Renault Nissan more than the sum of its parts

Four years after Renault Nissan created Alliance Logistics Europe to combine the logistics management and operations of the two brands, the group is making major breakthroughs in combining network flows.

The management strategy at the Renault Nissan Alliance has been to integrate operations without sacrificing each carmaker’s culture and identity. This has been the case for logistics as much as for product development and design, with flows developed according to each brand’s production and sales network. Since the Alliance was formed in 1999, for example, the carmakers have typically used different IT systems, logistics providers and ports for outbound logistics. 

When recession and competitive pressures pushed the group to find more savings in 2009, chief executive officer Carlos Ghosn set up a new Alliance CEO Office to accelerate integration, which included combining the logistics functions at Renault and Nissan. 

This reorganisation led to the creation of Alliance Logistics Europe, which was given control of inbound and outbound engineering and operations across Europe, Russia, Turkey and North Africa.

While its remit was clear, in practice it would take time to integrate a team of managers that grew up mostly at one or the other carmaker. For outbound, Alliance Logistics quickly launched combined tenders, initially run with both a ‘Nissan’ and a ‘Renault’ project manager to consider the right specifications for the respective brands. That led, in some ways, to a continued separation between each company.  

Outbound united

The Alliance structure in Europe is complex, including 18 plants for Renault, Nissan and Dacia in eight countries, plus shared production sites in Russia with Avtovaz. Each carmaker also imports vehicles globally, including from Japan, South Korea, India, South Africa, North and South America. 

After four years together, however, managers at Alliance Logistics Europe believe they have developed a united approach for outbound, which has already led to significant changes in the network. “Last year we made a step change in our engineering and in creating true Alliance flows,” says Frans Kroon, general manager of Outbound Engineering.

Examples of such flows include the consolidation of imports of the brands at several terminals in major markets, including the ports of Tyne in the UK, Barcelona in Spain and Tangier in Morocco. The Alliance also introduced dedicated, balanced transport loops for rail between Eastern and Western Europe (Romania and the Netherlands), and for short-sea shipping in the Atlantic and Mediterranean Sea. In Russia, where Renault Nissan is expanding local production with Avtovaz, two new plants mean the company can balance flows with purely Alliance volume. “Our goal is to have Renault, Nissan and, where appropriate, Dacia cars on the trucks of the same providers,” says Chris Godfrey, manager of Outbound Engineering. “That can be driven by using the same ports of entry or compounds but even if we don’t have that, we’ll still have done a common tender across the brands.”

‘Nobody knows us better’

Integration remains a primary strategy, but control is now equally important, as Alliance Logistics Europe handles functions that might once have been left to individual brands, local divisions or even providers. “We want to be in full control of Renault Nissan engineering and network analysis,” says Kroon, adding that it sends a powerful message to the logistics market. “Doing a truly common RFQ [request for quotation] is an important symbol,” says Kroon. “If providers believe that they are separate for each brand in some way, then they might play with us by trying to call people at local Renault or Nissan teams, or national sales companies. Now that we are really linked, we don’t have that.” 

In some ways, Alliance Logistics Europe is a true in-house 4PL for Renault Nissan, engineering and overseeing the total network without owning assets. Indeed, Kroon and Godfrey are adamant that their team can manage the carmaker’s logistics better than any outside company could. “We have all the information, strategy and data we need to make informed decisions about the Alliance,” says Godfrey. “Other suppliers or 4PLs don’t know as much about Renault Nissan as we know.”

Colin MacDonald, vice-president of Alliance Logistics Europe, says the group has worked hard to avoid just being an added level of bureaucracy in the logistics buying and management process. “The challenge from the beginning was to avoid creating an Alliance organisation just for the sake of it – something on paper that actually did not really mean anything in practice,” he says. 

“Instead we have worked on creating a team that actually adds value by creating synergy,” he adds. “In other words, something that makes one plus one equal three. Each company can individually make one plus one equal two!”

 

"Inbound synergies have tended to be with milk rounds and crossdocks where common suppliers are concentrated. Outbound has been where contractual restrictions have not stood in the way of re-engineering and testing the market" – Colin MacDonald, Alliance Logistics Europe

Even before Alliance Logistics Europe, there were common logistics operations and procurement at the Renault Nissan Purchasing Organisation. But the OEMs’ different locations, strategies and systems kept many aspects of outbound separate. Renault, for example, with six plants in France, has had significant operations in the country. Much of its outbound logistics had also been managed by its former in-house provider Groupe CAT, which until recently had an exclusive contract for Western Europe. On the other side of the continent, Renault’s takeover of Dacia gave it a strong presence in Eastern Europe. 

Nissan, meanwhile, has a long-established presence in the UK with its Sunderland plant, and in southern Europe with its Barcelona plant. Both locations are hubs for Nissan’s shipping network. In particular, Nissan has used its own facility at the port of Tyne, near Sunderland, to consolidate UK volume with global imports destined for northern Europe, including for Russia, which are shipped through St Petersburg.     

Even in Russia, which the carmakers entered more recently, operations were separate, with Nissan in St Petersburg and Renault in Moscow. 

Alliance Logistics Europe has, however, recently made breakthroughs in all of these areas, particularly as old contracts expire and the engineering team studies alternatives. “We have found and delivered synergies on both inbound and outbound logistics in Europe,” says MacDonald. “Inbound has tended to be with milk rounds and crossdocks where common suppliers are concentrated. Outbound has been where contractual restrictions have not stood in the way of re-engineering and testing the market.”

One prominent example has been to bring Renault imports to the Nissan facility at the port of Tyne this year. Renault had historically used Teesport, about 65km south of Tyne, where it had also planned to import Dacia. The engineering team saw the opportunity to combine at Tyne, including the import of Dacia Dusters with Nissan Micras built at the Alliance plant near Chennai, India. In a shining example of what Alliance Logistics hopes to achieve elsewhere, the use of a common port means that Renault, Nissan and Dacia models move on the same trucks to dealers. 

As MacDonald says, in some cases existing contracts have stood in the way of a more integrated approach to outbound logistics between Renault and Nissan. He and Godfrey say the companies had wanted to make this combination at Tyne for the past decade, but there were technical and commercial barriers that prevented it, including prior contracts. Under the new structure, Renault UK has switched from using CAT for all its UK transport, to using six providers, the majority of them shared with Nissan.

Another barrier to combining the network had been that Renault and Nissan use different sales and logistics systems that do not communicate with each other; because Tyne is a Nissan-run terminal, the systems integration was even more complex. “It’s not just as simple as putting cars on the same trailer,” says Kroon. “The car has to be supported with invoices going to the right person and the customs paid, both of which are separate for the brands.”

Godfrey, who worked to implement Nissan Europe’s Vehicle Logistics System in 2004, sees the implementation of a common hub for data transfer between the Alliance and its suppliers in Russia in 2012 as a blueprint for the future. “We still have some work to do to deploy this type of initiative on a wider scope but the benefits for the supply base and Alliance Logistics Europe are obvious,” he states. 

An interesting aside to the UK network is that not all flows are optimal from the same ports. Renault continues to use the port of Southampton in the south of England to serve southern markets. Surprisingly, the Alliance will also move from Southampton to Scotland by rail. “It’s a high volume and rail was the best solution for Renault,” says Godfrey. “It is the first inter-UK rail service for the Alliance.”

Combining for road, rail and sea

While not as significant a volume as the UK, the Alliance started in 2012 to import volumes from Morocco through Nissan’s existing facility in Barcelona. Godfrey says this change served as a test run for the UK integration of inland transport and systems. Likewise, Nissan imports are now combined with Renault and Dacia in Tangier for shared short-sea services, while both brands have moved from the port of Copenhagen to Esbjerg in Denmark. 

Besides ports and inland truck transport, Alliance Logistics Europe engineered new services for rail, which has increased slightly to represent 17% of outbound flows in Europe. A rail service for Dacia production out of Pitesti, Romania now collects UK-built Nissans in Amsterdam for the return leg back east.

According to Godfrey, combining these flows would have been unlikely without the central visibility that Alliance Logistics has across brands. “Until Alliance Logistics came along, you would have never had the right people in the room at the right time to join the dots to see what was an obvious solution,” says Godfrey. 

While the Alliance uses rail for several flows in Europe, Godfrey also points to opportunities to use the mode for distribution from Spain to European markets, in particular Germany and northern France. It has long been an ambition to rail from Barcelona to other markets, but the different gauge for Spain and model mix from the Barcelona plant have made this difficult. The recent addition of a European-gauge link between the port of Barcelona and France, along with a new model launch at Barcelona, could make it a viable option. “But we always have to consider the service and lead time of rail compared to truck,” says Godfrey. “There are often penalties for rail if you don’t meet minimum volumes, while service is often less flexible.”

There are also plans for deeper integration in short-sea shipping. Two years ago, the Alliance introduced a service in the North Atlantic that combined Renault and Nissan from Spain, France and the UK. More recently, it set up two dedicated services in the Mediterranean from Romania and Turkey that call at ports in southern Europe and North Africa with volume from Dacia, Renault and European-produced Nissans. 

Bringing balance to Russia 

Perhaps the most significant outbound engineering project has been in Russia, where MacDonald, Kroon and Godfrey believe the new services will not only save costs, but also make logistics a competitive advantage for the Alliance. 

The scope for Alliance Logistics Europe in Russia includes all Renault, Nissan and Infiniti vehicles, but excludes Lada. Even without Russia’s biggest brand, the tendered volume for the Alliance predicts growth from 355,000 vehicles sold last year, to 650,000 in 2014 and 780,000 by 2017.

The volume increase will come almost entirely from Russian production, as Renault, Nissan and Datsun models start rolling off the production lines at Avtovaz’s plant in Togliatti, nearly 1,000km from Moscow. Renault and Nissan models will also be produced in Izhevsk, 600km north of Togliatti. 
 

The expansion of Renault and Nissan (and eventually Datsun) production deep into central Russia at plants in Togliatti and Izhevsk will allow for more balanced transport loops to the east and west

As part of the expansion, the Alliance has introduced a large compound in Togliatti with Major Auto Trans (which runs a compound currently used by the Alliance outside Moscow, too). In future, Godfrey says that volumes could be consolidated here for onward distribution to the Far East. Rail, which is currently used for 7-10% of Renault Nissan volume in Russia, could also be expanded considering the 1,000km distance from Avtovaz plants to western Russia. Kroon points out, however, that rail in Russia is rarely competitive for distances below 2,000km.

Shifting away from imports 

The growth of domestic production will shift the Alliance network further away from imports to Russia. Last year, it imported around 140,000 vehicles – about 85% of them Nissan. The Alliance already has a well-engineered import strategy for Russia, with imports moving from the port of Tyne to RTL’s Fishery Port in St Petersburg, where they are then combined with Nissan’s local production. For volume intended for the Russian Far East, models move through the port of Vladivostok, which includes UK production brought back on the return leg to Asia from Tyne.  

While most Renaults sold in Russia are built there, about 10,000 units were also moved through St Petersburg with Nissan, while exports from Turkey move through the Ukrainian port of Illyichevsk.

With imports expected to drop or level off, significant change to the the port network seems unlikely. Kroon says that the Alliance has studied Russian Black Sea ports numerous times but has yet to find a useable option. “We’ve not found an economic case,” he admits. “It would require an investment from someone.”  

In the Baltic, Alliance Logistics has experimented with moving volume through the port of Ust-Luga, where RTL has a new terminal, Novaya Govan, near to the existing Yug-2 terminal.

The Alliance’s model in Russia could become a benchmark for Renault Nissan. “One of my ideals for the Alliance is what we’re doing in Russia, which is to create circular loops that are self-contained with Alliance volume,” says Godfrey. “We want to reduce our dependency on other people’s business. That’s good for the supply base and for us.”

Kroon believes the Alliance logistics structure will help it to sell more cars in Russia, notably by improving lead times without depending on other carmakers. “Logistics is part of the competition in Russia,” says Kroon. “I believe we can add value by doing logistics better and helping the products to move faster.”

Dealing with European decline 

Of course, economic issues in Europe cannot be ignored. Sales in major markets, including France, Spain and Italy continue to sag, while a stagnating Russian market could temper the Alliance’s ambitions. 

These declines inevitably impact the network, although Renault Nissan can partially offset weakness in one market with the strengths of each brand in others, such as Renault in Algeria and Morocco, or Nissan in the UK this year. With its plants open to one another, the Alliance can also improve capacity utilisation. Following a labour agreement in France, for example, Renault Nissan announced that in 2016 it would shift production of the Nissan Micra for left-hand-drive European markets from India to a Renault factory in Flins, near Paris. The annual volume is expected to be 82,000 units per year (UK-bound Micras will still come from India).

Despite these positives, logistics providers remain under pressure. Kroon and Godfrey admit that the Alliance’s cost-saving targets for outbound are now more aggressive, but they insist the group will not alter contract commitments or tender schedules as the market drops, which Kroon says would be counterproductive. “We want the chance to do technical studies before RFQs to determine sustainable benefits, such as backhaul opportunities,” he says.

Kroon also highlights loyalty toward strategic providers. “We are quite loyal to key suppliers. Groupe CAT is a part of our history and our future,” he says. “We were the first in the port of St Petersburg, where we took the risk together with RTL. We have built long-term relationships that we want to maintain.” 

Nevertheless, adds Godfrey, the Alliance needs to ensure it pays the right market price, especially in places like Russia. “We want to bring open and fair competition, and make sure that our service and price are right,” he says. 

Kroon points out that a provider’s cost is not the only factor for the Alliance – along with on-time delivery and quality, speed to market is increasingly important. “With so many cars in the pipeline, we need to move cars quicker to free up cash,” he says. “I think it adds interesting dimensions as a new KPI.”

More than rate drops, Godfrey says that the Alliance wants technical innovations from providers. “We don’t want pure commercial offers as these are unsustainable in the longer term,” he says. “What we need to see are more technical improvements and innovations, such as better loading factors by creating new trailer types with manufacturers; the Russian market has seen massive benefit from this type of activity.”

In recognition of such improvements, the Alliance recently awarded two outbound providers at its European supplier conference. Short-sea provider UECC won an innovation award for improving lead-time and load factors for a thrice-weekly service in the Atlantic. Sintax Logistica also won a performance award for its ability to meet demand outside its contracted capacity.

"We don’t want pure commercial offers as these are unsustainable in the longer term. What we need to see are more technical improvements and innovations" – Chris Godfrey, Alliance Logistics Europe

Going for growth and opportunities 

Even in an obviously slumped economy, the scope of Alliance Logistics Europe allows for growth. Besides Russia, North Africa is emerging as a sizeable market, especially for Renault and Dacia in Algeria, where sales should surpass 120,000 units this year. The Alliance has sea routes that call at North African ports including Tangier, Tunis in Tunisia and the Algerian ports of Djen Djen and Mostaganem. 

Currently Alliance Logistics Europe is responsible for vehicles up to ports of entry in the region, with inland delivery left to importers or national sales companies. However, Kroon says his team is exploring whether it should get more involved for inland logistics too. 

Along with growth regions, Alliance Logistics is looking at opportunities to harmonise IT and other specifications. However, Kroon admits that a system upgrade has been postponed until at least 2016 as he wants to better understand the potential benefits. “It’s going to be a challenge because we’re in the middle of different systems with which we must interface,” says Kroon. “I only want to invest if the benefits are very clear.”

He notes, however, that as the Alliance has “got its hands dirty” combining transport flows in various markets so far, there have been more IT issues than had been anticipated. “That has been a very rich learning experience in terms of building a future system,” he says. He adds that any IT upgrade would also have functions currently lacking in both Renault and Nissan systems, such as providing management for accessory inventory and fitments. 

The Alliance continues to analyse more fundamental aspects of its network, including potentially using hubs at some locations. With few exceptions, Renault Nissan moves direct to dealers in Europe, taking the view that ‘hub and spoke’ strategies increase lead times and the risk for damage. “We call it ‘hub and spooky’,” says Kroon.

He does recognise that a hub is unavoidable sometimes, such as for consolidating transport or doing pre-delivery inspection. “We need to better understand the benefits, so we are reviewing direct delivery as we’re not exactly where we want to be,” he says. 

MacDonald says that part of the success of Alliance Logistics Europe has come from benchmarking other operations and organisational structures, and being willing to break down the cultural barriers and defensiveness of either carmaker. “We’ve looked for a common purpose that unites the team on common benefits rather than focusing on the ‘can’t do because…’ line of thinking,” he says.

As Alliance Logistics Europe has already re-drawn its maps for the UK, the Mediterranean and Russia, further changes to distribution and shipping flows are certainly possible. MacDonald says he expects to see similar savings during the next four years as the company has made in the past four. He also believes there could be further opportunities for logistics should other functions at the company be integrated. 

“[That is] a definite possibility given the planned increase in cross-production and common parts,” he says.

While the Renault Nissan Alliance still tries to preserve each brand’s identity, Alliance Logistics Europe proves that the group is not afraid to break with history if a more modern – and unified – approach is called for.