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FAW Changchun Parts Center INTERVIEW DATE:March 14, 2000INTERVIEWER NAME:Bill HeInterviewee NameMr. Yang Junsheng, ManagerCompany and AddressChangchun, JilinBackgroundn The parts sales revenue has been decreasing over the past several years. The main reason was two folds:- Many substitutions selling at very inexpensive prices- FAWs price is not optimal. For the same parts, FAWs price from its contractor is higher than the price the contractor sell it to the market directly.n The current business is mainly because of the FAW paid service to the service stations. If FAW decides to pay cash in stead of parts, we will not be able to compete with a “mum and pap” shop.n Currently, we have inventory worth RMB 7 million. However, about RMB 2.7 million of the 7 million are obsolete and useless parts. Therefore, only RMB 4.3 million of inventory is valid inventory.n Several companies in the Auto Trading City in Changchun are big enough to manufacture, sell, and distribute the FAW substitutions on very large scale. Their price is usually only half of our price.n We dont have any say re the price of parts. We are told by the Dept. of Planning and Accounting of FAW the price of the parts.n We have 10 employees in this parts center, 5 management and 5 clerks. This center is a warehouse only. It does not have the sales function.n FAW Trading Companys parts sales is losing money. The mark up is decided by the Dept. of Planning and Accounting of FAW. However, we have to pay the warehousing cost, packaging cost, labor cost and transportation cost ourselves.n The mindset of part sales is to serve the sales of trucks. No one care about its profitability. Our revenue in 1999 was RMB 16 million. Y-T-D in 2000 is RMB 2.4 million. We also change the price very frequently. Moreover, we still lower the prices for those parts we can sell without any problems on the market. But we dont lower the prices for those parts we cannot sell in the market. Many parts in the second category is definitely sellable if we can lower the price a little bit.n A management decision is needed re the direction of our parts sales. If we want to treat it as a revenue stream, we have to improve the current situation significantly. If we dont want to treat it as our core business, we may consider to outsource it completely.2
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