Regional focus: Alabama
One of the most popular songs about the US state of Alabama, ‘Sweet Home Alabama’, opens with the line “Big wheels keep on turning” – and indeed the number doing so is set to grow after the January announcement that a $1.6 billion Toyota-Mazda joint-venture manufacturing plant is scheduled to open in Huntsville in 2021.
Since 1997, when the first M-Class car rolled off the Mercedes-Benz production line in Tuscaloosa, the wheel – along with all the other components found in a modern vehicle – has helped Alabama to reinvent itself as an epicentre of the automotive industrial revolution that has taken place across the south-eastern US.
While the state’s borders may not have expanded in nearly 200 years, the map of Alabama, which now possesses enviable global market links, has been strategically redrawn over the past 20 years with the arrival of four automotive manufacturing plants and a tier supplier network in excess of 170 companies. According to state officials, Alabama has manufactured more than 10m cars and light trucks since 1997 – making it the fifth-largest car and truck producer in
State and local planners have been both persistent and mindful of the big picture in encouraging and locating vehicle manufacturing plants and tier supplier locations there. In addition to the Mercedes-Benz US International (MBUSI) facility in Tuscaloosa, Honda operates a plant in Lincoln, Hyundai works out of Montgomery and Toyota manufactures engines in Huntsville.
“I think there was an awakening as a result of that first automotive assembly project coming to the state,” observes Greg Canfield, secretary of commerce for the state of Alabama since 2011. “It was an awareness coming to Alabama that we could be a state that had – and offered – more. We were a state in the south-east that no longer had to base its economy on basic manufacturing, agriculture and timber. We could go beyond that to advanced manufacturing, technology and things like that. It’s been a 20-year awakening for the state.”
Jason Hoff, who oversees the Tuscaloosa operation as president and CEO of MBUSI, has a special perspective on the growth and evolution of the Alabama automotive industry. Although Hoff took up his current duties in 2013, he was previously part of the initial team responsible for launching the Tuscaloosa plant in the 1990s.
“I would say that 20-plus years ago, we knew we had picked the right area to come to. We were really confident about the conditions here – from the workforce, to the infrastructure, to the general support of the region,” he says. “Could I have envisioned what the state has become today? That probably would have been a little far-fetched, but it’s not a surprise to me now that other companies [OEMs] have followed suit. It’s a good place to do business down here. With this most recent announcement, I hope we can capitalise on the fact that this is an automotive mecca. Hopefully, that will attract more people to consider relocating here.”
Supply chain strength
The Toyota-Mazda location decision ended up being between Huntsville and a site outside Greensboro, North Carolina. In the end, it was swung by the strength of the working model Alabama had built in collaboration with the automotive sector, which provided advantages and synergies other bids could not match. According to a North Carolina media outlet, records released by that state’s Commerce Department revealed some serious competition at the time in the form of a bid by the state and local entities worth as much as $1.8 billion in incentives. But Alabama still won out.
A spokesperson for Toyota confirms that the presence of other OEMs, the state’s existing supplier network and the general infrastructure Alabama has developed over the last two decades or so all contributed to the final decision.
Toyota and Mazda officials say they are only in the early stages in many areas of bringing the Huntsville operation to life and are not prepared to share further details yet. The office of Huntsville Mayor Tommy Battle, however, has confirmed that a supplier park will be included as part of the overall project site. Once production at the plant begins, Toyota will manufacture the Corolla there, while Mazda will use the facility to launch a new crossover model in the North American market.
Despite the strength of the North Carolina bid, Canfield says he is not surprised that the logistical advantages of Alabama led to the decision to make Huntsville the home of the joint venture plant. Along with the supplier network and the state’s history of success with automotive plants, Alabama, he points out, has six interstate highways providing both north-south and east-west access; five class one rail lines; a deep-water port; and automotive industry operations within close proximity in the neighbouring states of Mississippi, Georgia and Tennessee.
“Incentives are important – but they are certainly not what drives the decision on a deal. They [Toyota-Mazda] knew that they could easily access an existing supply chain and look to grow their supply chain as needed,” says Canfield. “In my opinion, that made that cost-benefit equation relative to any difference in the incentives offered by North Carolina versus the incentives offered by Alabama immaterial.”
From his Michigan office near the birthplace of America’s original automotive revolution, Dave Walby, group director of business development for automotive, aerospace and industrial operations at Ryder, has helped to build logistics networks for OEMs and suppliers across the south, responding to their evolving needs along the way.
“Quite a few years ago, there were a few tier suppliers down there that would support the big three – GM, Chrysler and Ford. Now the south-east has become a manufacturing region and that expands the opportunities, and what needs to be done,” says Walby. “While suppliers have changed over the years, you still have suppliers from the Midwest supporting those plants down there. The plants still get 5-8% [of inventory] from their original countries. Mexico has also gotten big [as a supplier]. So, you have the north-south corridor from the Rust Belt, and now you have the south-east corridor – with some of it [the parts flow] coming from Mexico. It’s added challenges and complexity in so many ways.”
In Walby’s experience, the new landscape in automotive manufacturing includes plants that have been reduced in size from 2m sq.ft, including onsite warehousing, to facilities with 600,000-800,000 sq.ft. Additionally, more OEMs are producing multiple lines of vehicles – and frequently adjusting the vehicles produced during any given week based on metrics they collect from an abundance of available data.
“If you looked ten years ago at some of these plants, you couldn’t get near the line because the inventory was all over the place. Now you go there and you see literally what they need to build that day – even for two to four hours. That’s the change in some of the philosophies,” says Walby.
That’s made it ever more important to have a tighter network of suppliers and well-planned logistics support based on the wealth of information, he adds. “OEMs can now be very aggressive in the amount of safety stock that they have to keep. Instead of having eight to ten days, they can now go down to, say, three days. If you wanted to, you could even go down to one day. It’s changed how they have managed their inventory going into the plant.”
The bid process for a new OEM plant has also undergone some evolution over the past decade, according to Walby. In the past, an OEM might typically issue the initial bid a year to six months out from pre-production. As the processes have improved in mining all the data related to total landed cost for each vehicle, however, OEMs have begun to study their options for transport providers long before plant construction nears completion. By using all the available information, the design of both the supplier and transport networks allows OEMs to better control total landed cost.
“The further out you can start to design and begin working with your network and logistics, the more efficient it becomes for your supply chain,” notes Walby. “Any [plant] start-up is a bit difficult but, when you are starting out with a lot better information and visibility, you are able to take that risk out of the start-up. You know how your plan is going to run.”
The process Ryder employs when looking at serving a new OEM facility involves a series of tests against various scenarios. And with many customers now planning up to three to five years ahead, Ryder has applied a similar forecasting approach with its automotive customers at existing plants.
Among the questions addressed during this process, says Walby, are:
• Should the OEM source from Mexico?
• Should it produce the components in the US? If so, which ones?
• Should it use a global source?
• How much inventory must be carried?
• How are the shipments going to be handled?
• What types of transport are needed? Will shuttles be necessary?
• How are the shipments going to be presented?
• What will need to be sequenced?
• What is the total landed cost?
“You have to start looking at your supply chain from [the lineside] and then all the way back to the original tier supplier,” says Walby. “If you look at everything involved, that process allows you to take your plans forward to when the plant is going to reach maximum production.”
As the experience of Mercedes-Benz with its Tuscaloosa plant shows, facilities are continually evolving – even after 20 years. One of the modifications that MBUSI made to its supply chain component flow was the development of an onsite logistics centre in 2014. Once MBUSI begins production of electric vehicles alongside traditional internal combustion models in Tuscaloosa, the logistics centre will unquestionably become even more valuable. Currently, it helps MBUSI in managing its two main classifications of inventory – components coming from Europe and those from the Nafta-based supply chain.
“When we started 20 years ago – and I was here in the late 1990s – I can remember visiting a lot of our supplier operations and those operations were just for us,” notes MBUSI’s Hoff. “When you go into those operations today, you don’t see that any more. Rarely do you see a plant that is solely dedicated to just one OEM. With some of the new suppliers that we are taking on for our next generation of vehicles, they have a larger logistics service provider next to the plant or near the plant. They can also store a little more inventory or have a bit of a buffer, and they can still meet the logistics requirements that we have placed on them.”
Looking ahead, the obvious question is whether Alabama has the capacity for a sixth OEM plant.
“Our strategy has been to locate automotive OEMs regionally in different areas of the state such that there is very little to no overlap in terms of their labour share draw, and I think that we have done a good job of that,” says Secretary Canfield. “We have one area in the southern part of the state remaining. And we’ll see.”