Global supply chain without warehouses: the future trend

Philip Christian Eller

BMW Group Senior Vice President of
Purchasing and Supplier Network Driving Dynamics and Motorcycle

Gasgoo: Recently we’ve heard a lot of news about overseas mergers and acquisitions in China; these mergers and acquisitions will definitely influence the supply chain. What’s your opinion on overseas mergers and acquisitions? How can the Chinese automakers do a better integration?

Philip Christian Eller: One of my personal opinion for this is, firstly the Chinese organizations which are spotting the market and looking for which is the profitable one are very cautious. I’m not worried about they are going any risks. The major functionality to Chinese operation have to go for is R&D because the R&D capability is the weakest of the overall system. The system of copying things with having sketches and then developing something out of the sketches, bringing this into production is more or less done. The Chinese industry is very highly capable of doing this and also in high quality. The only weakness is you are not able to take the order completely including the R&D. So if you are adding something into your network R&D, that’s what is to be focused. And I know this is the pick right now and the Chinese enterprises are already on the way. Well. R&D capability can not be purchased like something in the supermarket. You have to be very lucky to find the right company and the right functionality.

Gasgoo: Go on with the question about Chinese companies going abroad buying companies, do you think it’s a way to reduce the overseas trade protectionism? And what’s the most thoughtful thing for those Chinese companies, the overseas market, the technology or the brand itself? We know that Geely is the preferred bidder for the Volvo brand, what’s your comment on the deal?

Philip Christian Eller: It’s a hard way to go this. It will take not one year or two; it will take maybe 5 years to a decade until a Chinese enterprise will be really successful as a brand!  If you look today, maybe a brand like Haier or Lenovo (formerly with IBM) is a good one with strong prospect in the consumer market overseas. Some of these brands are well on their ways for years and they are not well respected in every country right now. The way is hard. Automotive? I don’t know if it is the right target short term to go for foreign market. Particularly for the US and for Europe, because the capacities in these countries are nearly exceeding the demands, why should we be another there? The chance is little.

To finish my answer I have several recommendations for the Chinese OEMs. Firstly you have to target to get competitive in your own country by technology and economics and go for enlarging your market share. Secondly look for the countries around, like the Asian area (Vietnam, Indonesia, Thailand, Malaysia ) and try to increase your footprints and then think about further opportunities. And please consider that it always should be profitable in medium term.

Gasgoo: Will Geely be profitable after the acquisition of Volvo?

Philip Christian Eller：It depends. The chances seem to be promising. VOLVO may provide the high level R&D capability to improve Geely products on high international edge. Consequently the the next step will be to look for further business opportunities.

Gasgoo: We have had the global financial crisis. What major trends have you seen before and after this?

Philip Christian Eller: Major trends which should have been trends also in good times are cooperation and consolidation and more solid integrated supply networks. In the past there were a lot individuals, now we need to cooperate, especially the brands and the companies which are not majors by volume like Toyota, VW Group, GM and Renault/Nissan which can consolidate networks on their own. Companies like the BMW Group, for instance, need to look for solid cooperation with other OEMs like PSA from France or Daimler Benz. This may case by case apply for certain markets as well as for global networks

Gasgoo: The ideal will be the global supply chain without warehouses. How far is it?

Philip Christian Eller：I can take our X3 SUV we are launching in our US production next year for example. Compared to the previous models, 70 percent of the material supply to our assembly plant in Spartanburg will be launched without warehousing. In the past, 70 percent of the materials came from warehouses near by. This process will substantially save money and time.