Change and lots of it emerges from the crisis
Bonn, Germany, 4 March 2010: Radical changes to the logistics structures of carmakers and tier suppliers in Europe have been outlined over the past two days. But the fact of change was in most cases the only thing common to the new strategies they are adopting.
Some 300 delegates to this year’s Automotive Logistics Europe conference revealed an industry at something of a crossroads over the future of supply chain management. Reflecting on the harsh lessons of the economic downturn, speakers from carmakers such as Ford, General Motors, Audi and Renault Nissan, as well tier suppliers such as Bridgestone and Delphi, reported new strategies which ranged from increases in global sourcing to stronger efforts to localise.
In outbound there was on the one hand evidence of a new willingness by some OEMs to extend lead times, especially by sea, and on the other a reluctance to slow down at all – and even a shift to faster, single transport modes if that met demand or benefited an end consumer.
While GM reported a sharp escalation in its use of airfreight – and a frightening example of a recent new car program where 2% of a component delivery moved by air cost more than the majority 98% moved by sea – Toyota alone declared that, apart from lower volumes, last year’s economic crisis had brought no change in its logistics approach at all.
Opportunity’s faint but audible knock
With a European market outlook that remains at best uncertain, and near-term sales forecasts of 14 million units per annum compared to production capacity of some 22 million, the end of government support to car buying and continued depression in the commercial vehicle sector, there was nonetheless a glimmer of optimism.
Audi’s head of transport logistics, Heiko Schultz, noted that general worldwide trading volumes were rising again, and that projections for container movements – “the symbol of a globalised world” – were for substantially higher numbers by 2015. “Exports are a driving factor again,” he said. For automotive, he admitted that pressure on logistics cost would remain.
Yet the impetus among logistics providers to find new growth was evident. Phil Shankley, business development manager at Gefco, said that his company is opening new subsidiaries in Bulgaria and Kazakhstan this year. He pointed to continued growth in China and India, noting ruefully that these were two markets from which Gefco had been forced to pull back during the financial crisis. Now, however, “our restrained participation in India will find new momentum,” he said.
What kind of change?
If the change in operational strategy was the theme for most executives, the notable exception was Emile Benaim, vehicle logistics director Toyota Motors Europe. He stood by his comments in the recent interview with Finished Vehicle Logistics magazine that, while there was “fine tuning, short term fixes and quick wins, such as closing some routes, for example to Russia,” there were “no strategic changes”.
But he was the exception at the conference. In a presentation titled ‘Revolution not Evolution’, Francesca Gamboni, head of inbound logistics for Renault Nissan Europe, revealed how the crisis had been a key factor in a complete restructuring of logistics and supply chain for the alliance between the two OEMs. Merging the supply chain divisions from each OEM has created a single logistics function for the extended Europe region.
The focus is on finding common standards, purchasing efficiencies and common logistics engineering for inbound and outbound, she said. The alliance intends to get a four-fold improvement in common savings this year, with logistics partners expected to contribute half of this total, she warned.
Pushing together Renault and Nissan’s operations will not be easy, and Gamboni described their historically different approaches to logistics. Unlike Nissan, Renault has not outsourced logistics management and purchasing to 3PLs, and partly as a result (of course it has a much larger manufacturing footprint in Europe), the company currently has 93 transport providers. Nissan, meanwhile, outsources to just four, of which only one also works significantly for Renault.
“In putting together the two models, we are not saying that ‘one is right’, and ‘one is wrong,’ but it is the mix that is essential,” Gamboni said. “We will take what is best from each.”
She also revealed some of the waste that can accumulate un-noticed in the supply chain. “It took a crisis to realise that many (of our logistics) services were not needed; they were from production requirements that had ceased to exist even before the crisis,” she admitted.
Absent any shared ownership, there was little enthusiasm from OEMs about logistics collaboration finally being the sector’s next great leap forward. For outbound, Ford Europe’s head of vehicle logistics Bert Bong warned that the OEM had tried for many years with limited success to combine logistics with other OEMs. Eduardo Munoz, SCM general manager for Mitsubishi Europe, agreed: “I think somehow [collaboration] sounds good on paper, but in reality with these market fluctuations, it means that there is always a winning and a losing side.”
A local supply chain and yet no less global
A complicated picture of the inbound global supply chain continued to emerge during the conference. In recognition of both the unpredictable costs as well as the environmental damage of long distance sourcing, Delphi’s head of corporate logistics for the EMEA region, Tony Humphreys, said that the tier one’s future focus would be to “buy where we consume and produce where we sell”.
He admitted that the objective was as difficult as the phrase was simple. But he pointed to the success at Delphi in localising the supply base of its new production plants. The one in Romania, for example, where production started last July, was already sourcing 80% of its parts locally. “We’ve built up from scratch, after having almost no suppliers there three years ago”, he said.
Neverthless, there does not appear to be a general move away from global sourcing. Elliot Swiss, director of logistics for Opel/Vauxhall, revealed that in only four years the European arm of GM has gone from having just 15 of its part numbers sourced outside Europe, to more than 2,500 by the end of 2009. (Between 3-4000 are used for a complete car). Opel/Vauxhall’s imported container volume exploded from just 15 per month in the first quarter of 2008 to more than 300 by the fourth quarter of 2009, while in the same period airfreight into Europe increased from 15 to 530 tonnes per month. The principal sources of imported material were the 42% from the USA and 31% from China.
The reason for this dramatic shift was because GM had switched to global platforms for its cars, he said. But he acknowledged that in building the business case for global sourcing, the company had not taken into account the need for emergency and air freight. This did not mean a change in the global sourcing strategy, but did mean that GM now factors in an element of unforeseen risk into its calculations of “total enterprise cost”, a new approach that attempts to meld together the costs borne by all divisions at GM in the purchasing and delivery process.
Reflecting on his new world, Swiss added: “We depend on our 3PLs to have the control towers in place to move our freight. We always used to talk about 24/7 service, but now we mean it.”
To slow or not to slow, that is the question
There were conflicting messages on finished vehicle logistics, especially as they related to imports from Japan and South Korea. Axel Bantel, head of SCM at Wallenius Wilhemsen Logistics, revealed that the global car shipping industry had scrapped about 100 vessels in the past 18 months, out of a world fleet of about 650 vessels, in efforts to balance capacity to reduced demand. Another 150 ships are eligible for scrapping.
To further compensate for reduced volumes, WWL said it had slowed its ships by about 3 knots (about 15%). Unlike two years ago at the 2008 Automotive Logistics Europe conference, when a similar proposal to save high-price fuel was roundly rejected by carmakers, OEMs are now receptive. Both Ford’s Bert Bong and Toyota’s Emile Benaim said they agreed with the policy, and were even open to WWL’s suggestion that speeds could drop down to 14 knots, with time lost in the overall delivery schedule made up by having better IT systems in ports and storage centres.
“I would support WWL’s message about the speed of the vessels, as it does not hurt us as much as the dwell time in ports waiting to fill up vessels,” Bong said.
By contrast, Lutz Quietmeyer, head of capillary distribution for Renault Nissan, demonstrated once again that nothing is ever straightforward in the automotive supply chain. Renault Nissan, he said, was extremely sensitive to lead time, and would consider the loss of two days at sea as a potential two days of lost sales.
The alliance’s strict discipline on lead times has even led to a shift away from some multi-modal transport, somewhat in contrast to Ford. “In 2008, we had multi-modal solutions,” said Quietmeyer. “But in 2009 we tried to use one or the other mode to be quicker, as we had an objective to reduce the lead time to the (car-buying) customer.”
Carbon control is coming
A running theme throughout the conference was that the logistics sector had better pay serious attention to reducing its carbon emissions. In an opening address to the conference, Pawel Stelmaszczyk, head of unit at the transport & energy department of the European Commission, warned that transport was firmly in the EU’s sights in this regard.
“Over the past two decades it’s the only sector in which CO2 emissions have gone up,” he said. Even energy-intense activities like power generation had reduced carbon output. “De-carbonisation of the transport network is the theme of the new EU Commission,” he added, before declaring that the only net emitters of CO2 should be humans.
In policy terms he also rejected the simple choices between different modes of transport. “Choosing is antiquated,” he said, “we need to move towards an integrated transport system based on flows, not modes,” before pledging renewed emphasis on ‘green corridors’ of transport.
Predictions are difficult, especially about the future
The whole second day of this year’s Automotive Logistics Europe conference was dedicated to workshops on specific subjects. They included packaging, IT, service parts, Russia, CO2 , vehicle damage, high and heavy vehicle logistics (with companies like Iveco and JCB), tier suppliers and the future of finished vehicle logistics.
Some of the discussions were familiar. Delphi’s Humphreys said bluntly that he “didn’t believe” transport providers were giving tier suppliers their best price, and asked (with little response from delegates present) for proposals on a new pricing/reward model that might deliver it. Paul Mas, supply chain director in Europe for Inergy, manufacturers of fuel tanks and systems, explained the long, hard road from uncertain deliveries from his suppliers to a ‘pull’ system in which his own production requirements triggered movement through his supply chain, and took out cost at every stage.
Looking ahead, Bridgestone’s Yves Kerstens, VP of supply chain and information management, in a frank and detailed presentation explained the steps being taken to respond to the fact that, for logistics, today’s challenge is information flow, not materials flow.
And so to the future. The concluding session for the finished vehicle logistics stream on Day 2 pondered how the world might be different in 2025. As moderator Lars Eiermann of the Supply Chain Management Institute noted, that is only 15 years away. Since Eiermann leads the ECG academy (the training arm of the European association of finished vehicle logistics providers), he is in part responsible for the thinking of the generation of logisticians who will be in charge by 2015.
Up to that time, Egon Christ, head of transport logistics for Daimler, asked for less focus on the CO2 emissions of trucks and ships, and more focus on integrated and bundled services within a common logistics network. Delegates agreed that ‘the energy problem’ would remain unsolved by 2015.
More mundanely, they also heard of the likely severe challenge of getting new cars to dealers which are sited within future megacities. Instancing delivery windows of just a few hours, Mitsui OSK’s director of car ro-ro services for Europe, Rudolf Luttman, related the experience in Tokyo of dealers who must request that customers collect their cars on the outskirts of the city, rather than from the showroom.
While hearing quotes on the difficulty of predictions about the future, delegates concluded that there would be no market in China for logistics from external companies by 2015 (join us at the Automotive Logistics China conference from 18-20 April to find out), and that predictable deliveries of cars to customers, with no delays, would be standard.
Indeed, that is standard now, observed Lutz Quietmeyer of Renault Nissan. Delays are usually related to a strategy to fill ships or trucks, he said. Which brought the conference right back to the choice of strategies for today.