The ultimate guide for importers of auto parts

By Fredrik Grönkvist

Learn insider tips on getting the best deals for auto, ATV & motorcycle spare parts in China

Looking for Auto, motorcycle or ATV spare parts?

Chinese suppliers might have exactly what you’re looking for. While this is a product that can be purchased both from manufacturers and “off shelf” from Trading Companies, the industry is infested with unscrupulous and disorganized suppliers. In this article we look into the do’s and dont’s when buying vehicle spare parts from China.

Buying from a manufacturer

Buying directly from the manufacturer comes with some obvious benefits. The product selection is wider (I explain why in a minute) and the prices are lower due to the lack of middlemen. However, it’s not viable for most small businesses importing vehicle spare parts from China. The reason is spelled “MOQ”, or “Minimum Order Quantity” Requirement.

A supplier must produce a certain minimum quantity of a product in order to make the production run viable. This “minimum quantity” tends to be 300 – 500 pieces for each part. Assuming that you wish to offer a wide range of different parts, the required investment can skyrocket to several millions of dollars if you would buy every single spare part directly from a manufacturer. However, there are other ways to do this.

Advantages when buying spare parts directly from a Manufacturer

• Lower prices
• Product certification compliance (when required)
• Full product availability
• Disadvantages when buying spare parts directly from a Manufacturer
• High MOQ requirements (300 – 500 pcs per part)

Buying from a Trading Company

While it’s in general not possible to find “off shelf” products in China, vehicle spare parts can be purchased “off shelf” from Trading Companies. A Trading Company offers smaller volumes compared to manufacturers. Sometimes the MOQ requirement is as low as 5 to 10 pcs per spare part model. However, these Trading Companies are not working for free. The prices are often two to three times as high compared to if you would’ve purchased the spare parts directly from the manufacturer.

But that’s not where your trouble ends. I’ve had my fair share of dealing with auto, motorcycle and ATV spare part traders in China and it’s been far from pleasant in most cases. The main problem is that they are in general very disorganized. While the Trading Companies may have product catalogues, far from all are in stock at any given time. Basically, you get to buy the parts that are available. This can cause major disruptions in your supply chain and it can take months before you’re able to restock on certain spare parts.

While it would be fair to assume that a Trading Company should be able to deliver spare parts faster than a manufacturer (well, the parts have to be manufactured before they are delivered, right?) – it’s often the opposite Trading Companies often purchase spare parts from other traders. In most cases it takes at least a month before the Trading Company has gathered all the ordered parts.

Advantages with buying spare parts from a Trading Company

Click on this link to read the full article 

Fredrik works for Frontier's content partner, ChinaImportal - an e-commerce platform that assists businesses looking to import products from China.

Top tips for distributors in frontier markets

Planning on moving goods in Africa? An expert points you to the best path to success. 

Setting up a distribution system in emerging and frontier markets can be a challenging undertaking. Below are a number of issues to consider:

Fragmented markets 
What is the balance between modern and traditional trade? Modern trade (e.g. Shoprite supermarkets) in most African countries, with the exception of South Africa and Kenya, is still in the very early stages of development. The contribution is in the low single digits. Reaching large numbers of traditional outlets (e.g. Mom & Pop, Dukas) is a difficult and costly business.

Product flow and reasons for purchase
How do products flow in the market? Often small groceries purchase product directly from the wholesale channel. The wholesaler is often in close proximity to these outlets (2-5km radius). They provide a basket of goods, and in some cases credit, if they have a good relationship with the small grocery.

Market and key business areas 
Define the key market and business areas. Identify feeder markets and hubs for product distribution.

Regional differences 
Define the regional, urban and rural differences in distribution. 

Channel strategy
How do channels function and operate? Define the key channels, characteristics and key buying decisions.  Are traditional and non-traditional channels well defined?

Outlet base 
In most emerging markets, determining the outlet base can be a challenging undertaking. Companies need to understand both the existing and potential outlet base, including the outlet density. A well defined every dealer survey (EDS) is a key component of any successful distribution strategy.

Territory 
When working with distribution partners, does the distributor have the ability to service the territory? Are routes and maps in place?

Services
Assess the service and delivery for each channel and the service partners. Review the key issues with service and delivery and map out the distribution models employed.

Customer service frequency
What is the frequency of product replenishment and reasons for the frequency? Outlets in emerging markets often have limited cash flow and, in some cases, limited space to stock product. Review the required service frequency and the need for micro supply depots or wholesalers.

3rd Party Logistics 
Where do the 3PLs operate in the country?  3PLs often cover the major roads well. However, in emerging markets they normally have a limited footprint in rural areas.

Selection criteria 
What are the key components of a successful distribution partnership? Many distributors fail because critical components of the selection criteria are overlooked. The selection criteria will likely include important components such as capital, infrastructure, warehousing, transportation and required organisational structure.

Role definition
When working with distributors, are the roles for the company and distributor well defined? It is important to review the organisational structure and how the company will support the distributor. Ensure that each profile (e.g. salesperson) has a clear understanding of his or her role.

Account development
How should account development be managed? This a critical component of any distributor operation. Not all accounts are equal. In most cases, companies need to prioritize and focus their attention on high value or strategic customers. Companies also need to determine how they will split the account development activities between the company and the distributor.

Value chain
Do we understand the value and margin of partner in the system?

Cost to serve 
What is the true cost to serve? The true cost to serve is sometimes underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company. In many cases in emerging markets, financial cost centers provide limited data and financial modeling is essential to determine the true cost to serve. Many distributors fail because the remuneration is set too low and not adjusted for inflation on a periodic basis.

Low cost distribution
What local distribution solutions exist in the market that can be leveraged? Often small groceries are situated in congested areas, with narrow gravel roads where trucks can’t enter. In these markets you might find pushcarts, trolleys or motorbikes (e.g. Tanzania). Tapping into their distribution structure can lower cost and increase product availability.

Key performance indicators
What are the key performance drivers? By focusing on the key performance drivers of your business, avoid overextending yourself. Sometimes less is more. Include key performance measurements in your business planning process and evaluate on a yearly basis whether you are using these measurements to track and improve your business. There is no point in tracking something just for the sake of tracking.

Processes
Are processes and systems well defined and standardised? Always aim to eliminate non-value adding activities where possible. Standard Operating Procedures (SOPs) simplify your business procedures and help to ensure the same quality in all operations.

Skills
What skills need to be recruited or developed? Emerging market operations often lack critical skills.  It is dangerous to make assumptions about what people can and can not do. For any principal working with a distributor, conduct a skills gap analysis to determine the training recruitment needs.

Complexity
Can the distributor handle the level of complexity in the business? In many cases distributors that distribute all SKUs (Stock Keeping Units) to all channels fail. Always aim to reduce the complexity in the business.

Collaboration
How will the distribution partners share information with the company? Too often critical information is only available at distributor level and not shared with the company. Also consider the role that technology can play in information sharing.

Appropriate technology 
What technology is necessary? Evaluate mid tech solutions and identify the “appropriate technology” for your operation. Don’t overdo it.

Patience
How much time do you have? Ensure you have management buy-in. A Route-to-Market roll-out requires patience and a continuous improvement mindset. Small incremental changes can sometimes go a long way.

Regulatory environment
Review the regulatory environment including cross county or district tariffs where applicable. In some countries distributors and transporters are subject to multiple charges for crossing county borders. Assess transport bands (e.g. times truck can enter central business district) and traffic restrictions.

Culture
What are the culture issues? Take time to understand culture issues and don’t assume anything. Change your thinking when working in other markets.

Take note of the evolution
Are you taking the necessary steps to adapt to change? Too often supply chains in emerging markets evolve without any strategic plan. Modern trade and retailing are expanding and middle class consumers shopping patterns are changing. Consider how these changes in the market will affect your distribution.

This article is supplied by Frontier's content partner, The Supply Chain Lab. 

The Supply Chain Lab is is a group of supply chain improvement specialists with a focus on factory to village supply chain solutions in frontier and emerging markets. The company focuses on strategy, assessments and implementation.

Contact Tielman Niewoudt to learn more about the company's focus areas.

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Free download:  How to source goods in Africa

How to manage micro distribution in emerging and frontier markets

There is increased interest in micro distributors and the potential they hold within an inclusive business model.

By Tielman Nieuwoudt

Well documented micro distribution models include the Coca-Cola MDC (Micro-distribution centre) in Africa and Unilever’s Shakti model in India. Micro distributors can be found in emerging and frontier markets where markets are fragmented and modern trade (e.g. Walmart, Tesco) is still in the very early stages of development. Below are a number of issues to consider when activating a micro distribution model.

Advantages of micro-distribution

Entrepreneurial spirit - A micro distribution system allows companies to tap into the entrepreneurial spirit that is so evident in many emerging markets. However, entrepreneurs must have a long term view to ensure the same consistent quality service is provided to customers.

Flexibility - Micro distributors tend to be more flexible in responding to customer needs. For example, they trade longer hours and can also provide weekend and night deliveries. They can act as a credit provider to low income customers. They “live and breathe the streets” of the communities they work in and are in a much better position to control accounts receivables.

Issues to consider prior to implementation 

Channel focus - A micro distribution model is not a one size fits all solution for all channels. Micro distributors generally focus on selected channels in traditional trade e.g. mom & pop shops, Dukas (East Africa) and Spazas (South Africa).

Complexity - Due to the complexity of sale and distribution, micro distributors will likely struggle to service modern trade effectively. It is best to reduce the complexity (e.g. reduced stock keeping units) for the micro distributor, including expected tasks and activities. It is important to understand what the micro distributor can successfully take care of in the supply chain.

Role definition - Companies needs to determine which aspects of the business they would like to control. For example, the Coca-Cola model separates order generation from delivery. This allows the company sales person to focus on more value adding activities (e.g. meeting customers, getting orders) and the micro distributor to focus on warehousing (neighbourhood warehousing) and distribution.

Supply chain impact - When implementing a micro distributors system, companies must assess what impact the distribution model will have on the rest of the supply chain. For example, compared to larger distributors, micro distributors will require smaller drops sizes that will impact the warehouse and transportation infrastructure and processes.

Shared infrastructure - Profit margin are normally thin and it is important to determine if there are any opportunities to share infrastructure (e.g. warehouse, transport) with other non competitive manufacturers and distributors. This can significantly reduce cost and make the distribution model viable.

Regulatory issues - Companies also need to assess the impact that regulatory issues will have on the micro distribution system. This could include business licenses, zoning and transport bands (e.g. restrictions on delivery trucks during peak hours).

Standardization - During the design phase, companies need to standardized processes and systems as it will reduce set-up and training costs. For micro distributors, distributor turnover (the number that close down) is high and it is important to evaluate how set-up and training costs could be reduced.

Support - Micro distributors also have limited resources (e.g. capital, employees) and normally require a bundled approach (e.g. training, finance, process design) to ensure their operations are sustainable and viable.

Register on Frontier to view a comprehensive database of distribution opportunities in Africa

Checklist for distributors in Nigeria

Top eight things to consider when exporting consumer goods to Nigeria.

The word boring does not come to mind when you think of Nigeria. Nigeria is one of the fastest growing markets. Beyond the perceived risk and all of the hype, the fact remains that it represents Africa’s largest market, with a population of over 170 million.

Companies in operating in a wide range of industries have been successful in Nigeria. MTN, La Farge, Coca-Cola, PZ Cussons and Diageo come to mind.

Whether you are searching for market entry or looking to expand your business in the country, there are a number issues to consider when formulating your of Route-to-Market strategy:

Fragmented outlet base 

One of they key barriers for most consumer goods companies remains distribution. In Nigeria, the outlet base is fragmented and modern trade is still in the early stages of development. Reaching large numbers of traditional outlets is a difficult and costly business.

From “table tops” to “go slow”

It is also important to understand informal trade channels; “table tops” and “go-slow” channels are two examples.  “Table tops” are tables, set-up as temporary sales points to sell a limited number of stock keeping units. Mobile phone operator MTN successfully targeted table tops as a channel to expand their distribution footprint. The “go-slow” channel or hawking channel sells various types of merchandise that are easy to carry. It has been successfully targeted by mobile phone operators and snack companies, for example, biscuits manufacturers.

Shopping malls

There are two Class A malls in Lagos, providing a high quality shopping experience. These malls are high traffic areas and meeting points. Malls are often visited by “window shoppers” and often used by companies for brand building opportunities. Beyond the mall, shopping complexes offer a more organized shopping experience than traditional trade channels. Shopping complexes are found in fast growing areas, e.g. Lekki, and are organized along a strip, similar to strip malls found in the United States.

Modern trade 

While investment in shopping malls has begun, few supermarkets have entered Nigeria, constrained by capital and land use rules. Notable players include Shoprite (South African), Spar (Netherlands, with Nigerian partner) and Game (South African, US' Walmart acquired a majority stake in the parent company Massmart). Supermarkets are increasingly purchasing directly from product principals and importers. Beyond the international supermarket chains, local chains are growing fast and they vary in the degree of their modernity and category mix.

Open air markets 

In many cases products flow from agents who sell directly to wholesalers or directly in open markets. In Nigeria, open air markets remain primary purchase channel for a number of product categories. An estimated 70% of all wholesalers and retailers are located in the traditional markets. Wholesalers sell to retailers in large quantities and at discounted prices. Small groceries often require an intermediary, such as wholesaler, to break bulk. For example, on a market visit to Kaduna, Nigeria, we identified the ability to break bulk as one of the key value drivers for smaller distributors or wholesalers. Nearly all importers have outlets or representative wholesalers in open markets.

Feeder markets 

Some markets also act as feeder markets. The coverage of the feeder town depends on product category, price and availability. It is estimated that 60% of consumer goods products flow through markets in Lagos, Kano, Maiduguri and Onitsha. In Accra, Ghana, I met retailers selling satellite dishes purchased from markets in Lagos, which they profited on even after factoring in the bus fare to collect the dishes. However, the retail landscape is changing quickly and open markets are in decline for certain product categories.

Distribution models 

The majority of international brand owners operating in Nigeria utilize third-party distribution networks (e.g. FMCL, Great Brands). A number of companies have developed direct distribution models or are actively managing their 3rd party distribution partners, e.g. Coca-Cola. Some companies, such as Coca-Cola, have also developed micro-distribution models (mini depots, push carts) to better service traditional trade channels (view picture of Coca-Cola distribution).

Finding the right partners 

Finding the right partner can be a challenging undertaking. Few distributors handle the “last mile” of logistics and most distributor footprints are limited to wholesale and key account outlets. A number of companies have opted for multiple distribution networks focused on geographic areas and types of customers, as there are few distributors with a national footprint.

Nigeria is a fast changing environment, modern trade and retailing are expanding and middle class consumers shopping patterns are changing. What works today will likely not work tomorrow. Take time to understand culture issues and don’t assume anything.

This article is re-published with permission from Frontier's content partner, The Supply Chain Lab.