Changes heard around the
world echo in Europe
Logistics and supply chain responds as OEMs seek to drop ‘sourcing robots’ approach
Only weeks before the start of GM’s contract to outsource its European logistics to Gefco, Andreas Ginkel, director of the logistics alliance, says that he sees the move as a way to introduce more innovation and logistics engineering.
He says that providers can expect OEMs to stop being “sourcing robots”, issuing requests for quotations (RFQs) only months before a contract begins. “One of our core expectations from our alliance with Gefco…is more planned engineering rather than just executing orders.”
Matthias Schulz, director of material planning and logistics at Ford of Europe, puts it more strongly. “I’m not interested in cost as a starting point. Rather we need to start with a concept first, understand it, and then implement it.” He says that true innovation in logistics does not come at the RFQ stage.
The 11th annual Automotive Logistics Europe conference met in Bonn, Germany last week for two days of intense networking, discussions and learning. It gathered together senior executives from OEMs, tier suppliers and LSPs of all types to hear reports of success, but also to continue to wrestle with remaining inefficiencies in European supply chains.
Delegates met against a backdrop of a 2013 sales forecast of just 13m light vehicles, according to Michael Robinet, managing director of IHS Automotive.
This would continue the decline experienced since the 17m sales peak in 2007. West European light vehicle production is expected to fall 6% on last year to below 12m units for 2013.
But while the economic situation continues to be a drag on the automotive industry, logistics and supply chain managers have not missed a beat in adjusting inbound and outbound networks to match a changing supply, production and distribution footprint across greater Europe and its links to the rest of the world.
Many companies are also looking ahead to new issues that will impact logistics, including increased regulatory costs such as low-sulphur bunker restrictions at sea, more transport-related taxes and requirements (including freight carbon reporting), as well as capacity constraints across road, rail and ocean.
And it’s not all decline. Martin Dixon, research manager in freight rate and benchmarking at shipping analyst Drewry, predicted that demand for car carriers worldwide was likely to surpass capacity by around 2015, for example.
The theme of this year’s conference asked the question ‘Do you have the right network?’ The answers from delegates and speakers revealed numerous examples of carmakers and tier suppliers making considerable changes to supply chain operations.
Some are in response to decline, including pending plant closures from Opel/Vauxhall, Ford and PSA. But some are the result of changes including shifts eastward in the supply base and the continuing need to support strong exports from premium carmakers, particularly in Germany. OEMs including BMW and Daimler have been re-examining their order-to-delivery cycles and transport mix to better serve growing markets.
German premium brands aside, globally there is a trend towards more regional production of vehicles, with more factories being added in China and North America. However, the consolidation of global vehicle platforms across many regions, combined with a number of global vehicle launches, continues to drive inter-regional material flow, including out of Europe. These changes require the need for fast response in logistics and network planning.
Many tier suppliers are also looking more carefully at ways to centralise and consolidate logistics flows across sprawling production and supply bases.
The response from logistics managers and companies has been for more “logistics engineering”, a buzzword heard throughout the conference to describe how to plan logistics in ways that lower daily transport and inventory costs, as well as how to use logistics data to better inform decisions on sourcing and production locations.
Ford’s Schulz acknowledged that the European industry would need to cut production capacity further, as was done in the US after the 2008 financial crisis.
“It’s clear that we still need to learn the lessons of adjusting capacity to demand,” he told delegates”.
European demand will remain low, and frankly it won’t grow beyond the previous levels, as we are a saturated market. We have to become leaner, including in supply chain and logistics.
“It will be painful, but we have to do it. The US has shown the way, as there the OEMs, tier suppliers and the logistics providers are making good money again,” he added.
Plant closures to come – for some
While some carmakers are finally starting the difficult process of cutting production in Europe, it is not a consistent picture. While IHS’s Robinet pointed to plant utilisation at unsustainable levels below 70% of capacity in both west and east Europe through to 2015, central Europe and Germany remain healthier. Utilisation has levelled off there from its highs of 90% in 2010, and could drop to around 75% this year, but he forecast that it would recover again to nearly 90% by 2015.
Indeed IHS expects a number of stronger (German) OEMs to expand production in Europe: the Volkswagen Group will have increased from 4m units in 2010 to 4.8m units by 2015; Daimler from 1.3m to 1.7m units over the same period; and BMW from 1.2m to 1.5m units.
Most other manufacturers will either see production stagnate or decrease: GM is expected to have fallen from 1.2m units in 2010 to 800,000 by 2015, while PSA is predicted to fall from 2.3m to 2m units over the same time period.
More exports but less ‘interconnection’
Beyond these production changes, the European automotive industry is being impacted by global economic and industry shifts, from growth in developing markets to strong shifts towards regional production. These are likely to have a significant impact on logistics.
Robinet pointed out that, despite the evident globalisation in the automotive industry, a push for more regionally-based vehicle production was likely to lead to lower levels of regions being ‘interconnected’. In other words, the proportion of vehicles exported from one region to another is likely to decline relative to global production.
Despite that shift, however, the forecast rise in global output from 70m units today to 100m by 2020 will mean that the actual volume of inter-regional exports will increase significantly.
Likewise, while the production of more vehicles across global or ‘mega’ platforms drives intercontinental freight and global supply chains, such flows seem more likely to be temporary or driven by model launches, with the main trend being towards establishing supply chains within regions to avoid both currency risks and logistics costs.
But again, given the growth in global volume and the extraordinarily high number of model launches predicted for the rest of the decade, the total volume of such flows looks likely to increase, including outbound from Europe. Ford’s Bert Bong, who last year took over as manager of material flow and supply chain management at Ford Europe after a decade leading the OEM’s finished vehicle logistics, pointed to significant increases in material and components from Ford’s European operations to other parts of the globe.
Building where you sell
European exports are expected to fare relatively well, and Robinet predicted they would increase their share of global vehicle exports from around 22% today to 25% by 2020. Japan and South Korea will see exports fall as a result of regional production, from a 59% share today to 45% in 2020.
“Even if the yen is getting weaker again, it doesn’t matter,” said Robinet. “Carmakers are regionalising their production, especially in Mexico, which is the hottest location globally for production growth – even more so than China right now.”
North American exports, particularly those from the southeast US and Mexico, are set to nearly double in volume by 2020, and improve their share from 9% to 14% of global exports. Southeast Asia, particularly India and Thailand, should also increase their exports, though IHS expects no significant export share from South America or from China.
By 2020, IHS expects European exports to level off as German manufacturers localise more of their production in markets such as China and North America (especially Mexico). BMW and Daimler currently export the highest proportion of their production, at more than 40% and 35% respectively, but by 2020 BMW’s export proportion is forecast to drop below 40% of production while Daimler’s will be below 30%.
Asian OEMs have led the regionalisation trend. Toyota, for example, has gone from moving about 30% of its vehicles between regions in 2008 to just above 20% today, and the fall is expected to continue over the next decade. Hyundai has gone from moving more than 50% of vehicles between regions in 2005 to less than 30% today.
Even as VW and GM grow towards global outputs of 10m units per year, their proportions of inter-region exports will remain stable or fall slightly below 10%. Ford, Honda and PSA, on the other hand, have been and will remain largely regionally focused, with only around 5% of inter-region exports.
This regionalisation presents a mixed picture for segments such as ro-ro shipping. While clearly trunk lines from Japan and South Korea to Europe appear likely to suffer, Robinet points to other emerging trade lanes. The restructuring of west European production, for example, could open the path for more imports of lower cost models built in India or Thailand. Elsewhere, short-sea shipping in North America could emerge with more regular services.
Logistics will be king in sourcing
The regional growth of vehicle production is being matched by a similar trend in the supply chain itself, with manufacturers looking to source the majority of components from within the same region or currency zone. This particularly applies to complex and heavy parts such as suspensions, chassis, powertrain and transmissions.
“OEMs won’t tolerate bringing in material internationally for a long time, unless there is a high volume and economy of scale,” said Robinet. “It’s not true for everything, but in many cases logistics will be king and you will need to locate production nearby.”
Michael Silvio, director of supply chain management at tier supplier Cooper Standard, reported that his organisation was starting to think differently about global sourcing and material flow. After a decade of low-cost country sourcing, he said that logistics was started to have a bigger influence on purchasing decisions which blended cost and risk.
The new strategy, particularly for North America, is to source more in the “low cost country next door”, namely Mexico. “In a regional sourcing strategy, you save not only on the logistics costs but the costs to solve a problem are much lower, including sending engineers and managers to deal with a situation,” said Silvio.
“For a factory in India or China, this could cost anywhere from €30,000 to €3m. But for the ‘LCC next door’, it might cost €3,000,” he said.
However, their OEM customers often pull tier suppliers to new locations. Robinet pointed out that vehicles are today produced on global platforms in no fewer than four locations. Even if a tier 1 can open a new location, its own supply base might not be able to co-locate in multiple regions.
Helge Wöbke, head of logistics for Europe, Middle East and Africa at TRW Automotive, gave the example of Russia. “We’re asked to go Russia, but it’s not easy given the import tariffs. If we localise in Russia, the OEM will not pay duty for the parts, but we likely will, because much of our supply base cannot move quickly enough,” he said.
As a result, many suppliers continue to export components to multiple locations, especially in ramp-up and launch phases. And Robinet said that while OEMs want their suppliers to regionalise production, they also want them “to be able to respond globally” when parts are needed across the world.
One impact of such global reaction appears to be higher levels of premium freight or emergency logistics, which was confirmed by Evolution Time Critical’s Graham Little. “Premium logistics allows manufacturing changes to happen without disruption. In Europe we’re seeing more material moved from North Africa, for example,” he said.
Such global flows seem likely to increase at least during this decade as carmakers roll out an unprecedented number of launch ‘events’ (defined by IHS as a model launch that will sustain production volume of at least 50,000 units per year). After delaying launches and cutting capital investment during the recession, the 2012-19 period will feature an exceptionally high average of 126 events per year, an amount that is “off the charts”, according to Robinet.
Know your total costs
Meanwhile, the European region continues to delay launches to conserve capital, so launches elsewhere are driving the supply base and hence logistics flows. GM revealed, for example, that global platform production had led the carmaker to move around 750,000 TEUs of intercontinental material last year. It’s a factor that the carmaker appears to be focusing on at the highest levels, including in better understanding and measuring logistics costs compared with capital investment, risk and other considerations.
Michael Scholl, director of supply chain for Opel/Vauxhall, reminded delegates of the need to move beyond being operational and transactional detail towards total cost management. GM has been building a reference database that can better analyse costs and risks associated with decisions in the supply chain that include supplier relocation, double tooling and parts sourcing.
“There are still too often conflicts between purchasing and supply chain on parts sourcing when it comes to issues like piece price versus inventory and logistics,” said Scholl. “We are building up the costs and risk assumptions into a reference-model workbook. Of course the inputs can change but it is an important tool.”
Sean Doherty, director for the supply chain and transport industry at the World Economic Forum, which recently co-published a report on the costs of supply chain and logistics barriers, revealed that many manufacturers are still unaware of the real costs involved in shifting production and supply bases. He gave the example of one (non-automotive) company that initially calculated a saving of 25% from moving production to Mexico. After factoring in supply chain barriers including inventory costs, logistics, premium freight, delays and other considerations, that saving reduced to just 9%.
GM-Gefco alliance exposes the problems
Perhaps no other carmaker can be said to best answer, or attempt to answer, the question ‘Do you have the right network?’ than General Motors Europe.
The carmaker’s alliance with PSA Peugeot Citroën has led to a fourth party logistics provider (4PL) outsourcing of logistics planning, operations and purchasing to Gefco. On April 1, when the project goes live, the carmaker’s inbound and outbound supply chain will be in Gefco’s hands across Europe, Russia and Turkey. In one swoop, the alliance effectively combines Opel/Vauxhall and Chevrolet’s logistics with those of PSA, Gefco’s former majority owner, as well as with the provider’s other automotive clients.
“When we started to build the logistics alliance with Gefco 4PL here in Europe, we were driven by the thought that there are opportunities to optimise networks differently,” said GM’s Andreas Ginkel. “It must make a difference to buy logistics services for 5m cars per year versus 1m. Even if the difference is just a few percentage points over a number of years, the savings will be enormous.”
Ginkel said that the use of a 4PL should help the carmaker to truly “engineer logistics concepts”.
“We’ve all experienced the cost pressures that have reduced headcount and resources, which in some ways has turned us ¬– at least in the market’s view – into sourcing robots that issue RFQs three months before a contract ends,” he said.
We believe implementing the 4PL concept will force our partner to engineer perhaps one or two years before the end of contracts, so that we see a more optimised logistics.
Ginkel told delegates that other benefits were also becoming clear, in particular the chance to create more standards, including in administration. He particularly felt that the carmaker was now gaining a data transparency that would help it better understand how logistics costs fit into the total supply chain view.
“In a global company like GM, we have many different systems, such as those for freight audit and invoicing, as well as even different processes for Chevrolet and Opel,” said Ginkel. “Now that we are combining the logistics under Gefco, we are seeing a transparency in our logistics and cost data that we never had before, which will be fundamental in helping us to drive business decisions.”
He also maintained that GM would still have fundamental control of its logistics, despite management and purchasing being transferred to Gefco. He said that in some cases it will still be the same individual executive, who will now be employed by Gefco rather than Opel or Chevrolet. But GM will carefully audit the processes and the results to make sure that they are beneficial to the carmaker and also fair to other logistics providers.
“We have not given up our responsibility. We will stay there, and act as partners, which we owe to all of our logistics suppliers,” he said.
The day job continues to demand
If the GM-Gefco alliance is at one end of how Europe’s automotive companies are adapting logistics processes and engineering, the raft of daily and weekly route planning and freight consolidation activities remain at the other.
Bert Bong of Ford: no traffic jams at sea
Ford’s Bert Bong displayed a map showing the complexity of Ford’s ‘origin-based network’ for inbound logistics, which includes crossdocks spread across Europe collecting thousands of less-than-truckload routes, trunk lanes of full truckloads out of component factories, as well material export flows to other continents.
“This map changes all the time as our production and supply base changes,” said Bong.
“Europe has expanded for us not only in the supply base, but also for manufacturing as we opened a plant recently in Romania. Our new joint venture in Russia has added two more plants in the extended region as well.”
Further examples were in evidence from Fiat Industrial, the as-yet unnamed new entity that combines operations for CNH, Iveco and Fiat Powertrain, including logistics purchasing and design. Dror Noach, who is vice-president of logistics for CNH and is leading logistics across Fiat Industrial, pointed to a range of efficiency concepts implemented across CNH and Iveco. An example is that the company is now using a flexible type of equipment to transport tractor cabs from France to the UK, which can be reloaded with finished vehicles for distribution back in France.
“It’s very challenging because there are many different types of regulations for truck sizes across Europe. You have to make sure that you design a solution that will be applicable and legal between the two countries,” said Noach.
He also gave the example of engines manufactured in France being sent to North America. Fiat Industrial first moves them from France to Italy, where lightweight goods are added to the sea containers, before shipping to North America. “With the engines, the container is weighted out before it is cubed out, so by adding more light weight material, we can further optimise transport,” said Noach.
Antoine Redier, who is the alliance director for Gefco, pointed to other areas of logistics engineering, including crossdocks in Buenos Aires, Le Havre and Shanghai to optimise container loading. “You need to employ manpower, but our customers found that it was worthwhile to optimise the collection in the origin country and to have clean, ready-to-consume parts arrive at the factory,” he said.
Central control of the tier supply chain
Automotive Logistics Europe 2013 revealed how the tier supply chain in Europe continues to undergo changes in the way it is managed, including a push for more centralised management. Given that many large tier suppliers have grown through a mixture of acquisition and consolidation, their supply chains are often fragmented and scattered across a tremendous number of plants and facilities. Silvio at Cooper Standard, which has more than 70 plants in 19 countries, said that because of the large number of acquisitions by the company, many of the plants have different ERP systems and other varied logistics processes.
Jörg Blechinger, director of Magna Logistics Europe, revealed the scope of the tier 1’s operations across the continent as 117 plants, more than 3,000 active suppliers, 70,000 active part numbers and 16,000 transports per week. Magna has 200 registered service providers and issues 400-500 RFQs each year.
“Our European supply base is also changing. Looking at one specific project for example, in 2005 we had 30 suppliers in Eastern Europe, while today we have 67 for it,” said Blechinger.
TRW’s Helge Wöbke echoed the increasing complexity; the company has 185 plants in 26 countries. Annual logistics cost in Europe are around €183m, while globally they are €500m.
Blechinger said that given the changes in the supply chain, including the need to meet more global platform and modular strategies, logistics was becoming even more of a core competency at Magna. “We are focusing more on planning, including strategically planning our sourcing scenarios and planning transport, warehousing, inventory turns, packaging and our order-to-demand strategy.”
Magna has been doing more to centralise its logistics across its sprawling network, including planning transport and pickups across numerous plants rather than allowing each plant to control logistics. “In some cases, like the Magna Steyr plant in Austria, the plant is large enough to co-ordinate most of its own flows,” said Blechinger. “But for plants with just 300 employees, it is better that we manage it centrally.”
Wöbke said TRW is also trying to co-ordinate its network in a more central way. It will consolidate a number of crossdocks to improve truck utilisation, including combining three crossdocks that supplying five sites in eastern Europe into a single crossdock in Dresden, eastern Germany. It is switching to a single provider to do milkruns to the crossdocks as well as the shuttle runs from them to the plants.
But he admitted that implementing central planning is difficult since TRW’s individual plants still have control and there is no single central budget. A large amount of freight is moved in groupage transport – bundled together with other companies’ freight – rather than combined across TRW-bound material.
“We don’t have the central function,” he said “but rather [my team] is more like the internal consultant on logistics presenting the best strategies, which the plants can then reject,” he said. “We have a lot of groupage shipments, and in some cases an origin-based network just won’t fly.”
Build-for-distribution must come
While global car production continues to grow and is forecast to exceed 70m units this year, the growth is taking place mainly in the BRIC economies, which has led to some significant changes to OEM outbound distribution networks. According to Matthias Wellbrock, general manager of worldwide distribution at BMW, export growth has led to a ‘build-for-distribution’ approach – making distribution a priority in the production system before cars are built – which has allowed the carmaker, working closely with its service providers, to gain stability and timely delivery.
Wellbrock said BMW is prioritising customers in its ordering system and working on a closer interaction between production and distribution, with the ultimate goal of bringing the order-to-delivery time down from 32 working days to 10 – with just three or four of those days taken up by vehicle delivery (excluding deep-sea shipping).
The challenges to achieving this reduction are in both smaller markets, to which shipping frequency is low and so inventory higher, and in high volume markets such as North America and China where BMW is trying to smooth out peaks and troughs in the distribution cycle.
Wellbrock said that now BMW is aiming to get delivery dispatch orders before the car is built,l rather than issuing the pickup order once the car leaves the factory, which often means waiting for the transport provider to build full loads and hence the need for storage space.
The build-for-distribution approach has had a positive impact on stocks, according to Wellbrock, reducing dispatch space, transport costs and process time. “From our point of view, build-for-distribution is the OEM’s responsibility, to get stability in the process, and is the main contributor for improvement in the order-to-delivery time,” he said.
Effectiveness through information
Ford has identified four areas through which it can improve delivery: outbound logistics; export and trading; service settlement; and the use of vehicle modification centres. Christoph Wust, manager of global vehicle distribution IT, gave some perspective on the outbound scene by explaining that 20,000 vehicles are being put into Ford’s global supply chain every day.
“That assumes that if you have five days of delivery time, we always have 100,000 vehicles in the supply chain at any one moment,” he said, each with a customer waiting as well as inventory carrying costs.
Wust said that with more global vehicles built under the One Ford strategy, the carmaker had seen a rise in cross-regional shipments, including to and from Europe. Vehicles delivered to new volume markets, such as China and Russia, however, must be moved through “immature infrastructures”, often characterised by long and costly distances and low volumes. To deal with this, the company is building in greater flexibility and transparency, and is looking for what Wust called “effectiveness through information” – looking at which vehicles should get the priority to move to the customer and which will be sent with less priority for dealership stock.
In 2008, Wust and his team did a study of the vehicle distribution process and what could be achieved if there were no constraints. It identified 140 elements of the process, of which 38 made up 90% of the distribution activity, and within which 16 so-called key processes made up 60% of the activity. The resulting schematic strains the eyes, and Wust did admit that, though distribution isn’t rocket science, it is complex. Everything from distribution order management, tracking and the spot market is interfaced, and the analysis allows Ford to look at improving planning for its different regions.
When dealing with exports, such planning relied on the usual considerations, including customs and exchange rates, but also threw up the need for more vehicle modification centres (VMCs) in the network. Last year Ford started implementing solutions for outbound logistics from this study in Spain, the UK and Thailand. This year the company will extend to Argentina, South Africa, India, Australia and New Zealand. VMCs are also being set up in India, with North America to follow, said Wust.
Systems that don’t work, but no-one wants to change
The shift in regional demand is also challenging Daimler. Jan Maes, manager of worldwide transportation and vehicle distribution, said that the OEM faced two main challenges in reorganising its networks.
“With the continuing crisis in Europe, we see ourselves obliged to review current networks to reflect lower volumes and re-adjust distribution systems because they are inefficient or oversized,” he said. “But when we look abroad we see the opposite, and we have to reorganise to cope with the volumes or put a system in place ready to cope with them as the market matures.”
Maes said that Daimler is striving to master its ambitious volume growth and model launch programme in part by accessing the right transport modes, including intermodal shifts and hub-and-spoke distribution.
It is also intensifying rail movement, reviewing its ports strategy and looking at a lead logistics provider concept for door-to-door delivery in some markets.
“We deliver our products to around 200 markets worldwide,” he told delegates, “markets that are very different in shape or volume. Our main focus is on key developing markets and we want to control the supply chain to them in all its different steps.
“But when it comes to more exotic destinations – difficult markets to reach over a long distance or with small volumes, perhaps involving a combination of transport modes – we are looking for the support of qualified, specialised service providers which can provide tailored solutions.”
This doesn’t mean a shift to outsourcing as a general rule, he added.”There are no decisive recipes,” said Maes, “It is about the right combination of ingredients.”
Asked about the use of EDIs to provide greater visibility in the distribution process, BMW, Daimler and Ford all agreed that more needed to be done. Wellbrock said that the industry needed better process transparency, but that two years of discussions on a standard data exchange had gone nowhere because “everyone had their own philosophy” to which they were sticking.
He said BMW was working on a system to make distribution data available on one screen, which would provide an instant map location of a vehicle just by typing in a VIN number. Ford’s Wust pointed to an RFID solution being introduced by Germany’s VDA that allows brokering of information into a network.
John Canvin from the European standards organisation Odette, challenged OEMs to co-operate as Odette seeks to move beyond the inbound side of the business to look at vehicle distribution. He said one carmaker had approached the organisation frustrated with the endless problems of connecting LSPs into its network because of a lack of data standards. “If you are ready to co-operate we are ready to work on some simple messages – web-based style XML messages – and define a data exchange.
“It is something we could do very quickly and standardise it, and if everybody implements it then everybody wins,” Canvin said.
The responses of OEMs on stage at the conference were somewhat restrained.
Making excuses for inefficiency
Seat’s manager of finished vehicle distribution, Manuel Medina, highlighted the seeming reluctance amongst transport companies to embrace the IT needed to make intermodal delivery more efficient, especially in the area of transhipment.
The VW group’s Spanish brand has long been a forerunner in multimodal transport.”We were the first in Spain to use ro-pax ferries to send cars to Italy,” said Medina, and added that he exports to Russia and Finland using short sea to Antwerp, as well as a combination of road, truck and rail for cars to Germany.
But delivery delays are common. Although the IT exists, Medina said that the practice of providers remains unchanged. He cited an example of the delivery of vehicles to Germany in which only 20% of trucks delivered on time.
This was down to one transport provider not sending the trucks to the factory because they hadn’t received the right paperwork.The problem is compounded by the fact that providers, according to Medina, only start to plan when they have the first load in hand, regardless of the volumes Seat needs to move.
“In our daily life we have an average stock at the factory of around three days. One third of our installation is used up as buffer for the transport companies,” he said. “It is one third of our stock, about 2,000 cars waiting for the transport companies to collect.”
While admitting that Seat had its part to play and accepting that Spain’s economic problems meant that production was sometimes unstable, he went on to ask whether the transport companies were hiding behind that as a justification for their failure to embrace change and adopt new methods. Either way it was the main barrier to successful intermodal operations, he told delegates.
Expanding networks across the globe
While carmakers search for greater efficiency to offset trading losses within Europe, they also require an accurate picture of transport to strong export markets.
China is the key, and German brands there enjoy a market share of nearly 22%. Exports increased almost 7-fold between 2005 and 2011, noted Daimler’s senior manager of worldwide transportation, Egon Christ, and complexity is something of which Daimler is well aware. “Vehicle logistics (at Daimler) is not a European issue,” said Christ. “It is a global challenge to supply all markets around the world.”
He said that European logistics providers seemed to be reluctant to extend themselves, and that among land-based providers only 25% of the top companies were present in the fast-growth markets. The ro-ro ocean forwarders were in a much stronger position, he said, and were investing heavily in infrastructure and equipment abroad.
Technological innovation, customer focus, co-operation and a proximity to competitors were prerequisites for this expansion, according to Christ, who also noted that a successful BRIC strategy demanded long-term thinking, commitment and perseverance.
In terms of co-operation with providers in new markets, Daimler aims at a mix of the familiar and the new local providers which have a substantial fleet size and a good degree of expertise. “In the long run we want to develop a solid supplier base abroad,” he said. “We will take some of our established players with us, but also build up a new supplier base in the long run in these new countries.”
Daimler’s strategy of taking a mid-sized provider with it to markets like India means bringing standardised logistics techniques to new locations, which then breed a good general level of standardisation and IT, said Christ.
Applying the same principle in reverse, the conference heard from one notable overseas provider looking to move into Europe. Craig Irwin, president of one of the leading car hauliers in the US, Jack Cooper Transport, said that the company is looking for involvement in the European transport sector and is eager to learn lessons from it – and to potentially invest in it.
“We have heard from our customers that we need to go global – they talk about that,” Irwin told delegates in Bonn “I don’t think there are any US carriers that work outside their own borders [but] we are looking at expanding in Canada and getting into Mexico. I am here to dip our toe in the European market and see what the opportunities are – as well as discover best practices and take them to the US.”
Ownership of Jack Cooper Transport changed during the downturn in the US and Irwin made an offer to European providers: “We are known as a turnaround company, and it would be good to provide some help in terms of a joint venture or acquisition. That would give us a strong presence when the market recovers,” he said.
Gary Salvador, head of US port processor, Amports, added that it was important to know what was going on in Europe and how developments might affect North America. “Our business is much impacted by Europe. In 2007 we moved 1m cars through ports in the US and that was 70% imports,” he said. “We are now at 50:50 on imports and exports. It is very important for us to understand and study the European market because we are impacted by our manufacturers in the US exporting to Europe. We are also port processors for the European manufactured cars coming into the US. It is about knowing where we fit into the global supply chain.”
Multimodal opportunities and threats
OEMs, tier suppliers and LSPs at the conference all pointed to future risks from transport capacity issues, as well as added costs from taxes and environmental regulations. Ford’s Bert Bong, along with Gefco’s Redier, called for more multimodal transport as a key response.
“As Europe’s road get crowded out, we will need to look more at rail and short sea shipping for inbound part flows,” said Bong. “There are no traffic jams on the sea. The captain doesn’t stop every eight hours by regulation to take a rest.”
Gefco has already introduced several long distance trains between France and Russia, as well as from China to Russia, which Redier expects to increase under the ownership of Russian Railways. “In future, given environmental considerations and more polluter-pays taxes, I think that long distance transport by road will have to stop,” he said. But “ee’re not there yet, because we don’t have the rail capacity.”
However, multimodal transport including short sea brings its own concerns. Emission control areas in most northern European waters will mandate 0.1% sulphur emissions in 2015 compared to 1% today (and 3-4% in many other parts of the world). “The ECA issues, which will impact short-sea shipping in Europe more than deep-sea because the ships spend more time in the controlled area, are holding back short sea,” said Drewry’s Martin Dixon.
Issues of carbon reporting were also raised at the conference. A new law in France, for example, will mandate that companies report their freight emissions. While some OEMs are already tracking such emissions, the process will be new and confusing for many companies. There are also questions over whether the EU could adopt the French law more generally.
Al Jeory, inbound logistics manager at Jaguar Land Rover, said that many companies are not ready to meet the needs of the changing legislation. He said that JLR, like Ford, is working with its logistics provider (DHL) to track and reduce emissions. After setting targets to cut freight emissions per car produced by 15% between 2008 and 2012, JLR actually achieved a reduction of 23%, he said.
But Jeory felt that legislation was actually holding back further improvement by preventing OEMs from sharing data. “I can’t know Ford’s prices by European law, and even though we both use DHL, I can’t know it’s CO2 cost either, because from there I could figure out its rates,” he said. “If we could share more details, we could save more costs and emissions.
Filling the ancient gaps
If the conference heard lots of example of progress on efficiency, and on re-engineering networks, the biggest concerns seem long-standing. They include the need for better visibility, delivery date accuracy, and more digital and automated processes, including for invoicing.
Opel/Vauxhall’s Scholl pointed to areas that he had expected the logistics sector to have mastered long ago, including buildable schedules, transport visibility for parts and cars, no unnecessary administration for delivery trucks, and immediate pickups of finished vehicles.
Yet there are still deficiencies in each: production scheduling decisions are made without knowing whether the vehicles could be built; inbound truck deliveries require piles of paper; visibility remains poor; and cars wait many days for complete loads before leaving factories.
Solutions should exist to these problems, said Scholl, including the use of tablet PCs or smartphones to eliminate paper and create more visibility. “It’s not just about introducing new technology in old processes, but it’s the way we apply new technology to re-engineer and simplify our processes,” he said.
Ford’s Schulz concluded that automotive logistics is still well behind other sectors when it comes to things like tracking material and vehicles. “We are in the dark ages by comparison to retail,” he said. “The reason is partly that we have the tier suppliers controlling our supply chain, although that is also the reason why our performance is as good as it is. We cannot see everything, and the tier suppliers know that if they don’t deliver, they pay serious consequences. But we are not state of the art.”
Many at the event agreed that the technology and tools are already in place to make the necessary improvements. Ford’s Bert Bong pointed to trials using GPS tracking for moving material from China, which worked well. He also said that Ford had been using RFID at its vehicle yards for outbound in Europe for a number of years, and that it would consider applying it to inbound.
TRW’s Wöbke also said that top-down action was being taken. Rather than rebuild or synchronise ERP systems across the many different types used at its plants, it is applying a new system on top. “We found an external partner who handles freight bill audit and payment, but which also gives us transparency across our operations by building shipment reports,” he told delegates.
Get ready to change…and bring your passion
Not everyone agreed that improving the supply chain is simply a matter of implementing existing technology, or of convincing CEOs to pay more attention to logistics. Fiat Industrial’s Dror Noach felt that the answers needed to come directly from logistics managers and their desire to create new processes based on changing market needs.
“I don’t believe it’s simply a case that the technology is there. Where is the SAP solution that can integrate everything across my 45 plants? I don’t know see it,” he said. “We need to define new processes and then deploy them.”
Ford’s Schulz agreed that logistics managers and providers need to look well beyond the parameters that have defined automotive logistics for decades. He pointed to customers ordering cars on the internet who will expect an “Amazon-type service”.
“You can’t just keep coming up with the solutions of the past. Customers will soon expect that they can order their car, and that it can be delivered on a Saturday.
I don’t think the time of 30-90 day delivery cycles can be the future,” he said. “We are open to new ideas, as long there are benefits to both of us,” he added. “Approach us and we are happy to try.”
But he warned that attempts to simply repackage the old would be rejected. “To run a trial is a piece of cake, but we want to see truly new and developed ideas, rather than just the same service with a different brand on it. If you just do that during a trial, you might get invited to the next RFQ, but that’s it.”
He added, too, that people and their passions were what made a real difference to him, rather than software or a specific technology. “The differentiator is the people, not the software, which anyone else can buy too,” he said. “If I can see the passion in someone’s eyes, that’s what makes the difference.”
As a concluding thought at the end of a highly-successful conference, the focus on people was apt. Delegates who returned home via the snows of northern Germany knew that their responses to change would be the key to creating better networks of automotive logistics for the future.
What does a leader do?
Among the innovations within the Automotive Logistics Europe conference this year was a session in which industry leaders shared their passions and inspirations. Based on the TED Talks idea, speakers revealed their personal as well as business-related philosophies and issues.
Bo Andersson, CEO and president of Russian commercial vehicle maker Gaz Group, set out his vision of the role of a leader. Speaking by video from his plant in Nizhniy Novgorod, Andersson described how half the job of a leader is the conventional part of managing people, agreeing budgets, setting targets, following up etc.That is the easy part, he said.
“The second part is to drive change, motivate people and give them hope, and align people to work cross-functionally and create sustainable results,” he said.
Andersson described how when he arrived at Gaz in 2009, the company was out of cash and heavily indebted. He set out an ambitious but simple plan with the goals of negative cash flow, a10% profit margin and improved quality and sales. The goals have been substantially met, he said. Along with maintaining a 50% market share in Russia’s light commercial vehicle market, Gaz is also ramping up contract manufacturing for VW, GM and Daimler. Last year, the manufacturer launched an assembly plant in Turkey for its GAZelle range.
“We’re still making tough but necessary decisions in restructuring our business,” he said. “We are closing plants and consolidating production.
“We also need a strong purchasing and logistics organisation,” he added. “That’s essential for continuing to improve our production system.” In fact logistics and distribution have been at the heart of Gaz’s success, said Andersson. The company builds all of its LCVs to customer order, pre-paid by dealers, which forces discipline in the supply chain. The OEM has also improved its spare parts distribution network substantially. When Andersson arrived about 50% of customers had their vehicle repaired on the same day, he said. Today the number is 96%.
The OEM has been voted second best in Russia for service, after Audi, by an Ernst & Young survey. “We have asked our dealers what three things we must do to become number one. We have set that as our next target,” said Andersson.
Leave room and forgiveness to fail
Other speakers in this session shared their personal insights on successs. Jørgen Olesen, managing director of Mazda Logistics Europe, decribed how what motivated him was the room for creativity and even failure that Mazda allows its employees. He gave the example of using the Trans-Siberian railway to move vehicles from the Far East to Moscow, which the OEM implemented in 2008.
“Engineers were against it, as it was deemed to be too far, too cold and to have too many shuntings,” said Olesen. “We were also ‘lucky enough’ to launch the project just as the economy collapsed and there was no use for it.”
But the perseverance paid off. Dropping transit time from 70 days to just 21 had massive implications for cash flow, which was critical for Mazda at a time of severe financial strain. Later, as the Russian economy recovered, the service became a forerunner for other carmakers.
“What was critical was that we were allowed to be part of those teams that failed,” he said. “If you don’t allow yourself or your team to fail sometimes, then you won’t make breakthroughs.”
while spending time with family and loved ones.Carlos Lahoz, general manager of business planning and supply chain at Kia Motors Europe, pointed to the importance of doing what you love. He said that this principle should also be applied to managing a team, and attempting to inspire others. “The first motivation driver is to follow dreams,” he said. He also stressed the importance of having a good life-work balance, which includes avoiding emails and calls
“Sometimes when you work less, you can be more creative and effective,” he said.
Know your limits too, said Lahoz. He gave an example of having started his own exercise programme of running regularly, but had pushed too hard and risked sustaining serious damage to his knees. “You need to balance your competitiveness sometimes, too,” he said, and added that he now used a professional to set his programme.
Richard Barker, chief executive officer of IT provider Sovereign Business Integration, spoke about the ways that IT has become so ubiquitous in modern life, but also so baffling. He made a plea to his own industry sector. “The world is effectively hostage to IT. It can have major impacts on our business and personal lives when it fails,” he said. “But we make it more complicated than it has to be.”
Frankly poor performance by European dealers in servicing vehicles right first time and on time was revealed to delegates in an independent survey of end-user satisfaction funded by TNT, now free of the uncertainties of its abandoned takeover by UPS. The study found that the average satisfaction performance per OEM was only 85%, with some down as low as 75%. Conducted by Germany’s Bamberg Institute in association with the University of Utrecht, the survey was based on some 160 interviews with OEMs and dealer group. A summary of the results was presented at one of the two conference break-out sessions dedicated to the aftermarket by TNT’s corporate account director for automotive, Nick Beard.
He noted that it is generally assumed that significant inventory levels lead to end-user satisfaction, but that this is not the case. Though those at the highest levels of satisfaction, thought to be Daimler and VW, typically carry higher levels of inventory than the norm, poor performers, thought to include Ford and GM, cannot put their result down to poor inventory.
Indeed, a live electronic survey among delegates during the final plenary session of the conference voted that taking ownership of the aftermarket supply chain by either dealers or OEMs would be much more effective in delivering improvements than simply increasing stock levels.
“To become more efficient the aftermarket has to change a few empires and tear down a few warehouses,” said Beard, adding: “It’s a terrible mistake to combine collision parts [logistics] with service parts, which are 95% of the volume.”
The survey reinforced the widespread view that service parts are a significant contributor to dealer profits, representing an average 15% of their sales but 48% of their profit. By contrast new vehicles (56% of sales) and finance (3% of sales) each delivered 20% of dealer profits.
Leading with aftersales
The significance of aftersales for OEMs in retaining customers was illustrated by Francesca Gamboni, director of parts supply logistics at Renault. Internal studies had shown that a 10% reduction in the satisfaction levels of consumers of aftermarket services resulted in a reduction of 6% in new car sales, she said. However, getting the same 6% increase in new vehicle sales from aftermarket performance required an increase of some 200% in satisfaction levels.
Then there is the significance of aftersales servicing in breaking into a new market . “The first customers [in these markets] have taken the risk,” Gamboni told delegates. “Yet these countries are ones we known little about and don’t have the volumes.
“But we will never have the volumes unless we provide excellent service,” she said.
“In that sense we need LSPs that can deliver the excellence.” She also revealed that Renault can ‘see’ the stocks held by dealers, even though inventory is actually owned by the dealer. She added that OEMs are increasingly making their supplier of the year awards based on aftersales performance as well as on inbound logistics.
3-D printing and other fundamental shifts
Might more fundamental shifts be about to hit the aftermarket for cars, with profound effects for logistics? Another LSP, Alois Ackermann, managing director of European sales for the small packages business at Fedex, noted the potential impact of 3-D printing, which would dispense with logistics all together for the many parts that could be created by dealers at their own premises.
Meanwhile , the question of lifetime service contracts was raised by Pascal Bonn, supply chain solutions director for Neovia Logistics. Neovia is the the name for the newly-independent CAT Logistics, which has supplied 3PL services for 25 years.
If aftermarket servicing is sold as a long-term contract, said Bonn, “the future for OEMs might be selling as few parts as possible, because with long warranties they’re paying the costs.”
He also noted the experience of the high and heavy sector, where Caterpillar has been offering site contracts for some time. These are an extension of the service contracts already offered, which apply to an OEM’s own machines whose lives are measured in decades and where a fast parts rotation is one per year (from 650,000 Caterpillar parts, for example).
The site contract covers all marques at a particular location, so that Caterpillar becomes responsible for servicing equipment from JCB, Komatsu and Volvo etc. The example of the aero engine sector, where manufacturers make their profit from lifetime servicing rather than from the initial sale, is relevant here.
If you can’t measure it…
As with so much else in automotive logistics, the aftermarket sector is plagued with a variety of standards which mean that different OEMs measure the performance of their tier suppliers in different ways. The result is “a lot of wasted time discussing what the KPIs should be, instead of improving them,” said Welf Schneider, project leader for the aftermarket supply chain for tier 1 supplier Robert Bosch.
He described three current but different standards: VDA 5001, which has been applied by the German vehicle manufacturers association since the mid 1990s to measure time delay and errors in quantity of delivery; Odette, which measures the number of call-offs completed against the number expected, and is really an adaptation of a mass production standard which is not very good for the aftermarket, said Schneider and the Supply Chain Operators’ Reference, which measures the time of delivery.
Schneider announced that a working group led by Bosch, which includes five OEMs (especially from Germany) and 10 other tier suppliers, has developed a new SL (for ‘service level’) standard where order line, not quantity, is the principal criteria, and where fulfilment is recorded as complete only if 100% of the ordered quantity is delivered. The standard applies over a rolling 30-day period, not just at the end of each month.
Admitting that no LSP has yet been invited to participate in setting the standard – “we need a different measure for LSP execution” – Schneider said that nevertheless the next step is to make the new SL a VDA guideline, which he expects to occur by June this year, and to check alignment with Odette standards. “We then need to check that software developers can provide the measurement tools,” he added.
Joined-up thinking to calculate true total costs is also being applied at the level of packaging. The conference break-out session dedicated to the subject was given a stark example of how costs might have rocketed without supply chain oversight.
The new Zafira Tourer, from Opel/Vauxhall, was to have had an exhaust system built in two sections, for efficiency of production, until the intervention of the team responsible for containerisation in Europe, headed by Antonio Aguilar. He told delegates that one of the sections was too big for existing boxes and would have needed a new container and low-density packaging, with costs exacerbated by the fact that the supplier was a longer distance away, in the Czech Republic.
Instead, the section was cut in half and re-assembled in a pre-plant operation. As a result, an “unbelievable” 93% reduction in packaging costs, a 70% reduction in the number of trucks (equivalent to 950 vehicles) and a resulting 68% reduction in freight costs was achieved, said Aguilar.
The new process resulted in an overall 21% reduction in costs compared to the original proposal, he said. Identifying the risk was a part of a process whereby 20% of the commodities shipped, which are responsible for 90% of freight costs, are scrutinised. In some 80 cases, said Aguilar, the supply chain packaging team had got involved, and in around 15 of these had added so-called ‘touch points’ in pursuit of overall savings. “The plant manager wouldn’t have done this if [the cost] was just in their silo,” noted Aguilar.
Among the biggest hurdles to making the change to the Zafira exhaust system was that it was part of a global platform. This meant convincing global parts engineering where “you have enemies everywhere,” he joked. Convincing them took three months.
In fact, the choice of supplier and of final design now requires mandatory approval from the supply chain team within GM, he told delegates.
Standards, standards, standards
The trade-off between the cost of transport and the cost of packaging was highlighted by Armin Hans, a logistics and packaging specialist at tier 1 supplier Tenneco, which is using Goodpack returnable packaging.
The challenge of using larger pack sizes, the issues of line-side handling and adapting existing packaging has led to a trial on two routes, Spain-Russia and Germany-Mexico, over the course of a year. The latter resulted in 10,000 pallets of cartons being put into 6,500 standard packages, and resulted in a reduction in the number of 40ft containers in use from 200 to 180.
It also may not be true that re-packing must always be avoided, said David Mayo, senior supply chain director for packaging supplier Chep. More bulk reduces shipping cost but increases inventory, he noted, while the problem remains that what fits a sea container does not necessarily fit a road or rail container. Toyota’s Levent Yuksel, formerly head of logistics for Europe and now director of the OEM’s manufacturing in Turkey, also commented that anyway European and North American truck sizes are different.
The merits of returnable packaging were acknowledged in the session, but delegates heard that an automotive-specific pool of shared packaging was unlikely. The need for global consensus on bin size, the investment required, and the significant empty returns of packaging which could not be used outside the auto sector, all mitigated against it. Nor was returnable dunnage likely said the packaging suppliers in a response to a question from Cooper Standard’s director of supply chain management, Mike Silvio.
Perhaps the answer is to remove packaging altogether? Renault’s Francesca Gamboni, director of parts supply logistics for the OEMs aftermarket, said that one OEM in Europe is not using packaging for most of its aftermarket activity, and seeing an 80% reduction in damage through more careful handling. Reducing damage also means packaging which reveals what is inside – so that, for example, handlers can see that a windscreen needs to be treated gently, she added.