Penske Logistics Continues its China Market Expansion
Shanghai, China
December 10, 2009
Evan Armstrong

Key Personnel:
Jim Erdman, Senior Vice President – Asian Operations
Joseph Gallick, Senior Vice President of Sales
Robert Bos, Vice President of Sales – Strategic Accounts
Angela Yang, General Manager – Asian Operations
Justin Barrow, Director – Business Development
Jezi Ji, Regional Manager , Sales
Don Pingley, Operation Manager – Warehouse Management
Peter Wei, Operation Manager – Warehouse Management
Steve Yang, Project Supervisor
Chris Mitchell, Logistics Solutions Manager

Penske China Overview
To position itself to meet the long-term potential of the Chinese 3PL market, Penske Logistics established its Asian headquarters in Shanghai, China in 2005. Initially it began operations as a consulting licensed Wholly Owned Foreign Entity (WOFE). Then, in 2006, it made an acquisition of a local logistics provider and became a licensed international trading company, Class A licensed freight forwarder, and customs broker. Today, Penske Logistics has a staff of 102 in China supporting 12 major contract customers. It manages operations in 15 major cities throughout China with a mix of Penske run and agent operations. Penske run operations are in six major cities: Beijing, Shanghai, Shenyang, Guangzhou, Suzhou, and Jinan. It has a total warehousing footprint of 237,000 square feet and is managing approximately 2,500 annual TEUs (trailer equivalent units–20’ containers) as an ocean freight forwarder. For 2008, Penske had China revenue of $10 million. Its operations are detailed on the map below.

Penske Logistics China Operations

Penske Logistics current customer operations in China include:

  • Value-added warehousing, distribution, and import/export support for Allison Transmission.
  • Warehousing and manufacturing support for the J.V. (joint venture) of BMW – Brilliance Automotive.
  • Value-added warehousing, distribution, and import support for Carpenter Technology.
  • Warehousing and distribution management for Continental Tire.
  • Warehousing, private and premium labeling, and distribution for Master Lock.
  • Warehousing and transportation management for automotive supplier Nissens.

On a recent visit to Shanghai we had the opportunity to review some of these operations and they are detailed below.

Wai Gao Qiao Multi-Client Bonded Warehouse and Allison Transmission Aftermarket Parts Operation
A short drive from downtown Shanghai is the Wai Gao Qiao (WGQ) free trade zone (FTZ) and Shanghai ocean shipping port. In December 2008, Penske Logistics opened a new 62,000 square foot bonded warehouse to house a service parts value-added warehousing and distribution operation for recently signed customer Allison Transmission and a handful of smaller accounts.

The WGQ bonded warehouse manages imports and exports, domestic transportation, customs brokerage, and value-added warehousing activities including: kitting, labeling, product quality inspections, and pick/pack. Most products handled at the warehouse are imported goods being distributed within China. Penske Logistics has permission to use the Chinese government’s CIQ customs information system to track inbound product through customs clearance. Its staff notifies customers of product movement and final clearance. In addition, they prepare the necessary documentation for domestic distribution.

To support its warehouse operations, Penske Logistics utilizes the popular Chinese warehouse management system (WMS) “Flux WMS”. Flux provides good warehouse management and inventory management functionality. It is also interfaced with wireless radio frequency devices for picking, putaway, and other warehouse tasks.

The aftermarket service parts distribution operation Penske Logistics runs for Allison Transmission is the largest at the WGQ warehouse and takes up approximately one-third of the entire warehouse.

The Allison operation began operations in December 2008. Penske is managing approximately a thousand SKUs (stock keeping units) of parts as part of the value-added warehousing and distribution operation.

Ocean containers and airfreight shipments of parts are received into the warehouse for Allison. Penske works with China customs to support clearance of all inbound parts. Once parts clear customs, they are received at the warehouse. All received parts are checked against ASNs (advance ship notices) that are received electronically into the Flux WMS. After physical receipt, the service parts are putaway into dedicated rack, bin, and shelf storage warehouse locations.

Penske receives hundreds of outbound parts orders directly from Allison’s customers each month. Once the order is entered into Penske’s WMS, the information is sent to Allison’s SAP system via EDI. An order acknowledgement form is then returned to Penske thus allowing further processing of that order. Each outbound parts order can range from one piece to over a few hundred pieces. The orders are processed for all repair facilities in over 10 Asian countries including domestic China. Approximately 30% of the order volume is for domestic China repair operations and the rest require export processing.

Penske picks the order quantities, labels specific parts, packs out the orders and builds kits of parts as requested. As an additional value-added service, it also applies antirust coatings to parts for Allison. Instead of having each picker also pack out the order, Penske has a different warehouse worker label parts and pack out the order to ensure order accuracy. Each outbound order is also weighed for freight optimization. In addition, Penske performs a credit check and obtains a credit release from Allison before shipping any order.

Once orders are available for shipping, Penske will work with the customer, China Customs, and the appropriate transportation vendor to determine the best shipping method. Depending on the required delivery date, Penske will either ship the order that day, or consolidate it with additional orders to reduce Allison’s overall transportation costs. The outbound shipments are routed via international airfreight and require Penske to prepare customs and export documentation and coordinate transportation with Allison’s approved freight forwarders.

Penske is currently exceeding all of its KPI (key performance indictor) goal requirements for the Allison Transmission operation. The KPIs include: receiving putaway time, order fulfillment processing, order line delivery accuracy, shipped goods condition, and goods labeling accuracy.

Penske WGQ Bonded Warehouse

Allison Transmission Parts

Kitting an Allison Parts Order

Allison Kitting and Packaging Area

Minhang District, Multi-Client Distribution Center Operations
In 2008, to support its customers expanding domestic China distribution and international export needs, Penske Logistics added an additional 50,600 square feet of multi-client non-bonded distribution center (DC) operations to its China network. Located in the Minhang district of southwest Shanghai, the operation is segmented into three storage bays in one warehouse and one bay in another close by warehouse.

Penske began handling value-added warehousing and distribution operations for Nissens, a producer of automotive radiators and climate control equipment, in April 2009.

Penske Logistics Dandou DC

Nissens Product Labels

Master Lock Items

High-Tech Package Assembly Area

Several shipments of product are received monthly from Nissens multiple Chinese contract manufacturers. After receiving the product into the warehouse, an on-site Nissens employee performs random quality control inspections on the product. All items are then labeled with a Nissens barcode and specific serial number information. Several outbound containers of product are then shipped from the DC each week. The operation is anticipated to process several hundred thousand units annually.

The Nissens operation was established as a DC bypass strategy. Previously, all product from the Chinese contract manufacturers was shipped to a central DC in Denmark for quality control inspections and European distribution. Now manufactured product is shipped to the Minhang warehouse for quality inspections and then exported directly to individual country DCs and the U.S. This strategy provides for quality inspections closer to the manufacturers, reduces inventory levels through direct shipping, reduces transportation costs, and minimizes damages through less handling.

The second distribution operation we toured was for industrial products distributor First Bridge. The operation start up began in September 2008, the warehouse set up is evolving with First Bridge’s distributed products mix change.

Several hundred SKUs of product such as machine belts, engine seals, grease, bearings, induction heaters, and hydraulic pullers are maintained in inventory. Penske performs a 100% quality control inspection on all inbound product. Outbound orders are picked, packed, and shipped to First Bridges’s industrial manufacturing products dealers.

Next we reviewed the Master Lock domestic China distribution operation. Product received into the DC is sourced by Master Lock from various worldwide manufacturing locations including OEM suppliers from China. For imports, Penske is managing customs clearance. In addition, it performs SKU, aesthetic and packaging quality inspections on all inbound product.

Over several hundreds of SKUs of product and a sizeable quantity of individual pieces are maintained in finished goods inventory. Penske receives multiple orders per day from Master Lock. Each order contains various SKUs of product and multiple individual items. All items are individually picked and packed for delivery to stores, supermarkets, and distributors. Penske is also performing product labeling and some kitting work as part of the operation.

The final warehouse we toured contained the new high-tech package assembly and distribution operation.

This just-in-time (JIT) operation assembles specialized cartons with foam inner packs and reinforced bottoms that are forklift friendly. Those cartons are sequenced daily to a contract manufacturer’s local manufacturing line where they are used to pack out computer network equipment. All of the cartons are loaded onto a Penske shuttle truck and are required to be delivered by 12:30 P.M.

As part of its service, Penske is also sourcing some of the components locally they use in their assembly operation.

Penske Logistics is leveraging its multinational customer base and expanding local expertise to grow its operations in China. It has successfully positioned the company as both a “China Gateway” for U.S. and European customers moving material and product in and out of China and as an established domestic China 3PL managing domestic transportation, providing warehousing and distribution services, and supporting plants with its tier-one inbound logistics services. As the domestic Chinese value-added warehousing market develops, we anticipate that Penske Logistics will have a solid network in place to address the needs of both multinational customers and domestic Chinese companies.


Sources: A&A Primary Research,

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