While the big news this year for logistics at General Motors Europe has been the pending outsourcing of its inbound and outbound logistics management to Gefco as a ‘fourth party logistics provider’ (4PL), for more than a year GM’s Opel/Vauxhall unit has also been working with another 4PL to build up a central logistics control centre for its European spare parts distribution.
According to Kai Rabe, European aftersales logistics manager at Opel/Vauxhall (pictured), the carmaker is about halfway through a three-year project to implement a new ‘transportation control centre’ (TCC) with German-based 4Flow, which won a tender last year to integrate Opel/Vauxhall’s aftermarket transport and freight planning.
The 4Flow system, which also has the possibility to control invoices, has given Opel/Vauxhall’s headquarters its first chance to examine the totality of the spare parts network and look for potential improvements at a time when the carmaker is under considerable pressure to reduce costs.
“By collecting together data on detailed shipping level and transport costs across our network, we are able to use transparency as a basis for targeting logistics optimisations,” said Rabe, speaking at the BVL Congress in Berlin last week.
The move appears to follow a trend among some carmakers in Europe, including Ford, to use 4PLs or lead logistics providers to centralise the data storage and transport management of their spare parts network across regions. A further step now also appears to be in the works for further combinations across different manufacturers – with Ford and Opel/Vauxhall already set to work together – and even industries.
Building a “neutral” central function
Opel/Vauxhall’s spare parts network is large and complex, with its main source warehouse located in Bochum, Germany, along with around 11 regional and country distribution centres across Europe, including a new centre in Moscow. For aftermarket, the carmaker sends around 3.7m annual shipments of more than 30m different parts, including 3.5m outbound delivers to retailers, 200,000 inbound delivers to warehouses and 12,000 full truckloads shipped between warehouses.
Unlike the GM-PSA agreement (read more here), whereby most of the central control, purchasing and network management functions that were historically held by GM Europe are to be transferred to Gefco this January, Opel/Vauxhall never really had a central platform for managing aftermarket logistics. Until recently, the warehouses in each region controlled much of the costs and carrier contracts.
“Previously we had a decentralised team where each warehouse had budget and carrier responsibility,” said Rabe. “But frankly that didn’t work and we decided that we needed to takeover selected areas of operational control.”
But given Opel/Vauxhall’s financial constraints, investment in any system was bound to be a difficult sell to GM’s management. The decision was taken to build up this team through a non-asset based provider that would remain “neutral”, according to Rabe, in analysing transport and freight costs, thus avoiding potential conflicts of interest should decisions be made to redesign freight combinations and transport.
The ‘TCC’ system brings together data from Opel/Vauxhall’s dealer orders, warehouse management, sales, finance and material planning together with transport and freight information from carriers to create a central data warehouse. From this interface, the 4Flow system uses software to plan transport and inventory, as well as to manage containers and docks.
The system could also control invoicing and payments, although Opel/Vauxhall still does such payments in-house. The system nevertheless provides critical freight invoicing visibility that allows the carmaker to view its total costs in real time, rather than waiting for financial reporting at the end of each month. “By examining all of the invoices we are better able to notice when something is particularly expensive, and then to control it,” he said.
Rabe told Automotive Logistics that there was pressure from GM’s management to see relatively quick returns on investment. Luckily, he has been able to point to some “quick wins”. The transparency on costs, for example, helped reduce costs in one recent tender by around 20%, said Rabe.
However, he admitted that the project is still in the data collection and analysis phase, with the greatest potential for cost savings yet to be determined. He also acknowledged that there could be some difficult negotiations between Opel/Vauxhall’s 12 different warehouse and sales teams, each of which have an established way of doing things. “Once we’ve built up a central structure, it will lead to structural changes, and that will be difficult in parts of our network.”
While a change in the current warehouse footprint was not necessarily in the scope of the TCC, Rabe pointed out that should Opel/Vauxhall consider such a change, it would have the necessary data to assess the impacts for transport.
“We are still not sure where exactly we will be after the initial three years, but we now have high confidence that we are on the right track,” he said.
The most flexible solution
Rabe told Automotive Logistics that 4Flow ultimately won the contract because it was able to offer the most “flexible” package, including its IT and network planning capabilities, but also in allowing Opel/Vauxhall to limit its upfront investment. While the contract is not based on “sharing the savings” made in the network, Rabe said it has been structured such that the cost savings must exceed the cost of the service.
“We were able to come to the best compromise between upfront costs and payment based on performance during the contract,” Rabe said. “We have full transparency together on costs.”
The Gefco outsourcing will also have relatively little to do with this project. According to Rabe, the spare part flows from suppliers to the first GM warehouse will continue to be bundled together with Opel/Vauxhall production flows where possible using contracts managed by Gefco. However, the Opel/Vauxhall and 4Flow aftersales function will continue to manage inter-warehouse moves and the distribution of spare parts and their special requirements.
Ford’s “network integrator”
Opel/Vauxhall’s move towards a 4PL for aftermarket logistics follows a similar decision by Ford over the past ten years to create a spare parts logistics umbrella network with Penske Logistics. In several years time, Opel management might like for its partnership with 4Flow to yield some of the same results too, which include a 17% savings in transport cost and carbon emissions across Europe since the project began, according to Walter Faßbender, manager of Europe traffic and customs for Ford’s Customer Service Division.
Similar to Opel, Ford began with a decentralised aftermarket logistics structure, with transport activities designed and purchased by individual countries. Ford then also faced the challenge of having acquired a number of other brands – Volvo, Jaguar, Land Rover and Mazda – that had completely separate aftermarket networks.
Ford chose to create a “network integrator” to pull together volumes. Similar to Opel’s reasoning, Penske was chosen as a “carrier neutral” provider to perform network analysis and carrier sourcing, said Faßbender. Ford provides network data on suppliers, dealer and orders, while Penske carries out network analysis, logistics sourcing and EDI links between collection points and carriers.
“Between Ford and Penske we had all the tools necessary to set targets, plan transport and engineer the networks in each market,” said Faßbender, speaking at a separate session to Rabe during the BVL Congress.
The combination of the brands under the 4PL umbrella has led to significant logistics and carbon emission savings, according to Faßbender. In the French market, for example, prior to integration Ford and Volvo had annual deliveries numbering 190,348, with a total distance moved of nearly 87m kilometres. The integrated flows have seen the same volume moved across 90,000 deliveries, with total distance reduced by more than half to 40.2m kilometres.
Ford and Penske won an award for the poject from the European Logistics Association earlier this year.
The “neutral” role of Penske has proved important not only for carrier management and negotiating between the cultural differences of the different Ford brands, but doubly so since the OEM sold off the brands.
“We are still completely networked, and the change in ownerships has had no impact at all on how we manage and combine our volumes,” said Faßbender.
More brands and volume, less cost
There are differences in how the two carmakers have built their 4PL relationships. While Ford has focused mainly on the purchasing of logistics service, Opel has also put more emphasis on developing the visibility tools to control its aftermarket flow. Nevertheless, both have essentially taken the belief that a centralised function, albeit neutral and outsourced, is the most effective approach to bundling volumes than either individual market approaches or a fully in-sourced team.
“There is a big benefit for a networked approach, which gives us a much better view of fixed cost as a result,” said Faßbender.
While Opel obviously still has further to go in the re-engineering of its network, both OEMs are looking towards the inclusion of more brands and potential volume into their networks – including each other.
Firstly, Rabe said that the current distribution split between GM brands Opel/Vauxhall and Chevrolet and Cadillac in Europe – which was done prior to the later-reversed plan to sell Opel to Magna in 2009 – is unlikely to last. “We will work very close together again covering all GM brands in Europe,” Rabe told Automotive Logistics.
Faßbender said that Ford is now exploring how it might also integrate aftermarket flows with the production parts network in Europe (something currently done at Opel). It is also working actively to combine aftermarket volume with other OEMs. In the Nordic markets, for example, Ford and Penske will add truck and construction equipment manufacturer Volvo Group to the network, while both Faßbender and Rabe confirmed that Opel would participate as well.
“We are open not only to other OEMs, but also to other manufacturers,” said Faßbender. “What does it matter if you’re moving white good parts, such as for refrigerators, together with car parts?”
