Despite uncertainty surrounding the UK’s departure from the European Union, carmakers in the country have announced a number of investments in the past 12 months that should, in the medium term at least, keep the country’s vehicle production networks competitive and growing.
According to data from the Society of Motor Manufacturers and Traders (SMMT), February was the best month for UK car production in 17 years, with 153,041 vehicles produced – an 8% increase from a year earlier and one largely driven by exports.
At this rate, production is fast heading in the direction of 2m vehicles a year, compared with the 1.75m units produced in the 12 months to the end of February.[sta_anchor id="1"]
To help support this strong growth and these investment plans, 3PLs and suppliers in the country will need to remain competitive.
DHL Supply Chain is one of those providing a number of services to the local industry, having operated in the UK for 50 years. In fact, the company’s portfolio of services in the country reaches across the supply chain, from inbound to manufacturing to onsite logistics for OEMs. It also operates in finished vehicle and aftermarket sectors as well (including tyres).
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In November last year, in the midst of several OEM investment announcements, DHL Supply Chain itself opened a new 13,000 sq.m shared-user facility in Fradley Park, doubling its warehouse capacity in the Midlands region of the country. It is expected to meet capacity requirements for suppliers and manufacturers for the next 5-10 years.
A fleet of 71 new Euro 6 trucks have also been introduced into its network in support of the investment.
The new site, which included a £10m ($12.5m) property investment, supports four major OEMs with direct UK and EU plant deliveries and an additional ten tier one suppliers.
“That network really is the backbone of our shared-user transport collection service and from that location we are effectively doing inbound collection of tier suppliers’ automotive parts, cross-docking those parts and delivering them on to a final point of consumption,” says Martin Dougherty, VP of DHL Supply Chain in the UK.
Fradley Park is also a cross-dock for mainland Europe-destined parts, inbound and outbound. “If we have clients that are supporting manufacturing down in Germany or Spain, a lot of the UK original parts are collected and distributed from that location,” says Dougherty.
Outgrowing Hams HallThe new investment came about after one of the company’s largest OEM clients announced significant expansion, leaving DHL needing to grow beyond its traditional base at Hams Hall, near Birmingham.
“Through their expansion, we effectively outgrew that facility. There was an uplift in their activity but also an uplift in the general business activity that we had been picking up, so we felt it was justified to have a new facility,” comments Dougherty.[mpu_ad]
The cross-dock at Hams Hall is now used for just a single, unnamed OEM, while there remains a shared-user facility at a separate building for tier-one suppliers.
Dougherty admits that Fradley Park’s location is not as ideal as maintaining its footprint near Hams Hall (30km away), but explains: “The reality of it, with regards to speculative developers in the Midlands area, is that you don’t tend to get that kind of footprint with large yard areas, just because the cost of real estate is prohibitive.”
DHL has also put significant investment into converting the ground around the facility into yard space, allowing it to hold 150 trailers at any given time.[sta_anchor id="2"]
Fradley Park’s aesthetics are also more suited to cross-docking, he adds, with a more ‘flow-through’ layout, that facilitates the passage of goods coming in on one side and moving out of the other. It is also a relatively low-rise building, for a warehouse.
One of DHL Supply Chain’s main goals in all this has been to increase truck utilisation. “The greater cube utilisation we can achieve, the less the [total] mileage we are going to be running,” comments Dougherty.
Traditionally, he points out, less-than-truckload activity might involve vehicles only being filled to 35-45% of capacity. “If we can move that up towards 60-65% on a shared-user basis, that is a pretty good efficiency, bearing in mind you are not going to have a commonality of packaging,” he says.
Customisation pressuresDHL Supply Chain’s has also had its eye on the modern day structure of OEM facilities, he explains, where to compete within a group globally for production of new cars, manufacturing plants have made significant changes.
This includes shifting tier suppliers outside of the build hall and increasingly demanding a competitive, efficient supply chain that can provide agile and timely delivery of goods to the plant.
In a recent discussion with UK lawmakers studying the impact of the UK’s exit from the European Union, Nissan’s head of supply chain indicated that the company’s Sunderland facility, which produces about two cars a minute, only holds on to about half a day’s stock in any point in time, while consuming about 5m parts a day.
Says Dougherty: “Those tier suppliers have been moved off site for the simple reason of creating additional manufacturing capacity.”
On top of that, of course, lines would traditionally have produced one model are now producing two or three different models these days.
To make things even more challenging, customisation has also increased significantly over the years, with some cars now available in thousands of different configurations to customers.
This customisation can play a part very early on in the car’s set-up. One of DHL’s facilities in Sterling Park near Solihull, for example, provides logistics services involving unique wiring systems in one OEM’s cars, which are configured and picked for each individual customer’s vehicle prior to even getting to the carmaker’s plant.
“If you think back to the 1970s or 1980s, if you bought a car, most of the wiring systems in that car would be behind the dashboard, ready to upgrade it from a base model; whereas nowadays, you see a much higher level of customisation at the point of manufacture [of those wiring systems],” says Dougherty.
For the supply chain, this increased customisation means more upstream visibility is required, while kitting and sequencing is taking place much later in the production process and nearer to the point of consumption, i.e. the plant.
“The key thing that comes into it from a DHL perspective is the IT systems that support the upstream supply chain visibility,” says Dougherty.[sta_anchor id="3"]
Wired to succeed
At the wiring facility, the company operates a traffic light system where it can visually see from the production floor point of view at the car plant whether it is ahead or behind of schedule. “Having that upstream visibility is really important,” says Dougherty.
DHL has several facilities that sit within minutes of OEM plants performing an element of customisation of the tier suppliers’ parts, delivered in sequence before going into final production.
“The key driver is to create additional manufacturing space in the production hall to allow more vehicles to be produced,” he says.
The result is a continuous flow of these wiring systems in and out of the distribution centres, with stock levels and trucks continually monitored via GPS en route to and from the plant. As a back-up, smaller delivery vans are available to make emergency deliveries if an unexpected traffic event were to occur.
The work of logistics firms like DHL Supply Chain in this part of the market will probably rise, believes Dougherty, as consumer demands increase.
Another outcome, he suggests, will be increased alliances between tier suppliers and technology companies, as well as consolidation in that space as more suppliers start supplying several components of a vehicle and the associated technology, rather than just one or two.
DHL is targeting a third-party type role in bringing clients together and brokering deals for competitors to collaborate in the production supply chain. This is already happening at the Sterling Park wiring system distribution centre, for instance, which serves two separate unnamed clients.
“We said the right option for lowest cost and just-in-time is to have both located in the same facility, and that has been very successful,” confirms Dougherty.
Aftermarket growthIn the aftermarket space, too, the company has been building new business recently, adding Toyota as a client only last year. The three year-contract follows agreements in recent years with carmakers including BMW and Volvo.
The three-year contract to manage parts distribution and warehousing in the UK for Toyota includes the distribution of approximately 200,000 lines each year to over 200 authorised repairers and retailers. It is being run from Toyota’s own facility, which is also in the Midlands.
Given its history in the country, DHL Supply Chain has accumulated a sizeable portfolio of UK assets and property, allowing it to be flexible and adapt to market conditions and any sector-specific changes that may occur over time.
Hams Hall for example, was originally the cross-dock for the company’s drinks business, and was converted after the profile for that business changed, according to Dougherty.
“So within the portfolio of real estate that we have within DHL there is an opportunity for us to say, ‘the drinks business can move somewhere else, and we can use that for automotive because of its proximity to the OEMs and tier supply base in the Midlands’.”
Another example where this advantage has been used is in the aftermarket, where DHL Supply Chain is using existing urban centre facilities, previously occupied by DHL Express parcel delivery, to create micro-warehouses for quicker delivery of parts to dealerships.
“We probably have more real estate and property than other logistics company in the UK, so we do have our own real estate team and are always looking at those options,” says Dougherty.
Traditionally parts for a service were delivered overnight but with DHL micro-warehouses located nearby, same-day delivery is possible.
“What we are now trialling is running local distribution centres (LDCs) or micro-warehouses in urban city centre locations and providing same-day part replenishment to dealerships,” says Dougherty.
This involves parts being delivered within two hours of order and means that an unexpected part change in a vehicle service will not necessarily mean the car remaining at the service point another night, as would have been the case in the past.
Most recently, the company opened its second facility, on a shared-user basis, in Bristol and Dougherty says the intention is to identify locations for more of them in the coming year.
“The key thing there is giving clients a customer service edge. An opportunity to offer their clients something they haven’t seen before,” he says.
“If you look at other consumer areas, people expect that level of service and really what we are doing is proactively saying, ‘what can we do from the supply chain point of view?’,” he adds.
With the advent of start-up electric vehicle companies, this kind of approach may even advance further, with companies like Tesla already offering its Mobile Service (previously Ranger Service ) offering to customers in some areas, where basic service work and repairs are carried out at the home or office without the need for a lift.
DHL is also busy investigating this opportunity and in North America it has partnered with an OEM to trial such a service. As part of the project, DHL has the coded keys for each technician’s vehicle, allowing it to restock their van with parts overnight.
There has also been an increase of weekend service offerings, according to Dougherty, “and we know that will make a change to the upstream supply and so how we support that is pivotal.”
Dealing with BrexitThe UK automotive sector’s supply chains, like many other sectors, are deeply integrated with mainland Europe. Four out of every ten cars produced in the country are destined for customers there.
After the Article 50 divorce clause triggered last month, a two-year negotiation period has officially started recently to establish the terms and conditions that will apply to the split, worrying many in the industry faced with uncertainty over future trade.
Dougherty declines to comment directly on these negotiations or their outcome but underlines his strong belief in the local sector’s resilience.
“What the UK automotive industry has been so successful at doing is managing change in the face of adversity,” he states.
And he is equally as upbeat about fears, following the recent announcement about Groupe PSA buying General Motors’ European business, for certain UK plants beyond the acquisition. Elsmere Port has been mentioned as a potential target but has highlighted as one of the most efficient automotive plants globally, he points out.
“We will wait and see what happens but I think we have got a pretty good track record in the UK to rise to those kind of challenges,” concludes Dougherty.
