Christopher Ludwig talks to Mercedes-Benz USA about the carmaker’s delivery and inventory management challenges in maintaining an efficient spare parts network.
As sales of Mercedes-Benz cars continue to gain market share in the US light truck and premium car market, one of the most important service demands on the carmaker is keeping its dealers stocked with spare parts and delivering them quickly to avoid repair delays. Simply put, delivering premium customer service requires premium parts logistics.
The benefits of a well-stocked and fast-moving network is obvious as dealers can better meet service needs and thereby increase customer satisfaction, build a positive brand image and, not least, contribute to profit margins.
Mercedes-Benz USA (MBUSA), the entity responsible for sales and parts for Mercedes-Benz passenger cars, light trucks and vans, smart and Maybach, is an example of where a strong emphasis on improving logistics has had positive echoes across the supply chain.According to Tomas Hora, who moved to the US in January to take over as parts manager for MBUSA, in the last five years the company has invested significantly in improving on-time delivery as well as operations at parts distribution centres (PDCs).
“For parts ordered, we now have a 99.1% record for them arriving the next day,” says Hora.
But he recognises that there is a significant cost risk if the balance is tipped too much in the direction of expedited deliveries—especially in a global supply chain and a sprawling market like the US. Although it makes up a small portion of overall deliveries, Hora believes there is currently too much air freight used in the service parts supply chain.
Some of this air freight is a result of MBUSA’s supply chain, which is mostly fed from Daimler’s Global Logistics Centre (GLC, pictured opposite page left) in Germersheim, on the river Rhine in Germany. Though he’s been out of parts logistics for nine years, having worked recently as a marketing and sales manager in northern Europe, Hora previously worked at the GLC and thus understands the global makeup of the company’s service parts network. In general, he says that the supply chain between Daimler in Germany and MBUSA works seamlessly in its parts flow, with the majority of material arriving by sea.
But the degree to which parts are flown around, partly because of inventory management at a small number of dealers, as well as a result of fast growing demand, is considerable enough to capture Hora’s attention in his role as parts manager. “I have always said that if I could choose what I was going to reborn as, I would be a Mercedes-Benz part because I would see the world,” says Hora, smiling. “I believe we can improve on the amount of air freight we use.”
A different kind of dealer in the US
Hora acknowledges that managing inventory and delivery frequency is always difficult, and especially so in the US. While in European markets like Germany, the UK and Spain, Daimler runs dealer inventory management systems to track stock and forecast demand, such a nationally integrated system has not been introduced for the American market.
“Dealers in the US understand their market better than anyone, and many are very particular about the knowledge and information that they share with manufacturers, and thus are not as open as European dealers,” he says. “Also, the size and diversity of the market means that we probably wouldn’t get the same efficiencies as we could in England or Spain.”
Without relying on a statistically driven system across its 350-plus dealerships, Hora says MBUSA focuses on training and cooperating with dealers on inventory management and parts ordering to encourage storage of the right fast moving parts, and thus avoiding unnecessary emergency orders.
“Clearly it’s critical that the fastest moving parts, like wiper blades or filters, are on the shelf at the dealer,” he says. “But I’m not talking about a beige seat cover of a car built 20 years ago—that is our responsibility to get it there as fast as possible.”
Hora stresses that service parts logistics should be based on customer expectations, and he doesn’t believe customers expect every part to be available immediately—but dealers often expect parts to arrive immediately after ordering them.
“Our partners accept next day delivery, but they would rather have it the same day,” says Hora. “We in logistics have to do everything we can to get the part to our dealers as quickly as possible.”
MBUSA delivers parts to dealers from five primary PDCs once a day, typically by overnight delivery with the aim of reaching dealers by 7am. According to Noel B. Walls, national parts operations manager, most of these parts move in dedicated delivery services in full truckloads, although a share moves in less-than-truckload (LTL) networks. “It’s definitely more of a challenge to meet the next day requirements with the LTL freight,” Walls says.
MBUSA also has a generous referral policy, which means that if a part is not stocked in the regional PDC, it will be shipped—most likely by air—overnight direct from another PDC. In other cases such parts could also be flown directly from the GLC in Germany.
Hora admits that some of this air freight is normal, such as for consolidated shipments of backordered parts from Germany or for genuine emergencies that would prevent delays to fixing a vehicle. He also stresses that the majority of dealers use the system to great effect, particularly with demand high. But Hora believes there is also some misuse.
“If a customer genuinely needs it, I’m happy with getting the part there no matter what it costs,” says Hora. “But we see the system is being taken advantage of sometimes. There are a lot of parts that are returned back to our warehouses a few weeks after being flown to the dealership.”
According to Hora, a minority of dealerships act in this way, and MBUSA is working on systems to track the lifecycle of orders to determine whether or not an emergency order was necessary. “Around 10-20% of dealers need more education,” he says. “But most work very well and many are fantastic.”
He adds that reducing air freight is not only about working with dealers, but also a matter for MBUSA in terms of storing the right parts in the appropriate PDCs to serve the closest markets. “It’s part of our air freight initiative to ensure that we have sufficient stock in each compound,” he says. “To gain the benefits that we’re looking for, the whole supply chain has to be considered, from the global warehouse and PDC suppliers to the dealers.”
MBUSA must consider several strategies in balancing inventory and delivery, including whether to increase frequency from PDCs to dealerships. Several competitors in the US, like BMW, already deliver fast-moving parts three times per day to high-density areas. In Germany, Daimler delivers three times also, where it competes directly with suppliers such as Robert Bosch and Valeo and needs to match their delivery frequency.
But it is an approach that Hora and MBUSA have not yet considered for the American market, despite competing with independent distributors who also offer frequent delivery services. “I’ve been asked if we should use such a model here, but I don’t think so,” Hora says. “I think that increasing deliveries could merely offset bad behaviour by some dealers, and discourage them from stocking the right parts.”
A comparison of the Mercedes-Benz network in the US compared to that of Germany demonstrates why the approaches are different. In Germany—roughly the size of the north-east US—Daimler has five distribution centres besides its GLC to provide parts for Mercedes-Benz cars and vans, smart, Maybach and Mitsubishi Fuso: they are in Hanover, Cologne, Nuremberg, Mainz and Reutlingen. There are also seven European distribution centres in Italy, France (where the are two), the UK, Spain, Switzerland and Poland.
MBUSA relies on roughly the same number of facilities as in Germany to serve the entire US and Puerto Rico. The largest PDC is the ‘regional master’ in Robbinsville, New Jersey, which serves the north-east and slow-moving parts nationally; the second largest warehouse is in Fontana California for the west coast; the rest are in Jacksonville, Florida; Chicago, Illinois; and Fort Worth, Texas (near Dallas).
Another large warehouse, run by the plant rather than MBUSA, stores parts sourced from US-built vehicles, about 60% of which are sent to the GLC for exported models and 40% to MBUSA centres for US distribution. It also serves dealers directly for vehicle off-road cases.
Besides the sprawling distances and the relatively wide area that each PDC in the US covers, the model of road distribution is also different compared to Germany. As opposed to contracting with a nationwide service provider like DHL or Willi Betz, MBUSA contracts a regional service provider for each of the PDCs (including two providers from Fort Worth). While Hora acknowledges the difference in scale of the two countries, the regional approach obviously requires working with considerably more carriers.
The NAFTA project and sharing truckloads
But while MBUSA cannot expect to match the density and speed of the German market, the company is looking for ways to increase its freight density and efficiency. It has recently begun a study, dubbed the NAFTA Transportation Project, which is analysing how Daimler could combine transport and logistics more between all of its various entities on the continent, which include MBUSA and its Mexican and Canadian counterparts; Daimler Trucks North America (DTNA), with brands like Freightliner and Peterbuilt; Mitsubishi Fuso; and the tier supplier Detroit Diesel.
There are already some towns in the country that have both Freightliner and MBUSA dealerships, in which case the two already have freight loaded together on the same truck. But a more coordinated approach with the management at DTNA or Detroit Diesel would be new. “We’re evaluating where it would make sense, and so far we seem to have identified some synergies in the Chicago area, for example,” says Hora.
Hora adds that integration at the NAFTA level is unlikely to have an impact on PDCs or shared storage. “Shared inventory is not on our agenda because the parts are so different with a truck and we would have to invest in huge facilities to combine this,” he says.
Noel Walls adds that MBUSA also has some shared services with other OEMs, although these lanes tend to be arranged by carriers serving more than one brand in the same region. “We have some shared services out of Robbinsville together with Nissan, as well as others with [Chrysler’s] Mopar for some of the outlying facilities,” says Wall, who also worked 23 years in the spare parts business for Chrysler.
In-house versus 3PL parts warehouses
Since August 2011, Walls has had responsibility for all PDCs in the US, as well as being the department manager for the Robbinsville facility. All of the centres are run in-house and staffed with MBUSA employees with the exception of Fontana, California. Prior to the split between Daimler and Chrysler, this was a Chrysler warehouse, but when MBUSA took it over it chose not to outsource operations to a third party provider.
As MBUSA’s first foray into using a 3PL for a PDC, Walls says there is still a steep learning curve. “There are not a lot of 3PL companies that really understand what we do,” he says. “Our 3PL is the middle of the contract, and so we are putting a lot of focus on training. It is very important to us.”
Hora adds, however, that the 3PL has improved quickly. It also has an added advantage of being MBUSA’s transport provider from the PDC, and so the integration between warehouse and transport management is seamless.
Both Hora and Walls say that, although the in-house model predominates, MBUSA and Daimler are constantly evaluating the balance between service, quality and cost in running the PDCs. Hora says that having a 3PL in the US network has been useful as a point of comparison. Still, he does not believe that 3PLs have been able to match MBUSA or Daimler globally in terms of quality.
“It is not Daimler’s core competence to run a parts warehouse, but up to this point no company has proven that it can do it better,” says Hora. “We have 3PLs at our PDCs in Singapore, Dubai and Poland, for example, but none of these warehouses have reached the levels at our internally run centres.”
Packaging standards and returnable loops
Another area in which MBUSA is also trying to reduce cost is packaging design and reuse. According to Walls, the company is currently in the process of further standardising packaging and equipment between its PDCs. It has worked across its national packaging account to reduce the variation of packaging designs from 130 to around 80.
Walls adds that, as part of a campaign to be more environmentally friendly, there is more focus on reusing, reducing and recycling cardboard and metal. “We’re also looking at taking green initiatives to the next level in our facilities with exploring energy conservation such as solar panels and light bulb sensors,” he says.
Hora says that MBUSA and Daimler are also looking at the possibility of introducing further returnable packaging and pallet loops to the global aftermarket supply chain. Currently, the company runs a pallet loop between its dealers and the PDCs, with empties picked up from each dealer after new parts are delivered. There is also an international pallet loop that is managed across parts which arrive in the US from Germany, whereby those pallets are sent to the parts warehouse in Alabama, and shipped back to Germany with US-sourced parts.
Yet another loop is currently used for sending parts for remanufacture back to Germany. However, Hora reveals that Daimler will soon introduce a facility at the Jacksonville PDC to do this work locally. “This will eliminate the need to ship parts back and forth,” says Hora.
Can’t just throw money at transport anymore
For Hora, the main objective for the MBUSA service parts supply chain remains reducing air freight at the same time as improving service levels at dealerships. He believes that the company has already made significant improvements across its PDCs and transport processes in recent years. “Five years ago our spare parts logistics were not where they should be. But today, we have high service levels, our quality is excellent and the costs at the PDCs are also reasonable,” he says.
He adds that ground logistics costs are also efficient across most of the network. “I’m very happy with the service on our dedicated dealer deliveries, for example,” he says, citing the 99% next day record. “The growth fills up our trucks and sometimes we have to add trucks to routes. In general, our ground transport is either full or even too full.”
But while the necessity of filling demand and reducing customer waiting times is imperative, Hora wants to adapt more tools and training that will improve inventory management and prevent dealers from being so quick to rely on expensive emergency orders. He does not believe that spending more money on transport is necessarily the answer anymore.
“We’ve spent five years improving our service levels, but one problem is that we improved them in part by throwing a lot of money into transport,” he admits. “Now we have to improve the high levels of service while making it more efficient.”
