By Robeel Haq
As demand for automotive parts continues to flourish throughout the Middle East, Audi Volkswagen has driven ahead of competition by opening an ambitious warehousing facility in Dubai’s Jebel Ali Free Zone.
The automotive market in the Middle East is currently outperforming most other parts of the world. Indeed, the region has been flagged as a potential goldmine for international car manufacturers, hoping to capitalise on the increasing affluence of the Middle East community.
Of course, with a constant rise in the number of cars hitting the road, demand for spare parts is also booming throughout the GCC. As a result, establishing a regional warehousing facility has become inevitable for manufacturers hoping to provide customers with speedy and reliable delivery options.
Audi and Volkswagen are prime examples. The regional sales company, Audi Volkswagen Middle East, which recently opened a distribution centre for spare parts in Dubai's Jebel Ali Free Zone, handles a diverse catalogue of spare parts, including engine components, gearboxes, brakes, electronics and other miscellaneous products. The size of the collection is constantly growing - the company estimates its range will encompass 450,000 different products by 2010, which marks an increase of approximately 180% since 1995.
"The Dubai warehouse is stocking the fastest moving range of these spare parts. At the moment, approximately 30,000 items are being stored, although this figure will be raised to 65,000 in the long term," says Jeff Mannering, group after sales director, Audi Volkswagen Middle East. "In the past, importers in the Middle East ordered directly through the German headquarters, so we researched the history of purchases over the past two years and decided which items should be included in the initial stock."
The spare parts are transported to the Middle East from Volkswagen's global distribution centre, located in the German city of Kassel, between Hannover and Frankfurt. The massive facility - measuring 340,000m2 - equates to the size of 52 football pitches. "With our range of products, a storage space of such magnitude is an important requisite for high supply quality," says Mannering. "Previously, the spare parts were transported by airfreight between Germany and the Middle East, mainly because the volumes were relatively small. However, since the market is experiencing such rapid growth and we have established a depot in Dubai, we will transfer a lot of the shipments to sea freight. This will minimise the overall costs, although airfreight will be continued for certain products, especially items needed in a short period of time."
The facility in Dubai measures 10,000m2. Special storage conditions are required for a selected number of spare parts, included some of the plastic components and glue-based products. "The depot includes an air conditioning system, although the temperature critical stock only requires conditions to reach 27 degrees, so the temperature does not require a huge amount of reduction," says Mannering.
The depot is equipped with a state-of-the-art racking system, purchased through the Indian company Godrej, which includes a special section at floor level for the picking of bulky products. The warehouse operations are handled using a combination of forklifts, reach trucks and front stackers from BT and Toyota.
"In terms of volumes, we expect the depot to handle US$25 million worth of spare parts during 2007. This figure will probably increase significantly in the future, especially with the current levels of market growth. I really think the potential in the Middle East is huge," says Mannering.
Customers are able to place orders for products stocked in the warehouse through Volkswagen's inhouse IT system. In contrast to the usual practice in Germany, dealers in the Middle East receive their supplies through the regional sales company. A total of eight countries now source their parts directly from Dubai, allowing them to forward quickly to the entire network of Audi and Volkswagen dealers throughout the region.
"Dealers can either place stock replenishment or emergency orders. Mainly the items are sent by road, although we use airfreight for emergency orders, since everything must be sent as quickly as possible, normally within 24 hours," says Mannering.
The depot currently covers the entire GGC region, including the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Kuwait and Oman, in addition to Yemen. There is potential for this coverage to be expanded in the future, with the possible inclusion of India and Pakistan, which are currently being supplied from Volkswagen's depot in Singapore.
"There is a very limited number of markets with high potential around the world for the automotive industry. One is the Middle East and the other is India," says Mannering. "I would say the Middle East is a very demanding market, with high specifications. Customers here demand a certain level of service and we needed a depot to better serve the market in this region."
Instead of managing the warehouse operations inhouse, Audi Volkswagen Middle East has decided to outsource the supply chain management to a third party logistics provider. The process of selecting a logistics partner was kick-started last year and a final contract was awarded in April 2006. "After issuing the tender for this contract, we received bids from approximately eight logistics companies, including international and regional brands. It was a vigorous process looking at each application, but we eventually selected a joint venture between the Rudolph Logistik Group and Hellmann Worldwide Logistics," says Mannering.
The joint venture, Rudolph and Hellmann Automotive, will manage the entire logistics operations in close partnership with Audi Volkswagen Middle East. "We decided to outsource because Volkswagen and Audi are probably not the experts in warehousing and freight outside of Germany," says Mannering. "Its therefore a policy of the company to outsource the logistics to companies that understand the unique logistical requirements for the automotive industry in such markets. This allows us to concentrate on our core business. Rudolph and Hellmann Automotive has developed years of expertise with similar projects around the world. We also share a similar outlook to them in terms of managing the supply chain of the depot, which made them the logical choice."
The potential for extending the depot is certainly evident. The facility is located on a plot of land measuring approximately 23,000m2, although the depot itself measures 10,000m2.
Space is therefore available for future expansion, especially if the other Volkswagen brands, such as Seat, Lamborghini, Bentley, Bugatti and Skoda, jump on the bandwagon.
"There is plenty of room for expansion, but this is dependent on future demand and whether the other Volkswagen Group brands decide to use the facility. However, there are currently no plans for another depot," summarises Mannering.