively small size in the after sales business in South East Asia.
– In this industry, players rely on 3PLs for warehousing and customized solutions to optimize their supply chains. Building efficient local networks is a key point, but the reactivity of  the supply chain is another.
– In some cases, special parts available in warehouses on other continents (US, Europe) must be supplied within 24h to the medical equipment manufacturer in Asia because its clients (e.g. hospitals) sometimes require interventions within 2 to 4 hours.  Repairs are in-sourced by a vast majority because of the level of technical knowledge required to  handle the repair of specialized equipment.

In the Semiconductor equipment industry, companies also believe outsourcing is advantageous because 3PLs are better equipped with the latest technologies and know how to handle logistics efficiently.
– Relying on local 3PLs is the most preferred option for several companies in this industry, a major reason being that it allows them to handle customs issues faster and with a stronger “last mile” reach than the global logistics companies.

The Industrial equipment industry differentiates itself from the other sectors by leaning more towards in-sourcing
– This trend is especially true in Malaysia and Thailand where an average of 6% of companies are outsourcing this part of their service logistics.
– Most of those companies are manufacturing heavy industrial products. However, in the sub-segment of control automation companies are keen on using 3PLs for managing their warehousing.

The Service Logistics business is increasingly shifting towards outsourcing not only transportation, but also warehousing. Key customer discussions confirm this trend of growth grow despite the current crisis, primarily driven by businesses from emerging countries such as China, India and Indonesia. The current financial turmoil should have a “positive” effect on after sales services, especially Service Part Logistics since customers will tend to extend the life cycle of their equipment rather than buying new products.

Damien Duhamel

Managing Director Asia Pacific

www.solidiance.com

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About Solidiance

Summary: Corporate strategist with extensive Asia-based management & operational experience. Manages the long-term strategic planning of the organization. Responsible for multi-country team management, PBIT and revenue growth, geographical expansion, business development, key staff recruitment, business unit strategy and processes. Speaks English, French, Vietnamese and "Survival" Japanese. In Asia Pacific for the past 21 years. Specialties: Disruptive innovation strategy & implementation, Expansion strategy, Benchmarking, Asia market entry strategy, Market research Asia, Market sizing, opportunity analysis & market feasibility, Sales & demand forecasting, Competitive intelligence and strategy, Customers acquisition & loyalty, New product development, Distribution & value-chain optimization, Industrial B2B branding, Partner evaluation & selection, M&A due diligence - valuation, Marketing & Corporate strategy, Emerging markets

4 comments on “South East Asia aftermarket logistics still growing despite downturn

  1. Pingback: Topics about Thailand » Archive » South East Asia aftermarket logistics still growing despite downturn

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