SpoNSoREd Feature
Don’t Get Caught on your Heels:
Why spare parts matter
hina is slowly throwing off its pany alone spends up to US$500 million in Unique characteristics of spare parts
C
role as “factory of the world” Maintenance, Repair and Overhaul (MRO) management
and becoming an important capabilities and one heavy equipment manu- Generally, spare parts are divided into the
market in its own right. The facturer invests up to $70 million in spares. category of “repairables” or “non-repair-
new demand for after-sales The value of spare parts inventories for ables.” In China, the smooth repair services
service can open up major opportunities to these businesses is large and often a signifi- are not only related to the normal inventory
differentiate products, create competitive cant determinant of overall capital utilization management and supply chain efficiency, but
advantages and increase margins. However, and cash flow. If not managed rigorously also are limited to China unique customs and
with more and more products being sold in both the financial and service performance trade compliance boundaries. There are two
China, businesses have to deal with new ser- of these spare parts inventories can suffer. types of repairable parts in China
vice management difficulties. As China poses Management personal from all industries Repairable parts are divided into two cat-
particular challenges in terms of managing also face questions of availability, obsoles- egories, self-made and non self-made. En-
service parts or spares, it is crucial to keep a cence, and limited network visibility. Local terprises located within special customs su-
business running through effective plans en- and international control barriers and the pervised bonded zones or engage customs
suring rapid repairs and maintenance. risks of violating governmental policy con- handbook processing trade operations are
Whether it is a customers’ business or trols are also major concerns. As several en- permitted, subject to approval, to conduct
your own, spare parts have to be stocked at terprises are now seeking to establish China the repair of self-made finished goods and
appropriate locations in the supply chain to as a “repair centre of the world.” Enterprises goods of Chinese origin. Limitations in re-
guarantee a high service level. As most of are growing beyond simple “temporary im- spect of product coverage have applied to
these parts are expensive, this requires large portation for repair” of self-made goods products like mechanical and electrical goods
amounts of investment capital. For instance, and now wish to drive repair operations that that were previously exported from China.
one of our clients, a large wireless services are “large scale and routine” as fully-fledged In most instances however, repair of goods
provider had US$600 million in parts inven- MRO centers. of non-Chinese origin or capital equipment
tory for its China business. Other industries parts are still prohibited.
also have large inventories: One airline com- The regulatory basis for the bonded repair
of non self-made and non-Chinese goods is
less developed. One approach may be to es-
tablish global repair operations for non self-
made goods in selected bonded zones and
under the auspices of a pilot program.
Non-repairables parts are removed and
replaced by a new item if they become de-
fective. China customs generally allows en-
terprises to dispose non-repairable parts for
bonded manufacturing operations. For parts
replacement, a “consignment warehouse”
model could be taken into consideration to
enjoy the free exchange of the parts with
duty/Value Added Tax (VAT) exempt to
maximize the supply chain efficiency and
cost saving. The return of non-repairable
parts generally face more supply chain costs,
customs and trade compliance issues: For in-
stance, it is sometimes compulsory for a US
company’s subsidiary in China to return the
52 JANUARY/FEBRUARY 2010 www.chainaonline.com
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