DHL Supply Chain
What I Learned in China
November 9, 2009
By
Richard Armstrong

Key Personnel:
Michael Trinkus, Strategy Manager – Greater China
Victor Chong, Vice President Business Development – Greater China
Hudson Hua, General Manager Area Operations Contract Logistics

Introduction

DHL Supply Chain has 4,400 employees in 60 warehouse locations with 6 million square feet in 23 cities in China, including Hong Kong. These operations generate over $400 million a year for the world’s largest contract logistician. In China and Hong Kong, DHL Supply Chain is one of the largest operators.¹

Key to any logistics operation in China is to have the right national and local governmental licenses. While you can have national authority to operate in China for warehousing and road transportation, you must have local licenses to bill and collect for services. DHL Supply Chain is a wholly owned national operation with local business licenses in 19 major cities. Specific hygiene licenses for food warehousing, co-packing and transport are held in Shanghai, Beijing and Guangzhou. Regional road transportation licenses are held for Beijing, Tianjin, Shanghai, Hefei and Suzhou. Obtaining the necessary licenses in China is doable, but requires working through tedious, bureaucratic challenges. Often you need to obtain a local business license and then a second local license for transport or special warehousing operations. Once issued, licenses are not transferable. As a result, DHL’s corporate portfolio is lined with legacy Exel and Danzas licenses. For its forwarding and express operations, it still has joint venture operations.

To sum it up, having the right licenses is mandatory for operations in China. Working with a logistics provider that understands the process and already has operating licenses can speed market entry. DHL (Exel) started in 1994 and leads wholly owned foreign enterprises in this threshold capability.

Not surprisingly, DHL’s customer base includes dozens of major global companies. Consumer, retail and healthcare customers include Tyco, Johnson & Johnson, Abbott, Hershey’s, Unilever and Mars/Masterfoods. Automotive, industrial and technology customers include Kodak, Lenovo, Nokia, Ford, Samsung and Philips. Spare parts logistics customers are Hewlett-Packard, Lexmark, Lenovo, Motorola and Fuji-Xerox.

For its automotive customers in China, DHL Supply Chain provides inbound support to manufacturing and distribution parts services. Key customers are Honda, Bosch, Changan, Ford-Changan, Volkswagen, and Peugeot.

Retail solutions reflect the specific needs of DHL Supply Chain customers. These include some contract manufacturing and temperature controlled operations in multi-client and company operations. Co-packing, tagging and labeling are standard value-added services. Certain consumer retail customers receive extended services. For example, in Beijing, DHL Supply Chain sets up Starbucks’ stores and replenishes them when they are closed during the graveyard shift.

For technology customers, DHL provides equipment checking and other technical support services. Inbound manufacturing support functions are done for Hewlett-Packard and Lenovo among others. DHL Supply Chain manages service parts logistics and reverse logistics. A similar set of solutions are differentiated for healthcare customers. As necessary, specialized engineering assistance and temperature controlled responses are provided.

DHL Supply Chain’s solution sets are carried over to its Hong Kong, Macau and Taiwan operations. Technology solutions are provided for over 20 customers in Hong Kong and Macau. The customer list expands to include Sun Microsystems, Heidelberg, Manroland, Cisco and others. In Hong Kong, DHL Supply Chain has 440 employees and 27 locations. DHL Supply Chain (Exel) has been in Hong Kong since 1970. Retail and consumer goods customers are also prevalent.

Operations in Taiwan are more limited with 150 employees in 18 locations. Facilities are usually small. The majority of customers are concentrated in the technology sector, although significant operations are conducted for retail/consumer goods and automotive aftermarket customers.

Within China, DHL Supply Chain supports its contract logistics operations with an extensive domestic transportation network.

Figure 1 – DHL Supply Chain China Domestic Road Network

The network connects the key Eastern China locations of Beijing, Wuhan, Guangzhou and Shanghai from North to South. East-West routes run between Shanghai and Wuhan and further on to Chengdu. There are regional cross-docks in four key cities plus Tianjin. There are also 10 sub-regional cross-docks. Kewill’s iTrans is the TMS (transportation management system). DHL Supply Chain is able to do merge-in-transit and optimize its network of 800 cities. As an extension of this capability, supply chain network design and facility location can be done.

In 2008, DHL Supply Chain handled 321,000 shipments totaling 75,000 tons in its China network. Some transport is done on DHL equipment but most happens on the vendor fleet. Chinese regulations are slanted in favor of single owner and small trucking operations, which makes it uneconomical for a company like DHL Supply Chain to try to run a large fleet. In cities like Beijing, DHL Supply Chain conducts pickup-delivery operations using a centralized dispatch.

Contract logistics IT capabilities revolve around Manhattan’s ILS.NET and WMOS products for its WMS (warehouse management system) and the Kewill TMS mentioned above. The Manhattan products have multi-language capability, EDI (electronic data interchange) interfacing, central hosting and are RF (radio frequency) enabled. It should be pointed out, however, that RF is used sparingly in China as opposed to the U.S. and Europe. Most often, manual, paper based receiving, putaway and tendering are standard. The consistent argument is that the return on investment of RF systems in warehouses is hard to justify. The software itself in China has all the capabilities one would see in DHL Supply Chain (Exel) locations in the West.

For example, the WMOS 5001 software provides FEFO/FICO stock management, ASNs (advance shipment notices), POs (purchase orders), serial number tracking, cycle counts, batch control, label generalization and other functions. Labor management, RFID and web visibility are available in a support module.

The Kewill TMS has contract and tariff management, KPI (key performance indicator) monitoring and planning functions. It provides bill, settlement and other functionality. In short, it’s good for design and planning but limited in some transportation execution pieces.

Case Studies

DHL Supply Chain has several warehouses in Shanghai. Two are in the Waigaoqiao (Why-Gao-Chow) Free Trade Zone northeast of downtown by the old port of the same name. Five are at Songjiang, southwest of Shanghai. One large warehouse of 596,000 square feet is located at Kangqiao (Kang-Chow). There are several other smaller, mainly high-tech related facilities in and around Shanghai.

image006At the Kangqiao facility, three of eight chambers (areas) are devoted to Dumex. Dumex, owned by Dannon, is a major supplier of milk powder products to the Chinese market. The product DHL Supply Chain handles originates in New Zealand and Australia. Dumex products were found melamine-free early in 2008 during a scare when infants got ill from competitor (Sanlu) products.

Twenty-five kilo bags of inbound Dumex product are received in container loads and reloaded on double size pallets. The inbound product is stacked four to five high in Chamber 4 near the middle of the warehouse. This basic milk powder is moved as needed from the Kangqiao warehouse to the Dumex processing plant a few kilometers away. There it is mixed, blended and otherwise turned into finished consumer products.

The finished products are returned to Kangqiao and stored in Chambers 6 and 7 from which orders are picked. Product is shipped to about 130 destinations in China. About 6,000 pallets of finished products and half as many of raw product are stored in 160,000 square feet.

 

An office is maintained on-site by Dumex and raw product quality control sampling is on-going. Products are tracked by SKU (stock keeping unit) and batched in the WMS. Returns are handled and processed by DHL Supply Chain.

During 2008, over 350,000 cubic meters of finished product was processed through Kangqiao.

Kangqiao is a very modern, clean, food grade warehouse. Its other clients are Abbott (powdered milk products) and Homebase UK (hardware, fasteners, etc). Homebase involves 750 SKUs and heavy piece picking with co-packing. There are 11 vendor supplier locations in China. The SKUs for DHL Supply Chain exceed 99% on the Dumex business.

image008The Waigaoqiao Free Trade Zone (FTZ) is in the Northeast Pudong area of Shanghai where the Changjiang River runs into the ocean. It was China’s first FTZ established in 1990. About 6,000 companies utilize the FTZ which is next to the Waigaoqiao Port. The total area is 8.5 square kilometers including a bonded logistics park of 1.03 square kilometers next to the port.

In 1997, Exel Logistics China began operations in the bonded logistics park for Pernod Ricard, the world’s second largest wine and liquor dealer. About 11,000 pallet positions are used in this business. Some temperature control is provided. Product is received after the FTZ declaration, picked, unpacked and repacked as needed, relabeled as needed and reshipped at which time the outbound FTZ taxation declaration is made.

For Hewlett-Packard, DHL Supply Chain manages parts and returns from the Shanghai High-Tech CDO. Bonded storage and cross-docking is done. Most products are received from Singapore, Thailand and South China. Same day to three day services are

provided for end customers. A control tower guarantees the agreed service levels. The bonded operation defers VAT (value added tax) and allows for duty management. Two hundred twenty cities are served from the DHL Supply Chain bonded warehouse. Twenty-six of these are served on same day basis. The central hub in Shanghai handles over 2,000 orders a month. Satellite hubs in Beijing, Guangzhou and Chengdu all handle significant amounts of orders. Average inventory turns are 26 per year. Ten thousand square meters are used for this closed book operation.

For Starbucks, DHL Supply Chain services 148 stores and two distribution centers. It provides chilled and temperature controlled service as needed. Orders are processed electronically. Frozen products are maintained in Wuhan, Xian and Chongqing plus the central warehouses in Beijing and Guangzhou. DHL Supply Chain delivers restock products at night when stores are closed. DHL Supply Chain has 34 employees in warehouse locations handling 1,300 SKUs for Starbucks. The delivery on-time rate is 99.9%.

Summary

DHL Supply Chain has one of the largest and most technically advanced contract logistics capabilities in Greater China. Its customers are primarily major global customers who seek security, inventory control and end-customer satisfaction. DHL Supply Chain delivers top notch solutions in an environment that can be very challenging.

¹For comparison, Hong Kong based Kerry Logistics has 6,700 total employees in contract logistics operations, freight forwarding and land transportation operations for China, Southeast Asia and a few Western operations. Kerry claims 51 warehouses and 12 million square feet of space for China and Southwest Asia.

 

Sources: A&A Primary Research, http://www.dhl.com/

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