Europe conference: Are logistics companies ready for the future?

At the end of a busy conference in Bonn, senior executives from Adam Opel, Volvo Car, PSA Peugeot Citroen, and Kia Motors joined a panel discussion with editor Christopher Ludwig and publisher Louis Yiakoumi to discuss how ready the logistics industry is for new technologies, whether that is driverless vehicles and more automation, or new materials and processes. They also examined the all-important relationships between LSPs and OEMs, and imagined a future at the head of a hypothetical new logistics company in Cyprus.
 
The panel featured Andreas Ginkel, director logistics alliance, Adam Opel; Geert Bruyneel, vice-president, supplier quality and logistics, Volvo Car; Guy Lederer, director finished vehicle logistics, PSA Peugeot Citroen; and Carlos Lahoz, director sales business planning and supply chain, Kia Motors. 

Are OEMs too focused on the problems of today? Is there enough innovation or enough preparation for future technologies and tomorrow's supply chain?
 
Andreas Ginkel, Adam Opel – There needs to be a mindset shift to managing complexity, managing challenges, and not shying away. It is complicated, it is complex, it requires that we change. Help us manage that complexity and let us get together with the intelligence in this industry. Let us have these organisational people and processes that know who needs to do what. In that way I believe that the nucleus of the past and the future is the same.
 
Geert Bruyneel, Volvo Cars – It is all about handling the complexity… complex process and systems, but this will increase exponentially. Globalisation in particular will be a key issue. People are most critical. We have talked about competence, development etc., and it will be more crucial than ever to have the right person in the right place.
 
Simple principles are very important, like thinking global, acting local... source where you produce. The key principles are that you have to decide what kind of company you want to be and what you want to achieve. At Volvo we have a clear strategy we want to manage. We see logistics as part of our core activities.
 
Guy Lederer, PSA Peugeot Citroen – Two points to complement that. One is the speed. The only thing I’m sure is that we’ll have to act quickly and achieve globally. It’s especially true for outbound logistics.

 
What aspects of the automotive logistics business need to develop?
 
Carlos Lahoz, Kia Motors – At Kia we have now developed infrastructure, and factories, and now a big part of our production and sales comes from European sources and factories. We were the new kids on the block and now we’re trying to revolutionise. We did not come with the infrastructure and factories of the established companies. On one hand you make a lot of mistakes, but on another you can do things in a different way.
 
At Hyundai and Kia, we have a vertical approach. The parent company many parts and even steel, and Glovis is handling the infrastructure. In order for them to understand how they can adapt to our needs, we need to know where we’re going to go. Any investment in the future, we need to know when we’re going to arrive. This is what we’re going to need.
 
The industry develops a bit more slowly than I’d like. Discussions go on for years. There’s not a clear, quick fix solution. I would like, as a customer, as a client, to find the supply chain more dynamic. That’s what we demand.

Bruyneel, Volvo Cars – People have been talking about lean, and whether it’s good or bad or applicable for logistics. Coming from a different background – manufacturing and production – I can recommend it, looking at it from another perspective.
 
When I look at inbound and outbound, there’s still a lot of waste to be eliminated. Lean is to create value for our customers. If you eliminate waste, you have added value.
 
From my perspective, compared to in-plant production, there’s a big gap in operational excellence. That’s why I’m saying it. We need to take advantage of the technological development, but at the same time, not forget daily operations and drive improvement. There is still a big potential in that respect. We need to create a continuous, seamless flow, without interruption, with perfect sequence, high build-to-order, and to have high resource efficiency. The flow and resource efficiency together is the lead concept that I think is very much applicable in inbound and outbound.
 
Ginkel, Adam Opel – There was a complaint that OEMs are outsourcing and the best price wins, and that the OEMs always go for the cheaper option. But if you step up to manage the materials of that country of origin, and you can utilise a container by 90% rather than 60%, then you’re making huge savings. Just on this panel alone that might represent $800m a year in savings.
 
There are a couple of implications. Are you building your business model around consolidation centres, and trying to manage waste, or are you building your business model around managing complexity and helping us fill that container? Even if we were to pay $100 more for a container, but it was 40% more utilised, then it's clear that we would decide. Logistics providers need to share, and comprehend that we are sourcing based on total enterprise cost, and not on a rate.
 
We were discussing how Kodak died. It was about not stepping up to the challenge. If your business model is around managing complexity and achieving that saving, in the end that will help to sell more cars. If you are not stepping up to the challenge, others will do it for you.
 
Lederer, PSA Peugeot Citroen - We need to bring more together around the table and share the benefits. For now, with our supplier, we are able to do that.

Is the automotive industry slow to adapt to new technologies, whether that be RFID, Google Glass or even drones? Should automotive be one of the first to utilise these technologies?
 

Bruyneel, Volvo Car – In automotive, you need to do the right investment. It’s like sourcing. It’s not about in or out-sourcing, it’s about right-sourcing. There is a problem when we are over-investing for an application that has no need. You have a process to handle and you need a certain technical solution. Of course you will go for the simplest solution possible which is effective.
 
I’ve never seen anyone in finance say no to something that has a short return on investment… if you have a six month investment return, then who would say no? I agree that a two-year return is another question… But I don’t think we are slow on adopting technology, but it’s more on a need-to basis.

Lahoz, Kia Motors - Manufacturers have a lot of technology that we wouldn’t apply at this time. It is ready to go, when the market is mature enough to get the technology in, and when the business case is positive. Sometimes we react to legislation, then suddenly all manufacturers have the technology in a short period of time.
 
With the technology we’re pulling into vehicles, is someone keen to pay for it and how much? One good example is electric vehicles. Each one will lose money because there is no critical mass of vehicles. If we were producing 2m EVs a year, it would be fine, but at the moment, it’s just an investment.
 
Technology will come, R&D centres are prepared with new things, but they will get into the market at a certain pace.

Lederer, PSA Peugeot Citroen – These investments might be great, but you have to think about whom you are doing it fore. If you want to make something really different, it must be visible for the client. In Amazon, using drones in a warehouse is interesting, but it is only visible for an OEM or the retailer, not for the client.

What would be the one thing or two things you wish you never had, or would do completely different?
 
Ginkel, Adam Opel – If I could start my supply chain from the very beginning, I would do everything to comprehend who in that value chain owns responsibility... I would like the interfaces to be properly understood, and like to make sure we all share a common mindset. We need to be integrated internally and know what roles everyone has to fulfill. Who generates the schedule? What are the variables of the functions that drive my performance in logistics? I see volatility, I see quality holes, I see technical constraints as restrictions… I would like us to be synchronised in managing the constraints.
 
Lahoz, Kia Motors - Starting from a clean piece of paper gives you the possibility to think how things are done. In a new market, you want to get the best, and a specialist in each area.

Sometimes there is one, unique single supplier that gives you a solution. I’m a true believer in having a partnership and long-term relationship. It needs to be a journey that we make together. You need to find the right people and the right expertise, to structure your business in a way that will be profitable for both sides. Finding the right partners in the different aspects of the supply chain is probably the most difficult part.
 
You all have changing or evolving situations with logistics management. PSA has sold a majority in Gefco, while Opel is now working with Gefco as a 4PL. Volvo Cars has taken its logistics management in-house after years of working with Volvo Logistics. And Hyundai-Kia works with Glovis, which has now also bought a company with assets… what would you say strategically you want from these relationships? The circumstances are all different but what’s the strategic expectation?
 

Bruyneel, Volvo Cars - We have insourced both inbound and outbound management. It’s been an interesting journey during operations including taking over returnable packaging. It was challenging and we’ve done it with limited resources and on a very tight timeframe. We have seen major advantages; particularly in the way we can make contracting ourselves. It gives us a better understanding of how we can optimise from a sourcing perspective.
 
Secondly, we see the benefit and now have better visibility and data that we can use together with supply chain coordination, production, marketing and sales. For me it’s a key enabler to have the management of flow and value chain in-house. Value chain management is a key asset for future development. A major disadvantage is going from a cost point of view but also an internal cooperation point of view.
 
Lahoz, Kia Motors - Glovis is a key partner in our business. When we entered Europe, every national subsidiary was doing its own decisions in terms of logistics and compounds, so Glovis gave us added value. They are the experts on the supply chain... What we are doing now is a merge – having one single point of contact. When there are tenders in each market they need to coordinate. They can get best practices from one market to the other. But at the same time they could use one provider in one place, or the same provider in another country that they could leverage with the same level of service and quality. That common and centralised strategy of logistics in Europe has brought a lot of added value.
 
Lederer, PSA Peugeot Citroen – On our side, the major point is to integrate. Logistics is a drastic cost. You have to put it in a global vision. The cost is here, but if you are flexible enough and can gain confidence with the dealers, it’s a tool to reduce inventory and costs by a lot. Working with one LSP, which is our case, ok it can be seen as a nightmare, but it’s also an opportunity to think globally for our logistics network. We’re more concerned on supply chain management, and we’ll look at basic cost optimisation afterwards.
 
Ginkel, Adam Opel - You need to synchronise various functions in an OEM around manufacturing, engineering, purchasing, and supply chain cost. Planning those activities, integrating, orchestrating within a company, and running and managing that value chain is a function that we see as core, and that we see as stepping up to managing the value chain. Ideas that we are currently implementing: one was order slotting, then there’s powertrain synchronisation to reduce volatility, and synchronising inventories across stamping and powertrain plants. There’s also schedule conversion… these are all things we are doing. This has driven us to run that 4PL concept with Gefco.

If we were to start a new logistics company tomorrow, let's say in Cyprus, what would you do if I made you the head of it?
 

Ginkel, Adam Opel: Three things: I would knock on the door, present my innovations, intelligence, and capabilities to OEMs between tenders, not only during a tender. I would organise myself so I can bridge a communication gap and help leverage the expectations on both sides. If you are sending a rocket to the moon, but the guy you are talking to doesn’t know the moon exists… then there are communication problems. I would make it clear that I’m ready to step up and manage complexity and here’s what I can demonstrate. I have the perfect network for you – that’s why it’s this price. These are the three things I would do from a technology, communication, and my own perspective.
 
Lederer, PSA Peugeot Citroen – The outbound and inbound situation is quite different for us. We save a lot of time in tender working with Gefco. We are rather more in a continuous improvement business. We don’t stick to particular tenders. We share our mid-term plan and hope to optimise the global design of our inbound and outbound and try to get the best solution. It has to be very close to the process of the client.
 
Bruyneel, Volvo Car - What is the objective you want to achieve? With many of the tenders in place, you already have pre-conceived ideas and you are limited.
 
Basically you need to listen to the logistics companies, and our partners need to understand that this is our idea, but also to think out of the box and propose new things. Even with a tender, there are certain boundaries you need to maintain. We are also happy to listen to alternatives, new ideas, and new ways of structuring flows and supply chain.
 
Ginkel, Adam Opel - In an ideal world, here I am selling a car to a customer. He is excited, and wants the best value. I tell him, I will deliver you your car on March 31st and you definitely have the best value for the price you can get. My expectation is that all of us help the customer to be satisfied and enthusiastic about us delivering the car on the 31^st, and not having an outbound distribution that takes five days, whereas inbound takes 15 minutes.
 
I want to make sure that my containers are well utilised so I don’t have to waste billions, and tell the customer it’s $200 more expensive because we are shipping waste. I’d rather he spent it on a nice dinner with his family. I want us to be on board and manage the complexity… Achieve jointly and together, satisfied customers that get the best value for what they’re paying.

If you had a new logistics business, would you still continue to organise your inbound/outbound the way that we see it today?
 

Ginkel, Adam Opel - It’s a question of ‘what are you doing where’. If I’m running inland sourcing for my plant in Rüsselsheim, I wouldn’t ask a guy in India to quote. From a commercial perspective, and engineering, I would like to obtain knowledge prior to tenders from our supply base as to what makes more sense. In principle terms, I would think if I can leverage global volumes and engineer networks on a global scale I would go for a globalised sourcing process. In aspects where it makes more sense to go regional I’d go regional... On the operational instance I’d be very local. In the end, you have to control it where you are receiving the parts.
 
We have got to step up together and manage from where we send, and make sure what we are sending is utilised. We have talked about scaling... If we can ensure what we are packing is coming through as it was intended to come through then here is where our savings are. We need to be sharp, and know what it is we really want to control.
 
Lederer, PSA Peugeot Citroen – You have to think about operational process and management. Are the same people managing the inbound and the outbound? Is it the same clients? Do they work at the same time. I’m not that sure. So to be efficient you need to find the best solution to optimise this kind of flow, rather than to optimise inbound and outbound.
 
Ginkel, Adam Opel – The challenge is that it coincides with a number of other aspects that as an OEM, and as a service provider, we will have to do. One of them being that we have to synchronise the schedules and volatility on the material inbound with the vehicle distribution. Many markets are distributing more cars towards the end of the month than the beginning. Your inbound flow however is stablised or vice-versa. There is much more behind synchronising these activities, and to enable that you can leverage technical concepts. It is not simply about presenting a technology if it won’t adjust the process in an organisation.
 
Lahoz, Kia Motors - I agree with you… For us it’s important to maximise efficiency independently. If there’s a way of streamlining, and having a lean process combined in both, great, but I guess complexity would increase a lot. So you would have to see if that would be more efficient. You would need to look independently, and in many cases you need to be local. I would treat the efficiency image differently, but in inbound we are not an expert.
 
Lederer, PSA Peugeot Citroen – I believe that each company has its own DNA. Some are quick to answer, some are slower. This is something you have to integrate in a global system. Each has its own way of thinking. The important point is that you have an agreed flexibility, from the sales department to the supplier. And it’s a challenge.
 
Lahoz, Kia Motors - Many times it is too focused on the month of sales in stock management or inventory management. For us, last year, we did an optimal stock strategy, looking at seasonality etc., all kinds of variables. What is important it to try to adapt to the peaks at the end of the month because they happen, but have that flexibility to make a modular adjustment in your stocks when you need it. You need to have the balance between an acceptable cost for inventory, and at the same time be able to achieve the same standards. 
 

Any final thoughts?
 
Ginkel, Adam Opel – There is a huge amount of intelligence and innovation out there. The world around us is changing at a rapid pace, and I’m not sure if that degree is a little bit faster than the degree to which the logistics industry is stepping up to those changes. You are working on your mobile and get an instant response. You have to convince the same people that are used to that environment that it takes five days to deliver a car from A to B. We are flying to the moon but we aren’t utilising a container to 100%. We are doing many fancy things out there, but delivery reliability to the final customer is not 100%.

The question is, are we stepping up to manage that, or are we complaining of its existence? Most people I know in the industry comprehend that the challenge is the whole reason for being, and this is why they offer ways to manage it. But are we doing it good enough, are we keeping up the pace, are we winning that race of time, are we comprehending that there is no other option than to want to win that race?

Videos from this and other principal sessions are avaible on the programme page here.

The next conference in the global Automotive Logistics series will be in China in Shanghai April 14-16th. See more details here.