Getting closer all the time

Last year, the Renault-Nissan Alliance began rewriting its playbook for logistics with the creation of common management charged with speeding up the pace of integration for parts and vehicle logistics. A year and a half later, the progress is much higher than anticipated.

In June 2009, when Carlos Ghosn, the CEO of Renault and Nissan, announced the creation of a new management team at an “Alliance level” to oversee deeper integration between the two partner carmakers, outside observers might have easily assumed that Ghosn had simply installed another layer of bureaucracy. After all, Renault Nissan had long established joint steering committees, ‘cross-company teams’, ‘functional-task teams’ and ‘task teams’–what would this new management level do that had not been done in the ten years prior?

But if the potential integration this new structure might drive were to be measured by the fast pace and progress that the logistics and supply chain management teams have made, then it is clear that Ghosn’s imperative to go “faster” in finding savings between the carmakers has been well heard. Globally, under the leadership of Christian Mardrus, appointed by Ghosn last year as managing director of Alliance Global Logistics, Renault and Nissan are projected to take €130m ($169m) out of the €3.7 billion global annual logistics budget this year by combining operations and finding common savings. That compares to an average of €25m per year in annual savings achieved by such means in previous years.

About half of that €130m saving has been achieved in the greater Europe region–including Russia, Turkey and North Africa–where Renault and Nissan’s inbound and outbound logistics have been led since April by Colin MacDonald, vice president of Alliance Logistics Europe.

The alliance has traditionally been careful not to upset the cultural and corporate boundaries of each OEM, and has tended to commit to projects with ‘win-win’ outcomes. While that equation would still not allow ‘win-lose’ outcomes, there appears to be a more strategic direction to take decisions that benefit the alliance overall rather than to find an even balance for each company–and that could mean encroaching on some of the previously sovereign boundary lines.

And logistics is turning out to be very interesting territory– with the creation of Alliance Logistics Europe, new teams have been carved out of the old structures across both OEMs. A common tender was launched last year for outbound maritime flows, for example, and logistics designed around electric batteries and vehicles have been built in common. For outbound, MacDonald admits Renault may have something to learn from Nissan’s approach of reengineering the network and retendering providers every two years. For inbound, more radical change may well take place, as the two carmakers analyse two very different outsourcing models.

Both Mardrus and MacDonald make it clear that they want to dismantle rather than add bureaucracy, and they have already shown a willingness to move quickly. But that also means a commitment to pragmatism and not, as Mardrus says, “changing things just for the pleasure of it”. Examples include leaving the management and operational structures in North America and Japan largely undisturbed, since Renault has such a small presence in these markets.

Each man brings expertise from respective carmakers, with Mardrus from Renault and MacDonald from Nissan, which strengthens the common approach. But Mardrus’s vision for cooperation and alliance in logistics looks set to extend beyond Renault and Nissan, with aggressive (and necessary) change to be brought for Russia’s Avtovaz, in which Renault Nissan has a significant stake. Talks have also been initiated with Daimler following cross-production agreements established earlier this year. While things will not happen overnight, Mardrus and MacDonald embody the will for change and cooperation wherever they work–and there is every indication they will move as fast as possible.

Christopher Ludwig: What was the reason for creating this new alliance organisation globally and in Europe?

Christian Mardrus: The initial target was to insure the convergence of Renault-Nissan logistics wherever both companies operate. It should start by sharing physical needs: transportation, warehouses, crossdocks, ports, etc. So when I arrived in this position both teams had already been working together for several years and there was a huge knowledge in place. But people told me that while they had many ideas on how to converge, the companies lacked the decision-making process to make it happen, especially in Europe.

So the first decision of the new logistics body at the alliance level was to create this new logistics Europe organisation, with combined responsibility and combined teams.

Ludwig: How does your team fit together with purchasing and the other management functions for supply chain at both Renault and Nissan?

Mardrus: RNPO [Renault-Nissan Purchasing Organisation] was the first common organisation for the Alliance. Now we have exactly the same scope [for Alliance Global Logistics]. We consider purchasing people working with us as part of our team, since their performance and ours are virtually the same.

Colin MacDonald: From a practical perspective, we’ve tried to create one team. If you take vehicle logistics, there is one team responsible for the day-to-day delivery of all the vehicles across broader Europe, and one common engineering team with staff from both companies, which looks at new routes, ports of entry, the use of common compounds and the use of common suppliers to get the leanest and cheapest logistics solutions that we can, whilst retaining reliability and quality.

For outbound we have progressed the fastest because the business is a little bit simpler, whereas the parts side is more closely linked to the manufacturing worlds of each company, with different supplier footprints. That is not to say that we haven’t many opportunities for inbound–there are many. The supply bases are spread across Europe, and we have suppliers overseas, such as in India, from which we can use the same logistics flows. We expect it to take a little bit longer to converge on the parts side. But we are on the journey.

Ludwig: So the management has been reconfigured, rather than adding another reporting structure?

Mardrus: One of the dangers of creating this alliance organisation was that we would add an additional layer on top of both organisations. Instead we combined teams–some are focused on Renault objectives, others are working on Nissan objectives, and we have those working for both Renault and Nissan. So in Colin’s team we have people in Paris from Romania, Sunderland, Barcelona–their origins are different but increasingly they are working for both organisations. But it is important to remember that when a team is delivering a service to Renault, for example, then it is for Renault and they mustn’t lose focus on that. It is the same for Nissan. You must keep a very strong, close relationship with each company, so that each feels we are giving it the best possible services.

MacDonald: To that end, we report directly to the management committees of both companies. I sit in the operating committee of Europe for Nissan and I report our logistics performance. Similarly, I report into three Renault management committees that cover the scope of my responsibility in Europe. the Euro-med management committee for Renault. So there is a direct link, with no additional layer or extra bureaucracy.

Mardrus: We are trying to avoid that.

Ludwig: Is the structure put in place in Europe going to be replicated elsewhere?

Mardrus: We are moving very fast in common overseas flows, but we have some regions where there is little to do in common since there is only one company. That is the case of Nissan in the US or in Japan and eastern Asia, for example. John Martin, who is corporate vice president of Nissan supply chain, is 100% in charge of those activities. We try to focus on the areas where we can bring value. This is the case in Europe, overseas flows and maybe other regions–an example would be South America. The market is booming and we have to go a step forward in terms of the alliance. But there is no need to change things just for the pleasure of it. It should be justified.

Ludwig: Could you give us some specific examples of how these changes are being reflected operationally?

MacDonald: There are many. For inbound we are looking at crossdocks across Europe, and we are looking at how we can make sure that lorries are full going from Spain to France and in reverse. We are also working on flows to and from the UK.

Further afield, each company has a parts consolidation centre in India. Renault’s is in Pune and Nissan’s in Chennai. We tell providers to use whichever centre they are nearest–we don’t care whether it is Renault or Nissan, the goal is to minimise the inbound transport, maximise the container fill, and get the cheapest solution.

On outbound, we have some contractual obligations that we have got to recognise, as Renault has the long-standing relationship with Groupe CAT in Western Europe. We have spent a lot of time on that relationship to improve it, so that we can try to get some synergies within the contractual boundaries. And we are making good progress there.

Outside of that contract, it is easier for us to follow the Nissan way of going out to tender in the market and living with typically two to three year contracts, and then reengineering every two to three years as a consequence.

Ludwig: Whereas the Renault way has been more stable with CAT?

MacDonald: The Renault way has meant working very closely with CAT. But things don’t stay the same forever–relationships change over time. That said, the relationship we’ve got with CAT is probably better then it has ever been, and we are now starting to think about the next 3-5 years, and what shape we are going to take.

Mardrus: We are doing the same for international flows. We launched our first common tender last year, which was for maritime outbound flows. The idea is not only to bundle the volumes but to share the same specs–this is not so easy. Before issuing the tender you have to identify the same requirements, but afterwards you can have big benefits. We did this last year, and now we have signed two-year contracts with significant savings.

Ludwig: Does the alliance’s efforts to increase platform sharing have a big impact on how you manage logistics?

Mardrus: The sourcing strategy, beyond logistics of course, is to share as much as we can the same platforms and the same parts. We have an ambitious programme of parts harmonisation between Renault and Nissan, with an objective to multiply the number of common parts by five. When you have common suppliers and common parts along with a large amount of cross manufacturing, then of course the flow of parts and vehicles can and should be shared. Renault factories will be able to produce Nissan cars, and Nissan factories can build Renault cars. So of course, the flow of parts and vehicles should be shared.

Ludwig: Does the case of India, where there will be a joint factory, offer lessons that will be applied elsewhere?

Mardrus: In India, where there is a Greenfield operation in Chennai, we are building our structures in common between both Renault and Nissan organisations. We have decided to converge existing regions between the two carmakers, but for any new projects that we initiate, we are going to do it together. That is the case in India and this will be the case in China in the future. Nissan is already very strong in China and Renault wants to enter the market, where it will be supported by the Nissan organisation.

Ludwig: How will the approach be for electric vehicle production, which is a new area but not in new regions?

Mardrus: This project is a bit different but a big priority for the next three years–especially so for the battery, which is new for both OEMs, so all of the logistics for it have been designed and engineered in common. There are many issues here, from regulations around moving battery cells, to safety concerns as well as determining the state of charge for finished vehicles.

Ludwig: Are you finding any resistance internally between the companies for this integration?

MacDonald: I’ve been pleasantly surprised how easily people have worked together. It is probably a consequence of the cross-company cooperation in place for ten years. Virtually all of the teams have had relationships of some sort on crosscompany activities. So actually, it has probably been much easier than we’ve ever thought.

Mardrus: As Colin said, people have been working for several years together to try to do things. Some of them, I think, were a bit frustrated not to be able to move a step forward before, and so were quite satisfied with this new order.

Ludwig: What about resistance from your logistics partners and suppliers?

Mardrus: At first they wondered what we were doing, but we were very clear with them. When you are clear with your partner, it is their decision whether to follow you or not. Everyone willing to support our strategy of working together is welcome, and I think providers understand this message.

There are the key partners that we are currently working with, such as CAT, who were perhaps a little bit worried at first. We have a contract with CAT until 2012 and have already said that we won’t change the contract. But we told CAT that we want it to support our common initiatives, and it has done so.

I already mentioned the global tender that we launched for outbound overseas flow–we were also very clear when we said that we wanted to change the rules of the game to work together. We have not had much resistance here either.

MacDonald: I think that, from a supplier’s perspective, it is seen as an opportunity, frankly. Rather than working with two separate companies with two different teams, it is working with one set of people.

Ludwig: For inbound in Europe, the companies are quite different, as Renault manages its carriers centrally, while Nissan uses a 3PL approach. Has there been any evolution in this approach from either side?

MacDonald: The starting point is that in Europe, Renault has 15 plants, while Nissan has four, which requires different infrastructures, and the volume and scale consequently are significantly different. For Nissan the logistics has historically been very plant-centric, at least until we created the European regional structure about eight years ago. Renault has been more centrally controlled for a long time.

So with different starting points, the first priority must be to make sure that we don’t cause any supply disruptions into the factories. We are taking our time with the restructuring, and making sure the flows are working. The next step is where we want to be in the next three to four years, and this is where we ask ourselves what Renault does that would be an improvement for Nissan and vice versa. We are about to enter that phase, and it will be an expected outcome out of 2011.

Mardrus: We have to take it pragmatically. We should also not forget that 2009 was the crisis. And now we see the volumes coming back and we have a shortage of capacity in some areas.

Ludwig: I have heard more carmakers talk about taking a wider view of the total supply chain, rather than trade lanes in isolation–is this true for the alliance?

Mardrus: We have an initiative that came from Nissan, which Renault is now applying. Instead of only looking at logistics or manufacturing, how can we optimise the total delivery cost? This will facilitate the convergence here in Europe.

MacDonald: The label that we have put on the activity is Monozukuri–we have been doing it at Nissan for a number of years quite successfully. By looking more holistically at the chain, including purchasing, logistics and manufacturing, we have challenged where parts of the vehicle are assembled. At Sunderland, for example, we brought cockpit module assembly on site, and in doing that have made significant improvements to the total delivered cost of the car. We have been able to get second tier suppliers on our logistics schemes into the plant for that, and enjoyed the benefits for both the suppliers and us. So these basic ideas are now being introduced to the Renault world, allowing us to challenge some sacred cows. The end result should be that we build cars more cheaply and give ourselves a better chance of future growth and sustainability. It is a radical approach, very cross functional, which breaks the traditional management silos that we all know and love.

Ludwig: Would you say therefore that for Renault Nissan, logistics can exert influence across departments?

MacDonald: Yes, and I think that a part of that is convincing the other functions that there is a need for change.

Mardrus: When you source parts locally to feed factories, logistics is easy. When you start to have more complex schemes, and you source everywhere in the world, it is not just a matter of cost. It is a matter of reliability of solutions. So supply chain and logistics is the link between all of these strategies and certainly our role and influence is expanding.

Ludwig: What does Renault Nissan’s stake in Avtovaz mean for your alliance logistics objectives?

MacDonald: Avtovaz is one of the most challenging projects I have come across in my career. We are going to build both badged vehicles in an existing factory where they only speak Russia–so it is quite difficult. However, Russia is a very important market for both companies, and we need to get the right product in that market, and this is our opportunity. The issues are basic–communication, organisation, responsibilities. It is a factory where all of their suppliers are around it or it makes the parts itself. It is very different to our world of sourcing parts globally. But that’s okay. That is where we bring our expertise and our systems and processes to make it happen.

Mardrus: In Russia, just before Avtovaz, we combined Renault and Nissan teams. Now Avtovaz is part of the equation. Our first priority is to support the launch of new cars for Lada, Renault and Nissan, all to be built in Togliatti on the same line. That is one line, three brands, and five models–very new for Avtovaz, which never before managed this level of diversity. That is why they decided to implement the alliance production way, and our role is to support that. One objective is to localise parts, so we have to build new inbound flows. We also have to review in-plant because it is one of the largest plants in the world. So there is work now to be done with Avtovaz, but the first focus is to support the launch of the new cars, which will be February 2012.

Ludwig: That is awfully soon for so much work.

Mardrus: Yes, but it is better to have a real common objective and then focus on what is necessary to make that happen. We have the objective to realise this first line, and then we will achieve the rest step by step, and implement the way we will manage the logistics of other areas with Avtovaz.

MacDonald: February 2012 focuses the hearts and minds. If it were 2015, there would be less priority.

Ludwig: The alliance has also made agreement with Daimler on production. Have you considered any scope for closer logistics cooperation as well?

Mardrus: With Daimler our first duty will be to support those common powertrain and production projects. But besides this, in June we started talks with its head of logistics, Dr Holger Scherr, to identify opportunities to share more in logistics, just the way we started with Renault and Nissan ten years ago.

Ludwig: Are there any particular areas that you have identified so far?

Mardrus: Outbound is a top priority because we have identified flows that could be balanced. Daimler produces in Germany, and distributes in France, Spain and UK, while the alliance does the contrary. So how can we balance flows between those countries? We also have an initiative in Japan, and there are opportunities in inbound and aftermarket.

With Daimler, we see it as the start of a long journey. We want to be pragmatic and don’t yet have a three or five year plan, but decided to identify concrete actions to implement first. We are confident in the team that we can make it happen. There will be cultural issues, but we have managed issues between the Japanese, French, Romania, Spanish, Russians and English, and others. People may be a bit unsure, but we should prove that it is possible with concrete results, and that after that there are many possibilities. What is pleasant is that we have found a team in Daimler that is also very pragmatic and very positive. I don’t see any major difficulties.