FVL North America conference: Crossfire panel. Talking until the fat cows come home14 June 2016 | Rachael Hogg
As declared by Sarah Amico, executive chairman of Jack Cooper, 2016 is a “fat cow year” for vehicle logistics. US sales are expected to reach a peak this year, rail and road capacity has been improved, while carmaker and logistics provider executives appear more ready than ever before to collaborate.
There are some changes notables even over the last year. Scepticism or reluctance to embrace new technology has been swapped for a desire to innovate and finally start to take advantage of big data, telematics and connectivity. However, it has been difficult for those working in logistics to get the capital to implement these ideas and other improvements to logistics, and a strong and smart business case is the necessity if investment is needed.
At the end of the 2016 FVL North America conference in Newport Beach, California, executives got together to discuss the key takeaways from this year’s sessions, and to give some insight into their business practices, upcoming plans and proudest moments of the past year.
The panel (from left to right):
.Bryan Burkhardt, director of global logistics operations, General Motors
.Marc Brazeau, director of outbound and Mexico logistics, FCA
.Glenn Clift, chief executive officer, Glovis America
.Gerald Lee, vice-president, vehicle planning and logistics, Subaru of America
The comments have been edited for clarity and brevity.
What part of the finished vehicle logistics supply chain are you focusing on investment or improving the most right now?
Bryan Burkhardt, GM: We’ve looked at where we can invest and have a good return on investment. We’ve added rail infrastructure and finished vehicle yard spaces at some plants. Where can we add space smartly to save costs? We’re not interested per se in investing in a port. We’ve added rail at our Detroit Hamtramck plant, for example, which was a good business case for us over the long term.
Marc Brazeau, FCA: The difficulty for OEMs is our ability to get capital in our own company. We have to fight against spending all our capital on designing, marketing and assembling vehicles. When it comes to the supply chain, there has been some opportunity to invest in plant-related facilities. We’ve been focusing on that for the past two years, and we implemented rail in Brampton [Ontario, Canada] two years ago. We’ve been using capital to improve facilities outside plants, and improve flows and throughputs, including redesigning areas we have responsibility. Externally, we rely on you [logistics providers] and your businesses, whether rail, truck, or port, to invest appropriately in infrastructure to support investment in manufacturing. You’ve supported growth over the past few years. Now we need to invest in things that eliminate waste and provide opportunity for the next downturn challenge.
Glenn Clift, Glovis America: Since the last time I was here [in June 2015] our business has changed quite a lot. It used to be that every [Hyundai and Kia] vehicle coming off a vessel was sold and the challenge was to get the vehicles delivered. We’re now dealing with an inventory situation. We’ve got a new plant in Mexico that starts shipping this evening. The challenge is to handle the investment we make and changes we make to the network. We need to be flexible, but not invest in under-utilised assets. We’re getting parking lots to handle the inventory situation today, but there’s no indication that will last. It’s difficult to be flexible and handle the situation we have at the moment.
Gerry Lee, Subaru: A year and a half ago we started work with Transdevelopment at our plant in Lafayette [Indiana]. We expanded the rail yard to 144 spots. And we also moved trucks away from what I would call ‘Boardwalk and Park Place’ – the busiest areas – to operate much better than they have been.
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How hard is it to get capital for finished vehicle logistics?
Marc Brazeau, FCA: From FCA’s point of view, we’re the short tail on a long dog. At capital planning meetings, plants are looking for big capital spend for a long-term programme – billions of dollars – and you want $6m to pave a yard. You think it would be easy, but we have a lot of struggles. Although we own infrastructure, we have a hard time competing for capital. You’d think it would loosen up but there’s more to invest in the product and the plant infrastructure that offers a bigger return on fixed cost. I’m not saying we’re not successful with projects, but it puts the onus on us to have a really strong and robust business case. The Brampton rail project took 30 years, but we finally hit on the right business case at the right time. We win more than we lose, but it’s hand-to-hand combat every year.
Bryan Burkhardt, GM: It’s the same for us, but the key is to protect the customer and follow the money. If you can put the acts together and say how it will help the customer, the facts will win. It is a tough sell to go to senior leadership and say you want to pave more land, but if you can show that because of quality holds, or normal churn in the supply chain that we end up spending more money diverting or going off site, than you can be convincing. For me, it is really about putting together a compelling business case.
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Is there any low hanging fruit left for savings?
Gerry Lee, Subaru: I think the real opportunity is working with our IT group. We’ve got 11 priority projects, and will get about three done this year. All have potential benefit, but it’s difficult. You have to fight for everything from a facility standpoint to IT resources.
Glenn Clift, Glovis: Let’s ask Steve Tripp [from ICL Systems, who presented on a haulaway exchange concept http://automotivelogistics.media/home-page/looking-beyond-year-fat-cow] He gets my thoughts going. He had some interesting concepts to present. Sometimes I’m almost afraid to express ideas because people might think it’s crazy, but Steve has some pretty simple ideas that I think have some real merit. That could be the low hanging fruit. I know it’s collaboration, but I think there’s something there [in the idea of a haulaway exchange].
Marc Brazeau, FCA: As we get into a steady state, we could do better. We’ve benefitted from good weather and rail freeing up track capacity to allow better velocity, but we would like to still focus on blocking and tackling: pulling waste up, destination dwell time, interactions between us and railroads and ramps and haulaways, and technology coming up. After a year back in the industry, I’ve seen more collaboration and transparency, and recognition of finished vehicle logistics as an asset. That might offer low hanging fruit we didn’t realise was there. While we have the time to makes these changes, let’s not overcomplicate the solutions and instead focus on the things we do well together when we co-operate.
Bryan Burkhardt, GM: Working with the railroads and OEMs and haulaways to improve communication. Collaboration will allow people to do a better job of planning. Through better communication, everyone can do a better job. The low hanging fruit might actually be network design. There is so much change in our networks, and each changes presents more opportunity. We’ve gotten better at responding to that quickly.
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Are vehicle logistics a competitive advantage or not? Isn’t getting vehicles to dealers in time for key launches critical to sales and brand strategies, for example?
Bryan Burkhardt, GM: In North America the business model is built-to-stock, but in Europe it is built-to-order. Getting vehicles to dealers quickly is important, but having a consistent and even flow, that’s more important. When you can take waste out of the system, and everyone can win, that’s more important than the time aspect.
Marc Brazeau, FCA: I don’t think the network is that sensitive. We just launched the Pacifica [minivan], notified everyone when it was going and where priority was needed. The supply base picked up the ball and we delivered better than our production launch curve. At FCA we’re looking at network measures, not holding big launch volumes any more. We’ll have buzz models and models important to long-term sales success, but the network working collectively benefits more than if I worked independently to get my units to market quickly.
Glenn Clift, Glovis: When I first came in, it seemed players were trying to one-up each other. You don’t see that now or see people hurting others in logistics. If we’re all efficient, let the sales guys compete in advertising and design, but getting a car delivered one day sooner won’t sell a lot of cars.
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Do you benchmark finished vehicle logistics against other industries?
Marc Brazeau, FCA: It’s difficult to benchmark against other industries. In our industry, the understanding is in this room, and in our offices. No one can solve our problems better than us. People are collaborating, and the more we can push towards that the more low fruit we’ll find.
Bryan Burkhardt, GM: We have started benchmarking. The key is how you can raise the game for the whole industry. It’s important to look at other industries: what technology can we adapt? But a direct comparison with other industries is a bit more difficult.
Glenn Clift, Glovis: Our office in Korea tried benchmarking to other industries, and we often had to justify why the comparison wasn’t always valid with other industries. We participate with benchmarking in the industry, but outside we haven’t really seen anything too relevant.
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We are talking about gentle declines following the market peaks. But how quickly can your networks respond to shocks to the system?
Glenn Clift, Glovis: We haven’t done a full network analysis in several years, which I think we should given the changes in the market and fuel prices. To make change to the distribution network – for example, serving an area from a different port – requires us to move our sales district, and we don’t do that very often.
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Have you considered how you might use technology such as telematics in your vehicle logistics?
Bryan Burkhardt, GM: We’ve utilised GM’s OnStar system for a couple of things. It’s useful if there’s a quality hold, so we can locate vehicles by flashing the lights or honking the horn. It’s also worked for tracking missing vehicles, say if one gets stolen. Long-term, telematics can be leveraged for network visibility on vehicle tracking and ETAs.
Marc Brazeau, FCA: We’ve been working with an engineering group to identify how our uConnect platform [FCA’s infotainment system] can be used for logistics when the technology is available across more of our vehicles. GM probably has an advantage here in the way it has made Onstar more ubiquitous, as probably 40% of our fleets are telematics enabled so far. We’re working internally to identify three or four things to be ready when the fleets are available: tyre pressure, battery, location etc., and I think that is only scratching the surface.
Marc Brazeau, FCA: We’ve figured it out with our engineers this year, actually. Security was also a concern for us last year publicly, but engineers and cyber security have done a great job. It’s been a wake up call, and people are taking it seriously.
Glenn Clift, Glovis: It will be great when we can use it for yard management to identify these vehicles. Currently not all of our vehicles are equipped with it now. We have used it for missing vehicles. But the vehicles in our inventory, the system has not been activated and you have to pay for the service. To convince manufacturing to allow access, we’ve had to do a payback. I’d have to assure them that I could make savings. But until it is on every vehicle, I will still have to scan vehicles.
Gerry Lee, Subaru: Our cars are activated and tested at the port and I look forward to cars being able to tell us when they’re a quarter mile from the dealership. They will be pinging us that they have arrived.
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How much space do you leave for innovation or ideas that might not have any application yet – perhaps an innovation fund, for example? Is there room for real ‘blue sky’ thinking?
Bryan Burkhardt, GM: The way we are structured now is to have a planning team, purchasing and operations team, which is doing the fire fighting. The planning team is trying to look into the future to see what tomorrow will be like. To me, it’s always good to look at wild ideas. At some point there will be application, or a portion of an application or technology. Our structure today is helping that.
Marc Brazeau, FCA: We’re structured in a similar way with our planning team. Within our wider supply chain group, we’ve launched an innovation support team. It is a group of advisors that helps the 400 folks working in supply chain with their ideas that they can bring forward and have help from mentors and advisors to build it into an elevator pitch, and we regular churn through it. We encourage this type of blue sky thinking. If I look at what we are working on internally in terms of what we are working on for connectivity, but other areas, I’m pretty excited about what the next 18-24 months looks like for us.
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How important are green logistics and sustainability to your business?
Marc Brazeau, FCA: Sustainability is included in FCA’s global annual report as a huge section. Logistics is a component of that sustainability as we operate two private fleets on the inbound and outbound side. We converted our private inbound fleet to CNG and it’s the largest natural gas fleet in the Midwest. As part of RFQs, when we go out we request the sustainability factor and do take it into account when we’re making commercial decisions. It’s probably not weighted as heavily as other things, but there are interesting opportunities for sustainability.
Bryan Burkhardt, GM: It’s definitely important. One thing we look at is if you reduce miles, and have an improved network, you are more sustainable and green. It’s a win-win. Miles out, eliminate waste.
Glenn Clift, Glovis: As an organisation, the biggest impact we’ve had is to update [ocean] vessels we’re operating. We’ve put in a lot of investment on that side to bring out the latest technology and vessels, and retire the other ones.
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How involved has Glovis been in establishing networks at the new Kia plant in Mexico, given your team’s expertise in North America?
Glenn Clift, Glovis: We’ve been fully involved in the network coming into the states, which was under our control. The inter-Mexico shipments are handled by Glovis Mexico. I was very lucky to have a number of people working for me with a lot of experience. Art Lim, for example, who had a lot of experiencing coming from Nissan DAS [which was eventually bought by WWL]. Even though he retired, I kept him on as a consultant to see this project through. We had expertise in-house a well. We were a latecomer to that market, and we consulted other companies and individuals – for example, Dennis Manns [formerly of Honda, now at Road & Rail Services]. We heard horror stories but also things we had to keep in mind.
We’ll use short sea to operations on the east coast from Mexico, and anything west of Mississippi will come up from Mexico on rail.
We’re hoping the location of the facility will provide benefits being further north in Mexico. As long as we don’t have customs clearance issues at the border, we hope to leave the plant by rail and cross the border hours later. If that happens, we’re pretty optimistic not to see damage rates the others have seen. We’ll be using both rail and ocean, and we’ll use a combination of truck and railroads to bring vehicles to the ocean ports.
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In Mexico, there is increasing demand for labour and skills. GM, for example, is doubling production, and there are two OEMs moving in next door to you in San Luis Potosi. How will you manage this?
Bryan Burkhardt, GM: It will be a real issue. When there’s a bunch of plants coming in to one area they will be competing for resources. We are working our HR department to see how we can retain folks.
Glenn Clift, Glovis: There are some things that our plant in Mexico is doing that we just don’t think of in the States, such as providing lunch and breakfast or even transportation to and from the plant. It’s a big deal, and things that our factories in the US have not really considered.
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Last year GM starting using a new terminal in Freeport, Texas, while other OEMs have also started looking at or exploring the US Gulf coast. How do you see this region developing with a new port area… is this the next shipping coast for vehicles?
Marc Brazeau, FCA: We already have anchor ports in Baltimore and San Diego and Grays Harbor for the east and west coast, and the idea of an anchor port on the Gulf is interesting to us. We’re looking at it this summer so that we’ll have anchors on both coasts and through Canada and Mexico as well. It’s part of our strategy.
Glenn Clift, Glovis: We’re looking at ocean ports, including a port in northern California, although it is difficult to find capacity on the west coast. We’re studying ports on the east coast too. We’ve looked at the Gulf coast but not figured a way to fit it into our network. With the factory in Mexico coming online, it may change a bit.
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What are you most proud of having accomplished over the past year?
Marc Brazeau, FCA: I didn’t screw up the team I inherited when I came back to work at FCA. I hope I have some additional perspective after spending some time outside the industry. I focused on collaboration and I’m proud of the work I did with other OEMs.
Bryan Burkhardt, GM: That rings true for me, too. During the rail crisis, it was easy to start finger pointing, but OEMs said they wanted to be part of the solution. I chair the AILSC [automotive logistics steering committee] group, and part of that committee is understanding that what anyone of us does impacts each other. Let’s work together to make it better.