Executive summary: Blue skies over Bonn as logistics returns to growth

Vehicle sales and production are rising again in Europe, while supply chain complexity is driving more demand for logistics and better systems. But many risks remain both within the industry, and on Europe's periphery. Additional reporting by Marcus Williams and Zoë Apostolides[sam_ad id=6 codes='true']

Although the Europe conference was held at the same location in Bonn, Germany and during the same week of March, delegates who came the past two years will have noted stark contrasts. Last year, executives travelled from across Europe through a late winter snowstorm, with temperatures in Bonn below freezing. This year, there was barely a cloud in the sky, the sun glimmering over the river Rhine and the air as warm as 19C.

Weather may be a clichéd metaphor for discussing the economic climate, whether a ‘storm cloud’ for recession or ‘sunny skies’ for growth – however, in the case of European automotive logistics, it is an irresistible comparison. Last year was the sixth consecutive in which new vehicles sales declined in Europe (reaching a 20-year low), with production and exports also stagnating. This year, however, has been better. Sales in the European Union have been growing steadily, and current forecasts call for increases for the rest of the decade. 
 

The outlook is also relatively ‘sunny’ for logistics providers. Sales and production growth will bring needed relief to logistics providers, while the European supply chain is increasingly complex, driving demand for logistics volume, expertise and IT systems. Opel/Vauxhall, for example, has recently implemented new order management functions to help it improve its material and production plans. With the increase in part number and production locations, carmakers such as Audi and tier suppliers like Magna stressed the importance of logistics visibility and good systems in managing and controlling transport orders.
 
Indeed, during a live survey conducted during the conference, IT systems and software came top of the list for the best means of improving automotive logistics, with 34% of the vote.
 
The complexity is also driving more transport routes and multimodal services, according to Bram Ewals, chief executive officer at Ewals Cargo Care. Those solutions are also subject to change at short notice even within the lifecycle of one car model. “If we were to design a blueprint today we actually know by default that it might not be the right one tomorrow,” he said. “As a logistics provider it is a challenge to embrace the volatility of the customer and ask what we can do to follow them. We see it as a fact of life.” 

Ewals added that despite the constraints logistics providers work within, better information and forecasting solutions were increasingly available. 

Changes were perhaps most evident for the Volkswagen Group, where there has been a group-wide project to better consolidate flows, as well as to reduce carbon emissions by 25% by 2018 (from 2010 levels). Andrea Eck, general manager for outbound logistics at the Volkswagen Group, said the company was looking at better use of crossdocks, milkruns and direct runs between supplier and plant. The group is also looking to improve multimodal logistics, as seen in VW’s recently completed multimodal complex at the inland port located next to its Wolfsburg plant in Germany.
 

Jens Tilgner, head of material transportation at Audi, also outlined how the carmaker was moving towards a system of consolidation centres to help synchronise the supply chain and improve truck utilisation. He added that he wanted to see all of the information within the transport network in a web-based control tower with visibility over transport orders and operations.

Clouds on the horizon
 
But despite the volume and complexity increases across Europe, there were many ways in which the good weather in Bonn could be seen as a false promise. While growth has returned to the European Union, the uneven recovery may reinforce some divisions across the continent’s wealthier and poorer regions. It is also off of a low base, while Gartside said that he doesn’t think Europe will ever reach 2007 sales levels again. The factory closures will help utilisation, but will certainly bring pain and shifts in the supply chain.

Furthermore, the crisis between Russia and the Ukraine only highlights the worries at Europe’s periphery. Even if a resolution to that issue can be found quickly, the Russian market is currently struggling, as is Turkey’s. Investments made by logistics providers and carmakers in these regions could be at risk.
 
Many at the conference complained about familiar issues such as cost pressure and contract terms. Years of decline have left some providers reluctant or unable to invest in equipment and systems despite rising demand.
 
More fundamentally, others alleged, not all players are willing to make the changes necessary that would benefit the ‘total supply chain’.
 
“I think the logistics community is busy trying to build its own world rather than looking at how we can really support value stream optimisation,” said Paul Lemoine, director of world class manufacturing at Magna Exteriors and Interiors.
 
The idea of eliminating transport might rankle those in the business of providing exactly those services, for example. “You don’t ask frogs to drain the pond,” said Bruce Arlinghaus, an independent consultant. But he felt that the biggest barrier to change was often the internal politics at the OEM and not the fault of suppliers or service providers. Others thought it was short sightedness at many companies. 

“I’ll guarantee you one thing, when the OEMs or tier ones do make a change to their supply chain they won’t remodel it,” said Mark Ellis, global industry director for automotive at Geodis Wilson. “They give a request for a service to add on to the existing one and simply send it out as a tender. As an LSP you can never offer an innovation that means an increase in price even if it promises to save them a huge amount of money in the overall process.”
 
Smashing T-Rex bones
 
Some pointed to issues of misalignment in how targets and rewards are set. Dr Michael Kluger, vice-president of the commercial division at Neovia Logistics, used the example of engine parts that might be made close to a vehicle assembly plant, but must first be shipped to another continent where the engine is built.
 

Marzell Bandur says that GM has improved its total enterprise cost approach in the supply chain

Opel has also made recent strides with a new 'order slotting' system together with software provider flexis.
 
Wake up and smell the coffee
 
The live voting survey revealed that 55% of participants thought that automotive logistics was still leading edge compared to the logistics of other industries, but mainly because of historic innovations (such as lean, just-in-time, etc) and not for current developments. But the conference offered the opportunity to look beyond the world of automotive, including presentations from the food and beverage sector, as well as the manufacture and distribution of rolling stock and two-wheelers.
 
Jan Huijgens, senior manager of logistics for the European region at Starbucks, outlined a network that includes 2,000 stores (including more than 700 in the UK), which are served with more than 1,200 stock keeping units. The material flow is made up not only of coffee beans, but also store supplies (including cups, mugs, napkins, etc), food, tea and merchandise.
 

l to r, Andreas Ginkel from Opel/Vauxhall; Matthias Schulz, Ford Europe; Levant Yuksel, Jaguar Land Rover