SE Asia Service Parts

Logistics Market

Solidiance evaluates the key trends in service Solidiance evaluates the key trends in service parts logistics industry in S. E. Asia

July 2009

The Service Logistics business (a.k.a aftermarketsbusiness) in Asia is on a high growth trajectory, fuelledby ongoing shift of OEM’s manufacturing towards lowcost destinations in Asia. While outsourcing service

Service Parts Logistics Market OutlookSolidiance evaluates the key trends in service parts logistics industry in S. E. Asia

The results of this study affirm the“cost destinations in Asia. While outsourcing servicelogistics to 3PLs has been going on for several years inkey industries such as automotive, an evolution interms of service offerings such as integrated orcustomized solutions for different industries is gainingtraction. Industry players have understood that servicelogistics can complement revenue realization ratherthan being a cost factor - thereby many firms are nowtrying to transition their after sales from a cost centerto a P&L.

Solidiance examined 6 key industries and interviewedover 125 executives - logistics managers and executivesin each vertical to understand how they are currentlyworking with 3PLs, what are the bottlenecks and issuesthey face in their related Service Logistics activity andwhat would be the best improvements they would liketo see. Targeted industries were Aerospace, Electronics,Telecom, Industrial equipment, Medical equipment andSemiconductor equipment across 6 countries in SouthEast Asia: Singapore, Malaysia, Thailand, Indonesia,Philippines and Vietnam.

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The results of this study affirm thedemand for outsourcing servicelogistics solutions, complete withinteresting insights across keycustomers and countries in S.E Asia(SEA). Logistics companies arelooking at this trend with a growinginterest and are developing new offersto fit their clients’ needs and helpthem reduce their costs.

Damien Duhamel – Managing Director, Solidiance

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Service Parts Logistics Market OutlookSolidiance evaluates the key trends in service parts logistics industry in S.E.Asia

Service Logistics Market in S.E.Asia

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

Further, the split in terms of percentage between insourced and outsourced market revenue is similaramong all the sectors in Singapore and the rest of thecountries in South East Asia. A notable exception is theaerospace industry where all the companies interviewed

Outsourced Service Logistics (warehousing only)

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aerospace industry where all the companies interviewedin Malaysia in-source the warehousing, mainly for IPpurposes, which is still a important issue in this sector.

Total Service Logistics by Countries in 2008

Source: Solidiance research and team analysis, 2008

The chart above represents the value of Service Logistics market in 2008 in 6main countries in South East Asia. In this region the total service logisticsmarket is circa EUR 410 M. (insource and outsource)

Source: Solidiance research and team analysis, 2008

The chart above shows the percentage of warehousing outsourced for each ofthe 6 industries examined in this study. Industrial equipment industry is thesector where the proportion for outsourcing is clearly the lowest compared tothe other industries

• Percentage of companies outsourcing warehousing in Singapore

• Percentage of companies outsourcing warehousing in Malaysia andThailand

Service Parts Logistics Market OutlookSolidiance evaluates the key trends in service parts logistics industry in S.E.Asia

The Aerospace industry is characterized by largewarehouse requirements and regulations (FAA). In thissector, the majority of companies in Singapore areoutsourcing their warehousing to 3PLs. The needs ofindustry players are highly specialized, and 3PLs need strongindustry knowledge in order to serve them.

• For example, 3PLs must be able to appropriately handlelarge and unconventionally shaped parts, and be able toappropriately store carbon fibre parts which aretemperature sensitive.

• Most of the companies in this sector to rely on 3PLsexpertise for warehousing and transportation so that theycan concentrate on repairs. However, the key concerns –challenges for outsourcing will include - confidentiality andIP related issues.

The Medical sector is characterized by high value partsand a relatively small size in the after sales business in SouthEast Asia.

•In this industry, players rely on 3PLs for warehousing andcustomized solutions to optimize their supply chains. Buildingefficient local networks is a key point, but the reactivity ofthe supply chain is another.

•In some cases, special parts available in warehouses onother continents (US, Europe) must be supplied within 24hto the medical equipment manufacturer in Asia because itsclients (e.g. hospitals) sometimes require interventionswithin 2 to 4 hours. Repairs are in-sourced by a vastmajority because of the level of technical knowledgerequired to handle the repair of specialized equipment.

Outsourcing is favoured by majority of the industries

IP related issues.

The Electronics and Telecom sectors outsource theirwarehousing to 3PLs in a larger proportion than the otherindustries.

In the Electronics industry, the existence of multiple sub-sectors results in large volumes of finished goods and sparepart movement. Outsourcing is therefore the best way toimprove efficiency of Service Logistics in this industry.

• As a result, most of the companies prefer to outsourcetheir warehousing component to optimize cost, especially inSingapore.

Telecom players in Singapore mainly prefer outsourcing theirwarehousing to 3PLs in order to be more efficient in ensuringtight control in safety & security measures for telecomequipment.

• Moreover, 3PLs are able to customize and adapt solutionsin pace with the fast changes in the telecom industry.Hence companies vie for long term partnerships/serviceagreements with 3PLs to optimize their long term contracts.

In the Semiconductor equipment industry, companiesalso believe outsourcing is advantageous because 3PLs arebetter equipped with the latest technologies and know howto handle logistics efficiently.

•Relying on local 3PLs is the most preferred option forseveral companies in this industry, a major reason being thatit allows them to handle customs issues faster and with astronger “last mile” reach than the global logistics companies.

The Industrial equipment industry differentiates itself fromthe other sectors by leaning more towards in-sourcing

•This trend is especially true in Malaysia and Thailand wherean average of 6% of companies are outsourcing this part oftheir service logistics.

•Most of those companies are manufacturing heavy industrialproducts. However, in the sub-segment of controlautomation companies are keen on using 3PLs for managingtheir warehousing.

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Service Parts Logistics Market OutlookSolidiance evaluates the key trends in service parts logistics industry in S.E.Asia

The Service Logistics business is increasingly shiftingtowards outsourcing not only transportation, but alsowarehousing. Key customer discussions confirm this trendof growth grow despite the current crisis, primarily drivenby businesses from emerging countries such as China,India and Indonesia. The current financial turmoil shouldhave a “positive” effect on after sales services, especiallyService Part Logistics since customers will tend to extendthe life cycle of their equipment rather than buying newproducts.

Key trends to watch out in 2009

The biggest growth opportunity is herein Asia for us and for many othercompanies. It's growing faster than thebusiness as a whole, and we believe itwill continue to grow substantiallyfaster than the overall business whichwe expect to grow in high single digitsannually especially growth in terms ofdemand for logistical services from thehealthcare and aviation industries –across both mainstream and service

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across both mainstream and servicelogistics.

Global CEO, Global Supply Chain & Logistics Major”

Service Parts Logistics Market OutlookSolidiance evaluates the key trends in service parts logistics industry in S.E.Asia

Solidiance is a marketing and innovation strategy consulting firm with focus on growth in Asia Pacific. We are devoted to working side-by-side with our clients tooutpace the competition, close gaps in growth and deliver breakthroughs in performance and profitability. Our Asia focus provides our clients with a betterunderstanding of intrinsic regional issues.

To subscribe to further white papers and to learn more about Solidiance please visit: www.solidiance.com

Mickael Feige is a Consultant based in the Thailand office

with more than five years of consulting experience. He has

led over 50 national and multi-regional engagements for

Fortune 500 clients across Europe, Japan and south-east

Asia. Prior to joining Solidiance, Mickael was managing

investments projects in Europe for large Japanese MNCs.

With strong experience in combining numerical and

qualitative analytics, Mickael specializes in customizing

advanced market segmentation and size forecasting models

to help clients identify and prioritize market opportunities to

develop growth strategies. Mickael has rich experience

across supply chain and logistics industry throughout Europe

Mickael Feige – Consultant

Mark is a Principal based in the Singapore office with more

than eight years of consulting experience. Mark has a strong

focus on quantitative based projects. Previous roles include

being regional manager for Synovate Business Consulting in

Singapore, handling projects for MNCs across Asia, focused

predominantly on the logistics and supply chain space across

industries. Mark managed most survey-based projects for

MNCs where he advised international companies on market

entry, customer segmentation prioritization and growth

strategies. He also has ample experience in qualitative

research, having managed various multi-country projects that

required a combination multiple approaches in order to

Mark Lee - Principal

Suite 17-01High Street Center1 North Bridge RoadSingapore 179094Tel: +65 6408 8208

Singapore

Suite 801Hong Kong Plaza283 Huaihai Road CentralShanghai 200021Tel: +86 21 5168 8905

China

Suite 32-05Interchange 21399 Sukhumvit Road Bangkok 10110Tel: +66 (0)2 660 3638

Thailand

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across supply chain and logistics industry throughout Europe

and Asia Pacific, including key industries such as medical

equipment, manufacturing and automotive. He combines

sector and cross-industry best practice, leveraging this

knowledge to help clients develop successful market

strategies. He holds a Bachelor in marketing (with Honors)

from the London Metropolitan University and a MBA from

the Institute of Political Science of Lyon.

required a combination multiple approaches in order to

customize results to meet the clients’ needs. Having worked

for five years in the M&A team of a Korean Conglomerate in

Spain, Mark also has vast experience with mergers and

acquisitions in Europe, Asia and Africa. Mark is fluent in

Korean, English and Spanish. He holds a BS in mechanical

engineering, from the Worcester Polytechnic Institute (United

States) and a MBA from the University of Rochester.

info@solidiance.com