2013 report

Growth and other good problems to have in North American supply chains

The 14th annual Automotive Logistics Global Conference heard issues surrounding growing production, rising sales and high levels of capacity utilisation. But manufacturers and providers have to be ready to meet continuing changes and disruptions in the supply chain. Christopher LudwigMarcus Williams and Zoë Apostolides report from Detroit 


Speakers at this year’s Automotive Logistics Global conference, held in downtown Detroit at the MGM Grand, had expansion in the supply chain on their minds, whether it be for growing local supply, more global shipping exchanges or rising demand for IT and logistics engineering services. While the macro-economic picture still has uncertainties, and automotive faces regulatory and technological disruptions, many of the current issues facing the wider North American sector are related to growth and expansion.
The theme of the conference this year was ‘Made in America’, with a focus on the role that logistics is playing in North American production and sourcing decisions. And while logistics may not be at the heart of every supply chain change, analysts and industry players confirmed that there are significant shifts occurring in the supply chain, including the movement of assembly from Asia to the US and especially to Mexico.
“We see more production from Japan and Korea moving to Mexico and also to the southern US states,” said

Michael Robinet, managing director of IHS Automotive Consulting. “We will soon see more European models coming over to North America out of the euro zone or South Africa to be closer to the final market.”

The shift toward North America is not only in assembly, but also, for some commodities at least, in sourcing components and material in North America relative to China and other low cost countries. Peter H. Appel, director of transportation and logistics at Alixpartners, a consultancy, said that Mexico and the US are approaching total cost parity with China after factoring in currency, manufacturing, labour and logistics costs.

“Wage inflation in china is growing faster than anywhere in the world,” he said. “When you take all the factors together, the China cost could reach parity with the US cost within a couple of years. Certainly Mexico and India are ahead of the game, but it is no longer a situation where you look at Chinese wage rates and it’s an automatic decision to go to China.” 

No one size fits all supply chain 

However, sourcing in the supply chain resists definition, as a greater number of global platforms and more ‘co-location’ of model production across multiple markets have led to increases in the exchange of material between continents as well as across North America.
“There is no one size fits all supply chain,” said Dana McBrien, associate chief advisor for Honda of America. “In some cases we have seen parts manufacturing actually moving further away from our facilities. But we’ve also seen the US move into ‘low cost country’ position, and we’ve nearly doubled our export of vehicles and parts from here in the last 15 months. You have to find the right mix.”
Jim Barnett, vice-president of automotive business development for the Americas at Ceva Logistis, also pointed out that the changes in China were a reflection of its growth and development as a market. He predicted that the increase in wages and in consumption would drive even more logistics flows to and from the country. “When wages increase exponentially, trade flows grow exponentially,” he stated.
Grant Belanger, who recently returned to the US as executive director of global material planning and logistics at Ford, said that rising global production and increasing shifts towards global platforms and emerging markets would continue to disrupt the North American supply chain.

“We’re going to build cars, trucks and SUVs around the world and the growth in some regions is going to change the balance of your logistics channels,” he told the audience. “The customer is going to pick the winner and losers and part of being picked is having the right product at the right time.”
Production growth and launch bottlenecks
The US market continues to recover volume, with sales this year expected to top 15m light vehicles and to climb back above 16m by 2015 and rise gradually for the rest of the decade. The US still faces economic risks – the conference preceded what has become at partian government shutdown over borrowing limits that could lead to a default, unemployment remains high and there could be fallout from potential shifts in macro-economic policy. However, IHS expects the automotive industry to remain relatively “divorced” from such economic trends over the next two or three years thanks to replacement demand, an improved housing market and a steady stream of new launches.
“It’s not the gift that will keep on giving for five or six years, but the economy will support strong automotive growth in the coming years,” Robinet said.

The true strength of the sector is currently its rising production and profitable levels of plant capacity utilisation across most OEMs and tier suppliers. Light vehicle assembly has increased 89% from the 8.6m units produced in the trough of the economic crisis in 2009, according to figures from IHS. Production in the US, Canada and Mexico will increase 12% this year to 16.2m units, rising strongly in the coming year to more than 17.4m in 2015 and more than 18m by 2018.
“As production comes up to these levels, OEMs and tier suppliers will be thinking about adding brick and mortar,” said Robinet. “They will need more factories to support this growth.”

Stream select sessions

Automotive Logistics Global Live featured streaming from all four plenary sessions of the conference for the first time this year, as well as from two sessions on the (inbound) suppliers’ supply chain and two on finished vehicle logistics. The Live service also allowed online comments from both delegates and remote attendees, as well as messaging between everyone registered.

You can view these sessions on our Automotive Logistics Global Live site.


Tier suppliers are already producing at or often above their production capacity, according to David Andrea, senior vice-president of industry analysis and economics at the Original Equipment Suppliers Association (OESA), which represents 330 component manufacturers and material suppliers, as well as 100 service providers, in North America. According to Andrea, the top 25% of those members are at capacity utilisation of 85%. Looking more specifically at the data gathered from its members, Andrea revealed that companies involved in forging, casting and tyre making were at 100-105% capacity. This increase in plant utilisation for automotive suppliers is driving 24/7 production.

This output will be further strained as carmakers continue an aggressive new model launch schedule, with about 40-50 expected next year in the region. Robinet said this would lead to a “logistics snarl”

It is here that the North American supply chain could really see the problems of growth. While these are clearly not the worst problems to have, they could nevertheless severely impact a company’s bottom line. For tier suppliers, for example, a launch can often mean half a dozen or more new parts numbers per vehicle per supplier. Combined with the overall increase in output, there is no room for supply base error, according to Andrea. He said that OESA surveys typically found that logistics wasn’t normally a top concern among tier suppliers, except in times of fuel spikes or capacity constraints. However, Andrea said that the present focus on managing supply chain constraints meant that logistics was a concern all of the time.

Honda’s McBrien acknowledged that launch schedules could lead to significant bottlenecks in the inbound supply chain if not properly coordinated. “It stresses resources internal to the OEM, and you have whiplash back through the supply chain,” he said. “For every model, you launch many new parts for each supplier. You need a nimble organisation to redo the logistics network. It comes down to good planning and perfect execution. It has become cumbersome trying to keep up with launches from a logistics standpoint.”
Mike Nelson, national manager of rail strategy and operations for Toyota Logistics Services, revealed the extent to which a launch can also strain the outbound supply chain. During one recent model launch, for example, he said that the plants put a hold on the vehicle during the second day of launch, which left thousands of trucks and rail wagons sitting waiting for the vehicles to be released. While such delays are common, Nelson said that they stress the entire network.
“If I’ve got several thousand railcars tied up and not using them, the other carmakers will not be happy,” he said. “You also have millions of dollars tied up in advertising and marketing that are also waiting on us. The pressure really starts mounting, and when those cars are released, we’ve got to run. We don’t get a second chance.”

“As production comes up to these levels, OEMs and tier suppliers will be thinking about adding brick and mortar. They will need more factories to support this growth.” – Michael Robinet, IHS Automotive Consulting


Mike Riggs, chairman of Jack Cooper Holdings, which recently bid successfully to acquire its larger, bankrupt rival, Allied Automotive Group (the country’s largest car haulier by fleet size), said that part of the reason for the acquisition was to give Jack Cooper more capacity protection during launches and volume surges. “We see the acquisition as a capacity play, since Allied has 1,000 trucks sitting on the fence,” said Riggs. “It will allow us to do certain thing that maybe we couldn’t before, including adding capacity in Mexico.

Jack Cooper’s Mike Riggs called the acquisition of its larger, bankrupt rival, Allied, a ‘capacity play’ to gain more equipment and drivers at a low cost

“In a very tough pricing industry, we now have gotten a lot of trucks cheap, and we’ve got drivers on waiting lists rather than facing a shortage. The network economics will make us more competitive,” he said.
A globally connected production network
Ford’s Grant Belanger said that increasingly complex supply chains were part of what has made the launch process more of a challenge for carmakers. Today, global platform production and model launches are often straddling a number of continents. Robinet pointed out that ten years ago, a new model might be launched in the US, six months later in Europe, and six months later in other markets. Today, such launches are staggered just two months apart, and are produced across three, four or even five different locations. “That puts a lot of pressure on logistics and drives a lot of opportunities,” he said.
This shift to global launches is also reflected in the way that US and North American-built models are now more widely integrated into other production markets. In 2000, according to IHS, about 80% of vehicles built in North America were targeted only for the region. Today, the number is nearly reversed: 75% of North American vehicles are also built or shipped somewhere else.
This global strategy also demonstrates how the supply chain story in North America today is not entirely one of re-shoring to the US and Mexico. Belanger emphasised that the focus for the sector is about getting the maximum use out of production assets. In some cases, double tooling isn’t the answer. “It’s a collection of solutions,” he says.
Robinet pointed out that while there was a trend to duplicate tooling in multiple locations, suppliers might push back against OEM demands to move closer to them or add more locations, as such moves would strain their own capital costs and economies of scale. “It could create a lot of inefficiencies in the supply chain,” he said.


“It used to be that we could manage the tier one supply into assembly plants and it was enough. Now there are cases where we should looking as deep as the tier ten supplier” – Shay Sidner, Flexis


With the expansion of global supply chains, another challenge remains integration and data visibility. According to Shay Sidner, director of sales and operations at Flexis, a supply chain software provider, the growth in volume and complexity, along with shorter product cycles, has caused capacity and management strains. She pointed to internal struggles between procurement, engineering and production as manufacturers struggled to understand their total supply chains.
“We need to move towards a more integrated order and supply planning process,” she said. “It used to be that we could manage the tier one supply into plats and the supply chain. Now there are cases where we should looking as deep as the tier ten supplier.”
Her sentiments were echoed by Aamer Rehman, vice-president of industry strategy and solutions at Kinaxis, another systems provider, who said that most manufacturers have an “incomplete” representation of the supply chain. The issue is not a lack of data, he said, but rather the ability for most manufacturers to use the information to form “one version of the truth”.

The Mexican wave surges
Mexico will capture the lionshare of production growth in the region, leading to higher cross-border flows and new transport routes

Landstar’s Scott Grady said that the automotive supply base in Mexico would expand by 400% by 2020

A considerable amount of new growth in North American manufacturing has of course been in Mexico, which will rival the major BRIC economies over the coming years in terms of increasing automotive assembly. The growth will be particularly strong in the middle of the country, where a clutch of Japanese manufacturers have plants coming online starting as early as this year. According to IHS, Mexican production in its middle region will rise from 1.5m units in 2010 to 3m by 2016 and 3.5m by the end of the decade. Plants in the north of the country, closer to the US border and where violence and crime have been higher, are expected to see less growth, but still rise from around 600,000 units of production today to 800,000 by 2018.
The impact that Mexico is having on the North American automotive supply chain and logistics is substantial. For inbound and cross-border material flow, the growth has already started to pick up. Julie Krehbiel, executive vice-president of intermodal marketing and sales at rail and intermodal provider Pacer International, said that intermodal rail crossings grew by about 20% between 2010 and 2012. The growth rate has been higher than truck since rail crossings typically move quicker and have fewer security issues than moving by road, which typically involves switching trailers between American and Mexican operated trucks.
According to Scott Grady, senior vice-president of corporate sales solutions at logistics provider Landstar, who has also been doing work with the American and Mexican chambers of commerce, pointed to a significant rise in truck crossings and particularly in rail-border crossings, which accelerated further starting from April this year. The ratio of material moving across the border by truck relative to rail has dropped from 70% in 2009 to about 60% today, he said.
Volume growth has come from both northbound and southbound flows. Mexico has seen a 15% growth in automotive suppliers this year that have either added production, sub-assembly or distribution centres in the country, according to Grady. In total, the automotive supply base is expected to grow by 400% by the end of the decade as manufacturing increases. Grady also pointed to a shift in plastics production out of China to Mexico, as well as more complex operations, such as metal stamping, moving south of the border.


“This will drive NAFTA content across the supply chain. For every $1 spent by a Mexican consumer, it represents 26% of content from the US and Canada,” Grady said. “For every $1 shipped from Mexico to the US and Canada, the number is 48% and expected to rise.”
The interconnectedness in the Mexican and NAFTA supply chain is particularly strong for production in the US southern states, which are increasingly exchanging material and sharing suppliers. “Our supply chain in Mexico and for our US plants is extremely integrated,” said Chris Styles, director of logistics for Nissan North America. Nissan has two plants in Mexico and will launch another plant in Aguascalientes later this year.
Bottlenecks and investment
With the growth in Mexico have also come rises in logistics bottlenecks, noted Grady. Border crossing times have risen by an average of more than 20 minutes during the last year, to 133 minutes. There are concerns about capacity in ports and for rail. The intermodal Ferrovalle Terminal, for example, has grown from handling 100,000 containers in 2006 to an expected 400,000 by the end of this year. By 2017, it is anticipated to be at full capacity.
But despite these concerns, Mexico’s competitiveness for both manufacturing and logistics is strong, particularly when compared to other emerging markets. Bill Garrett, the president of Vascor, pointed to a strong infrastructure and skilled labour force. Styles said that Nissan’s Mexico plants ranked among the best in the world for efficiency as well as for supply chain and logistics performance.

Pacer’s Julie Krehbiel (centre) pointed to growing intermodal volumes for cross-border flows between the US and Mexico

Grady pointed out that although border crossing times have risen and customs can be complex, the fact that the border crossing can be measured in minutes rather than days is a testament to how much logistics has improved. Penske’s Hector Benavides, general manager of operations in Mexico, says that the company can now cross the border in minutes. “It’s slower going north, but we get the documentation done in advance,” he said.
Carlos Lerma, assistant vice-president of intermodal sales at Ferromex, a Mexican railway, revealed that the railway is investing about 30% of its revenue this year ($505m) in improving tracks and increasing capacity.
Advanced services
Mexico is strong not only in its infrastructure, but also in its logistics services. Pacer’s Krehbiel pointed to a growth in automotive-specific intermodal offerings, which have the advantage of tracking parts and giving them priority in loading and unloading. Glenn Donell, director of purchasing for transportation and tooling equipment for Faurecia Seating, backed up her point. The tier supplier, which has been growing in Mexico and across North America, has recently started working with Pacer to integrate flows between the US, Canada and Mexico.
“We want our providers to offer package deals to us, which integrate transport with cube utilisation, packaging and customs, for example,” said Donell. “We put together an intermodal team in our corporate office, with Pacer pulling it all together. We started the team up in June/July and by August we were up and running.”

Faurecia’s Glen Donell said that the company wanted to see ‘packaged service offerings’ from its logistics providers, including for US and Mexico flows

Ryder revealed the extent to which it has setup coordination and visibility across its Mexico-US shipments. Frank Bateman, director of customer logistics, pointed to control towers to monitor specific routes. “We might follow supply from Puebla to Tennessee, monitoring each of the carriers handling the material, as well as switches between Mexican and US operators,” he said. 
Logistics and security are intertwined
Despite all the service improvements, security nevertheless remains a concern. While Grady said that crime and murder rates had come off their record levels in recent years, Mexico currently has the highest cargo theft rate in the world. “Manufacturers need to direct ship material in Mexico. Any staging or consolidation risks theft or security issues,” he said.
These issues are universally acknowledged in the sector, although so too are strong efforts by the railways and logistics companies to improve security. The railways in Mexico spend about $2.5m per month on security, according to Grady. 

“Our transport units are equipped with security technology. We have drug-sniffing dogs in some locations. And our facilities have external and internal CCTV, which also shows our forklift operators and can be used for central monitoring” – Frank Bateman, Ryder


Ryder’s Bateman said that security and logistics are intertwined in Mexico. “Our transport units are equipped with security technology. We have drug-sniffing dogs in some locations. And our facilities have external and internal CCTV, which also shows our forklift operators and can be used for central monitoring.”

The rise of short-sea shipping for outbound

On the export side for finished vehicles, there has already been a rise in short-sea shipping options out of Mexico to a number of US ports, while ports with proximity to short-sea routes, such as Florida’s Tampa, are investing in new facilities. Many in the sector continue to debate the viability of using short-sea as an alternative or in conjunction to using rail, which remains the dominant export mode for moving vehicles out of Mexico north of the border. Many agreed that shipping had a lot of potential for Mexico – with a number of shipping lines recently adding service – but that ports needed massive expansion to cope with increased demand. There were also questions about lead times.

Honda’s vice-president of logistics and sales planning, Dennis Manns, described Mexico’s “layers of complexity” and the need to create multiple options in a fast-expanding market. Earlier this year, Manns unveiled Honda’s combined rail and short-sea export strategy for its new plant in Celaya, 180 miles northwest of Mexico City, which will launch production next year. Manns said that most of the rail infrastructure for the plant is now complete.
Brian Mason of Toyota Logistics Services spoke of the upcoming Mazda plant in Salamanca, which will also produce a small vehicle for Toyota. He discussed the best ways in which to move vehicles out of Mexico and cited the benefits of short-sea shipping. “Existing port facilities on the east and west coasts mean that three empty vessels a week are coming back through the Panama Canal to pick up vehicles,” he said.
Mason claimed that short-sea shipping provided the lowest damage to vehicles and was the most cost effective, but the difficulty is in frequency and in waiting on whole shiploads. In this way, for speed of service at least, rail is faster and better for the smooth flow of vehicles north, he said.
While there is much talk about the need to invest in Mexican ports, the US is already seeing activity on the receiving end in anticipation of growth. One state that could increasingly become a destination port for Mexican imports is Florida, for example, where a number of ports, including Tampa, are currently planning to develop car terminals. According to Tampa Port Authority’s Raul Alfonso, the port has sufficient size, rail access and takes around 2.5 sailing days from Mexico. “The location’s very good,” he stated. “Short sea just got shorter.” Alfonso said that he hoped the port, which is developing a terminal with Amports, would become a bigger gateway for North American trade. 

Pasha has also recently announced plans to develop a terminal at the port of Manatee, close to Tampa. 

China still set to dominate global logistics flows

While the conference focused on growth in North America, speakers from global logistics providers and manufacturers agreed that the interconnectedness of global production and sales network, particularly across emerging markets, would continue to have big impacts on the shape of the US and North American supply chains.

Although there have been some slowdowns and uncertainties this year in India, Russia and Brazil, the long-term growth of these markets, and especially China, is still set to dominate the global logistics market. UTi’s Greg Slawson, director of account solutions, pointed to both higher growth as well as shifts in manufacturing to locations both in BRIC and ‘BRIC-plus’ markets, like South Africa, Turkey and Thailand. Ceva’s Jim Barnett said that China has already drastically reshaped the US supply chain in many ways. Between 2000-2011, the number of US total exports to the country grew by an estimated 542%, compared to an 80% rise to the rest of the world.
Barnett, who also worked in China as chief operating officer of Ceva’s joint venture with Anji-Logistics and for GM, noted that China’s shift towards consumption would drive growth for logistics in China even further. The logistics market there is estimated to grow by around 15% annually over the coming five years, which will make it the largest logistics market in the world by 2016. However, there is a relatively low degree of outsourcing and therefore huge opportunities for 3PLs to deliver innovative solutions, he said.


Pushing the limits for outbound logistics
Carmakers and logistics providers are pushing for more innovations in outbound logistics, from reducing dwell time for rail to increasing out-of-hours delivery service at dealers

The conference heard some familiar but important themes for finished vehicle logistics. For example, Steve Tripp, head of worldwide vehicle logistics for Chrysler, challenged railways to reduce non-movement time in their schedules. He pointed out that the average transit time from Detroit to Los Angeles was about nine days, half of which was spent without the train running at all.
“If non-movement time could be reduced from 4.5 days to just one day, it would lead to nearly a 40% reduction in lead time,” Tripp said, adding that the capital investment savings in rail equipment and in inventory carrying costs for vehicles would be huge.
Tripp made a similar challenge during the FVL North America conference earlier this year in California. As then, executives from rail providers were open to his ideas and willing to find new ways of increasing velocity. But representatives from Union Pacific and BNSF also pointed to scheduling and capacity constraints that meant automotive flows couldn’t always get the first priority on tracks.
Franz Blum, chief executive officer of Europe’s Vega International, pointed out that the North American rail market was already well ahead of the game in moving such a distance in nine days. He pointed to a project his company had been involved with that attempted to link Romania to Turkey by rail. “The distance was only about 500 miles but it took 10 days and numerous switches to move the vehicles,” he said. “What you are able to do in North America for rail compared to Europe is already amazing.”
Nevetheless, Tesla Motors demonstrated how it had taken alternative means to cut the overall lead times for both rail and shipping vehicles from North America. Mike Polich, senior manager for global logistics at the carmaker, said that Tesla decided to ship its cars by intermodal container and then ocean ship in containers since it was significantly faster than using automotive-specific wagons and ro-ro vessels. Polich said that Elon Musk, Tesla’s founder, had been dissatisfied with the normal lead times to Europe.
“When Elon heard that the standard shipping time from California to Rotterdam was going to be 45 days, he challenged us to find a different way. By using a container we can rail across the country in nine days, and get to Rotterdam from our plant in 25 days,” said Polich. “It’s not the hyperloop [the vacuum, 700mph rail train Musk has proposed for California], but it is innovative.”

“When Elon [Musk] heard that the standard shipping time [to Europe] was going to be 45 days, he challenged us to find a different way. By using a container we can rail across the country in nine days, and get to Rotterdam from our plant in 25 days” – Mike Polich, Tesla Motors


Improving empty return rates
Bill Pawluk, chief executive officer of CTM, also challenged the industry to transform its inefficient road sector. He said that, on average, hauliers move empty 42% of the time, which he claimed to be the worst return freight rate in logistics for any sector. Pawluk maintained that CTM equipment, which can convert between carrying cars or general intermodal freight, could save the global sector industry billions of dollars.

As previously reported, however, the equipment faces a legislative snag in North America, where it cannot be used currently to haul containers on the tractor section of the stinger configuration, despite it being legal to haul cars and even camper vans there. Pawluk is currently lobbying the US government for a legislative change, and he called on companies at the conference to support the initiative. CTM is currently running trials in numerous markets in Europe, where this legislative constraint does not exist.
Hours of service

Regulatory issues continued to be a major topic for finished vehicle logistics. Kathleen McCann, president of North American transport provider United Road, outlined three main concerns for the car carrier: safety, sustainability and the management of driver hours of service, including recent changes applied by the Federal Motor Carriers Safety Administration (FMCSA). The recent revision to the rules includes a stipulation that drivers working a 70-hour week must rest for 34 consecutive hours, including at least two nights between the hours of 1am and 5am.
“We need to do a better job of helping others in the supply chain understand the increasing challenges we have managing those hours of service issues for our drivers,” said McCann. “Anything that wastes their time pulls capacity out of the supply chain and that is everyone’s problem.”
McCann said that United Road was facing these issues with investment in technology and the introduction of a proprietary system that has brought improvements to load building. This also includes the use of smart apps for the drivers and the move to paperless administration. She said United Road is also tackling inconsistent receiving patterns and “untimely releasing transitions” that cause driver downtime and create problems for good asset management.
Increasing dealer opening hours

McCann said that some issues could be improved if dealers were more flexible about receiving deliveries after hours or during weekends. Truck drivers were also delayed in returning from deliveries by dealers who insist on quality checks and that the vehicles are washed before departure. She called for more compromise.
“I really believe that if we come together as an industry, we can come up with some great ideas,” she said. “It can’t just be about price, but OEMs incentives, using carrots and sticks, can make a big difference.”
American Honda’s Dennis Manns said that moving towards a seven-day delivery schedule at dealers would be a step in the right direction, however he said Honda couldn’t insist on this since in some areas it is prohibited. 

Share the inspiration

Following on the success of the session at Automotive Logistics Europe earlier this year in Bonn, this year’s conference featured a special panel of presenters discussing what motivates and inspires them in their career. Based loosely on the TED series of talks, three influential executives were invited to share stories of what gets them out of bed in the morning. 
WWL’s president and chief executive officer, Christopher Conner, discussed how he was motivated by the fact that the automotive logistics industry could make a difference in the world. While he noted that young people might be more interested in working in “cool” companies, like Facebook or Google, logistics has an important role to play in protecting the environment and reducing carbon emissions. “In this way, automotive logistics is actually a very cool industry,” he said.
Toyota’s Mike Nelson, who will retire in January 2014 after 20 years with Toyota and more than 40 years in logistics, told a personal story about his unlikely path to logistics and automotive, which included joining the US Navy in 1968 because the Air Force recruiters were out to lunch. Although he admitted that he had struggled with authority, he felt that logistics and ultimately Toyota had given him the space to make creative decisions and had helped him sustain a successful career.

Anu Goel, who worked more than 20 years at Ford and several years at CNH before joining Volkswagen last year, revealed how his father was an inspiration to him, coming to the US in 1960s to be a university professor and sending $250 of his $400 monthly salary back to support his family and nine siblings in India. Goel’s father eventually brought him and his family to the US when he was a few years old. Later, Goel admitted he would wrestle with his own struggles balancing life and work, especially as his teenage son approached university age. As in other sessions, all three speakers spoke strongly about the importance of training and educating workers and students in logistics. Goel stressed that it was important for managers to keep in close touch with employees about their career paths and to help them find opportunities that motivate them. He thought it was very important to allow employees to challenge ideas and to make mistakes.

VW’s Anu Goel shared his family’s history, going back to his father coming to the US from India in the 1960s

Goel also shared the advice that a manager gave him earlier his career – that some day he would need to do three things: improve an existing operation, start an operation and shut down an operation.
“I’ve had to do all of them, and none of them have been easy, but nothing teaching you more about how to manage and understand an organisation.”

The ‘share the inspiration’ panel is one of eight select sessions available to stream from our Automotive Logistics Global Live site.


Toyota’s Mike Nelson said that its rail and ocean providers offered services 24/7 and, while this was not something realistic for all dealers, OEMs needed to keep the pressure on for change to make deliveries more efficient. He pointed to the benefits of out-of-town dealer malls, which are well lit, operational for the majority of the time and have a lot of land conducive to receiving deliveries. “Trucks are measured on on-time performance [and] we need to get those cars unloaded and back to an origin point,” said Nelson.
Jeff Williams, from the dealer Williams Auto World, said that it was not a case of turning away cars for dealers. He admitted that the instances of dealers not taking vehicles after 2pm was ridiculous, but that the OEMs needed to work on standards with which the dealerships could comply. For example, he questioned why OEMs ended up bunching deliveries to the last ten days of the month and were not able to disperse deliveries more evenly over that time. He said that this period ending up counting for up to 70% of the dealers business and often caused chaos.
One suggestion put to the panel was that the OEMs should work with the North American Dealers Association (NADA) and look at what they have to do to make as many dealers work toward a 24/7 standard as possible. If not that, then at least work to find out why dealers are closing at times that make the delivery process problematic and address it.
McCann said that the transport providers should also be involved in the NADA negotiations as it was a perfect forum for communicating the issues involved in delivery.

The conference revealed the evolution in service and delivery frequency that carmakers have made for aftermarket and service parts logistics. A number of carmakers, including BMW, have rolled out extensive, multiple deliveries per day for large dealers in major metropolitan areas. Toyota, meanwhile, is experimenting with drop-off points that would allow same-day service for some dealers. There are also moves by carmakers to introduce an automated order and inventory management system in the US, something that has been less common here, at least among transplant brands.

IT developments
Software providers and manufacturers wonder just how far up the chain of command cloud computing should go, while supply chain executives also try to balance information overload 
In a dedicated session on information technology, which contained more than a little controversy, delegates discussed just how far cloud-based supply chain solutions should go, and whether or not logistics visibility might be better off outsourced to specialist providers.
Scott Conover, automotive segment leader at cloud platform provider GT Nexus, said the supply chain is often already a broken and disconnected process. Conover said the company’s community-based platform aimed to fuse together logistics and financial information to give better control over the operations and provide a better context around shipments, inventories and costs. “I still hear huge amounts of problems relating to interactions with the supplier, with customs brokers and everybody else,” he said.
Conover said that cloud-based platforms, on which forwarders, logistics providers and financial providers can all operate, enable companies to achieve more coherent processes at a lower cost.
Philip Abrahams, founder and chief technology officer at cloud software provider Cloudface, claimed that manufacturers were increasingly hiring his company to disable more traditional IT systems used in the supply chain, such as Oracle and SAP. He proposed that the future was about taking IT management of the supply chain away from the OEMs and logistics providers altogether and outsourcing it as an exclusive province of cloud-based software providers. He added that companies have become frozen in their ability to make decisions about IT and the supply chain and that decision making by executives was a cost that needed to be removed altogether.

That idea was not particularly shared by manufacturers at the conference, however. Heiko Laessig, senior logistics manager from Draexlmaier Automotive of America, a supplier of car interior systems, said that it would not outsource supply chain decision making and that it bought very few systems off the shelf. Instead, the supplier preferred to develop its own systems to better offer customer specific solutions.
John Tomcala, director of logistics at Johnson Controls said his company was on the brink of making a decision about its centralised IT set up. The question was whether to outsource to a 3PL or continue to run things with its main partner in house.
“If you can have the experts in house that know your business, interface that with a TMS and pull it off, then pull it off,” said Tomcala. “We are on the edge of making that final decision and I think we are going to give it a whirl on a global TMS with a centralised workforce.”
Collaborative IT development
Ford’s IT manager, Joseph Kowalski, also said that the company would not outsource high-level decision-making and he could not think of a good example where it had succeeded. Kowalksi said the company developed processes in house with purchased software and had not done too much with cloud-based services. He was interested, however, in whether Ford could work with a provider, be it cloud-based or not, that would take a stake in the development.
“What would work for us is to get the software for free and both share in the savings,” he said, adding that Ford would share the benefits with a smaller company that could jump in with a better business case while guaranteeing Ford a low investment figure for the technology.
Brian Bourke, vice-president of marketing at Seko Logistics, said his company had done just that in the aerospace industry. Based on the software-as-a-service (SaaS) principle, the company worked in a customer-vendor relationship on a product with no upfront costs for the customer, but in which Seko was able to offer to the industry, and is now implementing for a manufacturer in Europe.
“They [the manufacturer] benefited from a lot of development and design work that they didn’t have to pay for, but we’ve got a new product that we can put out to the market. Where you have that sort of relationship, both parties can benefit,” said Bourke.
In another instance, specific to the automotive sector, Seko was able to bring results with a visibility tool that allowed competing vendors to share limited information on load sharing. “They don’t see whose product it is, but they can see that there is a container there and they can leverage that,” said Bourke, adding that such jointly developed products can bring cost savings for everyone.
Outbound IT growth and information overload
With mobile and tablet technology, the potential for tracking communication in the finished vehicle logistics supply chain continues to increase dramatically. The industry also continues to shift towards paperless solutions, including for damage claims, although the transition is slow in some cases. “We have to take one step at a time,” said Erika Mercado-Gratton, vehicle damage prevention and claims manager at Chrysler, which is switching to an electronic proof of delivery system. “There needs to be opportunities where we can have more time to focus on core actives and not on managing papers.”
Toyota’s Mike Nelson said the single biggest issue for the outbound supply chain was knowing where the car was throughout the process and getting that information to the dealer. Toyota has invested in an ETA system, which was launched in January this year, which can locate vehicles by VIN numbers. But he also said that it was not an easy thing to track because of the number of intersections in the delivery process. He admitted that gathering the information was a huge challenge, but that with the right information, dealers could better please the end consumer.
With progress has also come a proliferation of data and systems, however, and both OEMs and logistics providers were advised to keep in mind the sheer volume of services and software being implemented. Tom Swennes, vice-president for planning and administration for IT provider ICL, stressed that each OEM must source the appropriate technology for it and its suppliers based on cost or performance targets. “There are no magic IT solutions,” he said, “and it’s important to establish a realistic budget from the start.” 
Speakers agreed that increases in tracking information was changing the way the industry viewed data, and Swennes said that understanding such data was heavily dependent on improving communication between providers and customers.
Swennes said that objectives needed to be defined from the beginning. He cited the pattern of the “scope creep”, or the practice of adding more and more objectives into a defined IT project and expecting the timeline to remain the same. 
“Business users have got to be involved in the critical early phases. Having been on both the OEM and logistics sides of the fences, if you want a useful and meaningful project, identify what you want to do from the start.”
Mercado-Gratton, added that different corporate groups within companies should identify what might help each internal department to eliminate problems.

“Business users have got to be involved in the critical early phases. Having been on both the OEM and logistics sides of the fences, if you want a useful and meaningful IT project, identify what you want to do from the start” – Tom Swennes, ICL Systems


Unrealistic budgets can sink a venture, as can poor communication across all partners in the supply chain. “Identify your stakeholders and have them involved early,” said Swennes. “Having solutions for any post-implementation issues is also an important consideration.” 
Vehicle dealer Bob Shuman, who works with Chrysler, told the panel how his software systems have been synced with the group’s inventory to provide improved transparency and sharing of information across the supply chain. The delegates agreed that using the same data meant that there was an even greater need for alignment and standard procedures, which would harmonise the way companies interact and ensure that data was distributed efficiently. 
There does seem, however, a certain degree of ‘too much information’ involved in the ready availability of IT software solutions along the supply chain. Shuman said that rather than viewing the many different stages of shipping, including storage and handling points, it would be more effective for a dealer to simply receive a set date and delivery time. 
Connecting the data
Inform, a German-based supply chain software group, has recently done an in-house survey of IT practices in the finished vehicle logistics industry taken primarily across companies from the US, Germany and China. According to Matthias Berlit, vice-president of Inform’s manufacturing division, the survey revealed that 66% of all IT in the industry is self-developed by individual companies. A third of those surveyed, however, stated that the usability of their own group’s IT systems could be better, and 79% said that they would like increased operational efficiency. A lack of web portal access to connect with logistics providers and common stakeholders was also cited as a major technological stumbling block. 

Berlit said that, while most companies have the internal resources to create an effective IT solutions system, many are not using these in the right way. In recent years, he said, the usability of mobile apps and the perception of computerised solutions has changed.
Berlit felt today’s technology could be better used; he pointed to the use of the ‘flow diagram’, a system whereby users can execute a command and witness a notification being sent to providers. Each user can decide on the characteristics of objects in the system, and change the process to suit their own needs. This type of system is particularly useful where yard planning is concerned, he said, supporting decisions on where to put cars which have just come off vessels, suggesting where each car can be worked on and when to move vehicles within a yard. 

Increasing frequency in aftermarket
Competition with independent distributors and increasing customer expectations has forced carmakers to redesign their aftermarket networks so as to bring the supply chain closer to customers and make faster, more frequent deliveries 

BMW’s Larry Demski explained the carmaker’s approach to increasing deliveries to three time per day for some regions

Carmakers noted a number of competitive factors that had forced them to change their aftermarket networks. Larry Demski, department head for parts logistics at BMW North America, pointed out that for the aftermarket, the carmaker’s main competition was less other OEMs and more independent parts distributors, many of which might deliver four or five times per day to metropolitan areas.

Executives also pointed to growing complexity in the aftermarket supply chain, including a proliferation in part numbers. Demski said that BMW expected SKU growth of up to 35% in the coming years, which has been outstripping the capacity of the carmaker’s parts distribution centres. Anu Goel, vice-president of parts and vehicle logistics at the Volkswagen Group of America, said that the carmaker expects its part numbers to more than double by 2018 from 201,000 to nearly 500,000. “Our systems are not currently set up for this increase. It’s one of our biggest challenges,” said Goel.
BMW’s response to these trends has been to “move its supply chain closer to the customer”, according to Demski, by rolling out a multiple-deliveries per day network in its most concentrated markets. The carmaker has expanded its global network of 37 regional distribution centres (RDCs), including six in the US, with the addition of another 40 ‘dealer metropolitan distribution centres’, or DMDCs, five of which are in the US.
The DMDCs are smaller than a normal RDC, and are positioned close to major markets (for the US this includes southern California, Florida and the northeast). Their inventory is based on dealer orders, but typically represents medium and slower moving parts that dealers wouldn’t ordinarily have in stock. Using non-branded Sprinter vans, orders are delivered by milkrun the same day up to three times per day.
As well as having five ‘stand-alone’ dealer parts centres, BMW also uses its RDCs as ‘virtual DMDCs’ to server nearby areas – this means that BMW dealers in the region have access to nearly the entire parts portfolio (except for heavier parts, like engines and transmissions, which Sprinter vans cannot carry), with the vans making pickups and milkrun drops to dealers within the region, on top of BMW’s normal truck deliveries.
The system is not ubiquitous throughout the US. In less densely populated regions, such as the northwest, for example, same-day deliveries are not possible, however BMW offers a same-day shipping service, which usually means next day arrival.
“The system helps to relieve the inventory at dealers, and greatly improve repair service,” said Demski. “We’re doing this Monday to Friday, and we are also testing a Saturday service.”
According to Demski, the hardest part of the new network has been educating dealers and changing their behaviour. “Dealers usually do more difficult repair jobs last, and focus first on the simpler jobs. But with this system, we’re saying to do the opposite. Do a triage first thing in the morning, and identify the problems first so that we can deliver parts later that day,” said Demski. “We’ve had to work both with parts managers and general managers to convince them of the benefits of the system.”
Toyota’s dealer drop-off points
For the last two decades or so, Toyota has also run a multi-tier network for its spare parts, according to Thornton Oxnard, national manager for parts logistics planning at Toyota Motor Sales (TMS). Parts move from suppliers in the region, or from ports receiving parts from Japan, to a network of large, North American parts centres (called NAPOs), from which points they move to more local distribution centres. The latter could be for those serving TMS dealers directly, or for those of various Toyota distributors in North America (including Southeast Toyota and Gulf States Toyota), national sales organisations in Mexico or Puerto Rico. Finally, parts also move from a NAPO to as many as 30 export markets.
“The system works as a shock absorber. We had a port strike in Los Angeles, for example, but there were enough parts in the system that we avoided any disruption,” said Oxnard.
The system has a high level of efficiency and effectiveness. About 80% of parts are delivered to dealers unattended during the night; the damage free ratio is 99.87%, while 99.94% are error free; 98% ship on the same day of the order.
However, Toyota has also been moving towards a same-day service to supplement its own two-tier distribution model. In these cases, the carmaker chooses a designated drop point in a metropolitan area, from which point Toyota dealers are responsible for the final transport. This allows dealers to have two deliveries per day. “A dealer can place an order before 10am; the order is picked, packed, loaded, and the dealer can pick it up the same day,” said Oxnard. “It allows for the same-day completion of service work, reduces delays, loaner and rental expense.”

“About 80% of Toyota parts are delivered to dealers unattended during the night; the damage free ratio is 99.87%, while 99.94% are error free; 98% ship on the same day of the order” – Thor Oxnard, Toyota Motor Sales


Wes Neal, owner of Extreme Dodge and Hyundai dealerships, said that he thought the idea of dealers picking up their own parts was very effective. He pointed out that there were many cases, particularly in the Detroit region, where the supplier of a particular part was based nearby, but the parts centre might be in another state. “Rather than seeing parts move across the country only to come back to a dealership across the street, I would be willing to take on the expense myself as a dealer and pick up the part,” he said.
According to Goel, the Volkswagen Group has also moved from 2-4 day delivery lead times to a same-day service where possible. He expressed some scepticism about multiple deliveries per day, however. “I would rather educate the dealers to get the right breadth of parts first.”
Monitoring inventory

Carmakers revealed the complexity of global spare parts logistics networks. Oxnard’s colleague at TMS, Jarom Matsuda, logistics planning manager, said that Toyota has expanded its supply network from three to six global poles, for example. Toyota also continues to send many global parts through Japan, where they are consolidated to full container loads before being shipped onward to other markets. Despite the extra shipping costs, Matsuda confirmed that the consolidation made the overall process cheaper. About two-thirds of Toyota’s North American parts originate in North America and are sourced directly from suppliers there, while the rest arrive from Japan.
Matsuda said that the monitoring of inventory levels was the key to consistency and cost reduction. But he pointed out that the automotive industry was still behind other industries in terms of order tracking and delivery options. Apple and Amazon, for example, allow customers to order and track products at the click of a button, and select two-day shipping, next day delivery, or whatever service they require. “Customers go to those sites because there’s consistency and trust. They’re asking, ‘Why can’t I get the same service in automotive as I do at Amazon?’”
Michael Schmidt, vice-president of Neovia Logistics, admitted that customer expectations were a moving target and not always realistic – carmakers and logistics providers need to work together to set the right expectations. “Companies that can articulate their strategy to providers will do well,” he said. 
Wes Neal agreed that customer expectations were not always realistic, and that companies had to manage or limit them. “However, I observe that all brands are getting much better in their overall service and delivery levels,” he said.
Managing and automating inventory
Speakers agreed that educating dealers about inventory was difficult, with dealers tending to have more ‘depth’ of inventory rather than breadth. “We find that a dealer tends to have six or seven of a part when the true demand per day is actually two thanks to the transport service,” said Demski.
Goel revealed that Volkswagen is going to implement a global group system for retail inventory management (RIM), called Autopart. Up to now, the German OEM has used the system in every market except for the US and China. Part of the reason Volkswagen has been careful about using it in the US is because it has an automatic replenishment system, which forces dealers to order parts rather than making recommendations to them. “We have to be very careful. We should be willing to take back a part if we forced a dealer to order it and then it doesn’t sell,” he said.

VW’s Anu Goel says that the company will use a group standard for retail inventory management, but he said that OEMs should be careful about forcing dealers to order parts

Goel thought that the company needed a ‘hybrid’ model, which would automatically replenish fast moving parts, but which would only make recommendations for slower moving parts.
Oxnard revealed that, while Lexus uses a “RIM-like” system, Toyota does not yet have any automation in inventory management and order replenishment. “It’s the next frontier for us,” he said. “We want to capture true demand.”

Know your packaging assets
Manufacturers and packaging providers discuss the importance of tracking returnable packaging assets as well as consolidating shipments to get the most out of containers
Questions over the tracking and ownership of packaging assets dominated a dedicated session on packaging and containerisation. Packaging suppliers and manufacturers expressed a desire for packaging that could be used across commodities, from long distance supply chains to last mile distribution. Meanwhile, approaches to ownership as compared to leasing vary widely by manufacturer and supply chain. 

Goodpack’s Colin Howard (left) and Surgere’s Tim Nickel (right) believe that returnable assets are managed more effectively by third parties than by manufacturers

Bob Petersen, market manager for industrial sectors at Orbis, pointed to several macro-trends in the automotive industry that were driving developments in the packaging industry. As North America increases vehicle production, for example, manufacturers and logistics providers are striving to maximise cube density and reduce inventory space. Petersen said that Orbis was also looking into reducing return transport costs through the use of folding containers, bins and sleeve packs.

Camille Chism, packaging engineer, at Johnson Controls, said this was an area where company was working to keep costs down while maintaining quality across the company’s 200 plants worldwide. Citing one example where the company came up with a solution for shipping two different rows of seats together within the same packaging to Europe, the company managed to achieve 30% more capacity per sea container.

There is also a need to consider the whole delivery process from beginning to end to gain cost effectiveness and that included thinking about areas such as line-side kitting, which ties into what can be included in a container.
“Even as we plan for launches we need to look across the board holistically. When we design a part or a pack, everything has to be considered from beginning to end rather than everyone just thinking about their own part of the process,” noted Chism. “You have to ask the question, when I do this, how is it going to affect the truck or pack, or the purchasing contract?” 
Getting control of returnable packaging

Returnable packaging is the dominant packaging mode in the US. According to Colin Howard, sales director at Goodpack, between 70-80% of packaging in the country’s automotive industry is now returnable, compared to lower rates in Mexico and just 5% globally.
While the figure for the US looks good by comparison, there are questions over how much of the packaging is actually in the right place at the right time. Goodpack statistics suggest that around 20% of packaging goes missing, which amounts to millions of dollars in lost assets for a given OEM.
Timothy Nickel, vice-president of operations at Surgere, a packaging management company, suggested that a lack of management focus is partly what leads to failures in durable container management. He noted that while the industry was capable of keeping a close eye on components, IT assets and vehicles, packaging came a poor second. Top management has tended to be ignorant about container losses, while many companies were cutting back on staff with the right engineering skills for packaging.
“If you can get your bosses to understand the importance of engineering capacity and container management, you will see improvements,” said Nickel. “It’s a multi-million opportunity.”
Nickel said that RFID was the most useful tool for tracking packaging, and that more manufacturers were adopting it, helped by lower investment costs. Surgere has recently initiated an RFID-tagged system for returnable containers with Johnson Controls.

Thor Oxnard, national manager for spare parts logistics planning at Toyota Motor Sales, speaking from the floor, said Toyota was designing its own system for last mile returnable packaging, and wondered if packaging suppliers could point to examples of innovation in products. He admitted that for such packaging to work, containers needed to be able to ‘morph’ to accommodate different types of parts.
Petersen, for Orbis, responded that he had seen the use of inbound containers for manufacturing materials used for aftermarket shipments. But on the whole Petersen felt that the retail industry was ahead of automotive when it came to having more flexible packaging.
Whose packaging should it be?
The question of leasing containers compared to owning depended on a company’s supply chain structure and financial situation, according to speakers. Many companies are eager to get capital off their books and move to leasing, according to Nickel, but there were other issues that needed to be taken into consideration. “It is a structural question about capital and where you want it, and what the financial goals are,” said Nickel.
Nickel and Howard believes that third party companies were more likely to manage the movement of assets more vigorously. “The more you get the cost off your books the better it will be for you, but it also means the assets are looked after more carefully,” said Howard.

More disruption, opportunities to come

Logistics has to be ready to adapt to change, since even if regulations or technology doesn’t disrupt today’s norms, the customer eventually will

Looking ahead, conference participants were optimistic about the next few years, during which the market is expected to continue to rise. Many speakers put a strong emphasis on training staff in supply chain management and other logistics skills. Peter Appel, from Alixpartners, said that a skills shortage in manufacturing-related management would actually be a constraint for the US if it were to see more supply and production localisation in the market.
The market will also face potential disruptions from changing regulations, such as fuel economy standards and hours of service rules for drivers. IHS’s Robinet pointed to stricter standards mandated by the US government that will push fuel efficiency to around 50 miles per American gallon across fleets within two model cycles.
“Even if there is a revision to that mandate in 2017 or ’18, some OEMs are going to be behind,” he said. “Every OEM is going to be completely pre-occupied with light weighting their vehicles.”
The industry will likely see even more competition, whether from other OEMs, new technology, or from shifts in driving patterns and behaviour, such as car-sharing schemes.
Tesla Motors, whose electric vehicle has seen a strong growth in sales and in the premium segment, demonstrates how one company may bring further changes to the market and even to logistics. According to Mike Polich, Tesla’s internal technology means that all of its cars can be geo-fenced during transport, which helps with vehicle tracking.
Ford’s Grant Belanger was quick to point out that the automotive industry had dealt with business disruptors

Ford’s Belanger said that the logistics industry shouldn’t fear technological shifts, such as driverless cars or car sharing schemes, but look for opportunities to provide new services

throughout its history, from the advent of the assembly line to globalisation. “You have to embrace change, because the customer will drive this for you anyway. If you take something like driverless cars, that could also mean there could be driverless trucks and trains, relieving us of driver shortages,” he said. “Car-sharing schemes could bring in many new services in terms of serving customers at different points, with logistics accompanying that.
“I don’t see the changes as negative challenges,” he concluded. “They are opportunities to understand what else we can do for customers, and leverage logistics to deliver the vehicles, parts and services they want.”

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