'Opportunities and Nightmares' as growth brings more complexity
The 13th annual Automotive Logistics Global conference saw record attendance and an optimistic industry. Which means more global and more complexity, as our report illustrates
DETROIT 27 SEPTEMBER 2012:Recovering volumes of light vehicle sales sound like good news and, despite caution about the global economy, there was considerable optimism among delegates on the general direction of the North American automotive logistics sector.
Factors like the rise of Mexico and more production on global platforms means that logistics as a sector is seeing growth. Weak domestic freight trends, inventory lagging production and slowing exports to Europe and China are challenging, but so is the rise in intercontinental freight movements. In the words of one analyst who presented to the conference, manufacturers and logistics providers in North America have “opportunities and nightmares, depending on who you are”.
Perhaps nothing exemplifies the trends as well as the intercontinental network of General Motors. Christine Krathwohl, executive director of global logistics and supplier diversity, put it into figures: 108 plants (not including joint venture activities); 6,500 daily material shipments; 2,900 daily ocean container shipments; and 170 vehicle distribution centres.
GM is currently shipping 700,000 TEUs of ocean freight per year, a number that has grown by about ten times in the last decade, she told delegates, and she expects a rise to 750,000 TEUs in 2013. GM’s logistics budget on its own – without the spending associated with joint ventures – would rank it 270th on the Fortune 500 company list, said Krathwohl. “We have a leverage now that we never had before.
Ford’s Steven Harley, executive director for global material planning and logistics, echoed the corporate significance of logistics. “I presented to our leadership just last week and…we’ve got a big number in the business plan,” he said. “If you can take a day or two out of the vehicle delivery chain, for example, that is like running two days in the factory. Even if it costs a little bit more, it could be a very worthwhile, especially in a period of high demand.”
Such complexity suggests that the relative importance of logistics in the automotive sector may well have surpassed the levels seen before the financial crash, even though overall light vehicle sales - at 14.3m forecast this year and 14.8m next – remain below their historic average.
The importance of logistics was in many ways demonstrated by the 2012 conference itself; a record nearly 500 delegates gathered to fill the MGM Grand Hotel in downtown Detroit. They met for two intense days of networking, learning and discussion in a program which included an introductory cocktail reception and a stylish mid-conference dinner. As usual, delegates will benefit from valuable copies of the formal presentations and invaluable contacts and intelligence.
But the US recovery, though enviable by comparison with Europe, for example, is still “unloved”, at least in the freight sector, according to Benjamin Hartford, senior research analyst at Robert W. Baird. General freight and transport volumes have shown sluggish growth or even decline in some areas.
The US economy remains hindered by a low level of consumer confidence amid high unemployment. This has translated into static figures for truck tonnage, with a particular slowdown in growth notable since May. In the auto industry, vehicle purchases per household are still at historic lows, while Hartford pointed out that slowdowns in other parts of the world might also have an impact on vehicle exports out of the US, which have otherwise grown in recent years to markets such as China and even Germany.
Hartford also pointed to a divergence within the stock market, as rising general market indices compare to declining prices for automotive and freight company shares. “We consider automobile and parts as early indicators of the stock market,” he said. “They underperform when the market drops, and they outperform in good times. At the moment we can see they are dropping.
However, Hartford had some reassurance. The housing market has stabilised, while household debt has dropped (albeit at the expense of consumer spending). He noted that manufacturing in general has grown in the US and that the country is recovering some of its industrial capacity following years of decline, which has helped to increase the logistics business. Automotive in particular has been a bright spot for manufacturing growth. “Near sourcing [in Mexico], and more US manufacturing, I think it's real,” said Hartford. “Production capabilities are returning to North America.
Michael Robinet, managing director of IHS Automotive Consulting, pointed to other positive factors for both automotive sales and production. Vehicle age is at an average 11 years, and there are currency advantages for both the US and Mexico relative to Europe and, especially, Japan. In fact, said Robinet: "I would consider exchange rates to be No 1 on the hit parade for changing vehicle flows. The US and Mexico look pretty good for the future.”The growth of production in the US south, as well as in Mexico, has also led to more logistics complexity across modes. Mexico is expected to increase production by around 40% in the next five years to 4m unit annually. In fact by 2019, according to IHS, production plants in the US southeast and in Mexico will represent almost 50% of North American light vehicle output. Much of the shift will be from the midwest and Canada.
The globalisation of the North American automotive sector is seeing dramatic changes in both material flow and exports. Toyota’s Mike Nelson, national manager for rail, pointed to “unbelievable” export volume predicted from the US. Mike Silvio, director of supply chain management for tier one Cooper Standard, said that North American manufacturers could no longer be “regional, multinational companies” but must be globally integrated.
GM's 750,000 TEUs next year has made container shipping lines pay more attention. And its current material flow includes some unexpected trade lanes. Movements within Asia Pacific are now 150,000 TEUs annually, while 125,000 TEUs go from Asia Pacific to Europe. Some 150,000 TEUs are exchanged between Asia and North America, but the biggest single flow, interestingly, is the 155,000 TEUs shipped from Asia Pacific to South America. In fact the largest source of material for GM is South Korea, which exports more than 1m knockdown kits globally, to destinations from Brazil to Uzbekistan. “The biggest growth is from Korea by far, and that will continue, followed by China,” commented Krathwohl. “We also move a lot from Thailand to Brazil.”
Different to previous drives to purchase from low-cost countries, these material flows have been created in large part by single sourcing of components for vehicles built on global platforms, many of which have their “mother plant” in Asia and China. That’s a shift that IHS’s Robinet pointed out would have been unthinkable for many in the industry just 10 years ago. “Places like China, Poland or Brazil could be the lead plants today for global platforms, which is a huge shift,” he said noting that by end of this decade some 60% of vehicle production will come from newer markets.
Ford has also seen an increasingly global footprint. The new Focus built in Wayne, Michigan is based on a global platform, and Harley told delegates of increasing part complexity and distances for delivery. The average number of parts per vehicle has risen from 1,700 to 2,400, he said, while the proportion travelling further than 1,000 miles has risen from 17% to around 50%.
“The distance has changed the entire process as well. It used to be that you could broadcast supply to your suppliers just two or three weeks in advance [of production]”, said Harley. “If you do that today, the material is already on the water, and it’s too late. You need to be far more disciplined.”
Interestingly, Krathwohl felt that the global flow of material might have reached a point where GM would have to look more carefully at its sourcing patterns. She admitted that the single source strategy may have to be reconsidered in some areas. “We made a lot of decisions to single source, and we are going back to look at it this again,” she told delegates. “It’s a big number to be shipping 750,000 TEUs and we want, to the point where it makes sense, to reduce it.”
Consolidation to keep LCL out of the network
GM's intercontinental network now includes consolidation centres in the US, Mexico, Brazil, Europe, South Korea, China and Thailand, with two opening soon in India. Material is consolidated completely at origin into full container loads, which are packed ready for delivery to plants. GM does not do any deconsolidation at ports or other centres. “I do not want any LCL [less-than-container loads] in our network,” said Krathwohl.
She said that the benefits of full container loads and consolidating at origins include increased visibility and control of material flow, better utilisation of the inland network, and better transit times. She admitted, however, that there could be some opportunity to improve transport efficiency by deconsolidating at ports in certain regions, such as North America, where GM might be able to switch to standard 53ft containers.
While such logistics engineering is critical to GM’s supply chain, Krathwohl still assessed that the only way to significantly shift the cost was to change the supplier footprint. “Making a 10% cube efficiency will not have a major impact compared to moving from a distance 1,000 miles away to within 100 miles,” she said.
But Ford’s Harley did not believe that the increasing use of global ocean shipments was necessarily driving up the cost per mile of each part, since the price of ocean was relatively cheap. He said that the real costs come in the risk of failing to meet supply. “Per mile is a false measure in the modern supply chain,” he said. “Reliability is the key.”
A question of standardisation
Standardisation in terms of packaging and containers was another concern for when it came to more efficient inbound supply. Dan Roovers, vice president automotive sales at Orbis Corporation, a provider of reusable plastic containers, pallets, dunnage, and bulk systems, quoted an Ohio State University study that said logistics professionals have 60% of the authorisation responsibility for packaging, but spend only 5% of their time on it. He said that waste elimination as well as the use of ergonomic containers is a primary objective of OEMs.
Picking up on the point William Wappler, president of Surgere, which also offers returnable packaging solutions, emphasised the need to maximise the cubic measurement of packaging in shipments. But the need to balance lineside efficiency with better packaging solutions was also a critical issue he said. “Shippers are moving a lot of air due to concern for meeting lineside demand. Logistics providers and packaging providers need to meet with each other in order to discuss means of reducing waste.”
Giving a more specific focus, Colin Howard, sales director for Europe at Goodpack, looked at the efficacy of shipping returnable containers from China or Europe to lineside in North America. He told delegates that one solution was to build a common pool of containers that offer a standardised package for different commodities. “The challenge of standardisation is that such containers are not always suitable for lineside. The question is: do you standardise the domestic bin for line-side or optimise the sea container,” he asked.
“Adopting the right bulk container would lead to a 20% reduction in the amount of sea containers that we need,” he added.
Camille Chism, packaging engineer at Johnson Controls, acknowledged that although local and international packaging should be treated differently as a means of keeping costs down, the situation may change as Johnson Controls moves more toward global platforms. Chism said that its main challenges include JIT manufacturing, customer and supplier management, freight management and packaging. “If I could come up with a levitating package that never touched the product and still protected it, I would be a billionaire,” she said.
Asked about how effectively the industry is tracking returnable containers, Chism said there were problems once a loss threshold of between 3-5% was crossed.
Added Wappler: “OEMs cannot tell you what they have lost. They are spending a lot more on packaging. Even corrugated boxes are coming out of the closet because of packaging shortages.”
Working with smaller shippers
At the other end of the global scale are companies such as tier supplier Key Safety Systems, which makes airbags and seatbelts. Paul Beigen, attending the conference just five weeks into his new role as director of global logistics and customs, described a spend of $30m each year on logistics and the shipping of 800 TEUs. The latter requires a weekly LCL service from South Korea to the US west coast and then into Mexico, as well as from Europe to the US and then to Mexico. Key Safety also uses full container loads for weekly services from South Korea to Europe, as well as from North America to Mexico.Perhaps because of its small size, Beigen said that he would be open to working with other manufacturers and tier suppliers on logistics. For her part, GM's Krathwohl agreed that there were opportunities to work more closely with other OEMs as well as with tier suppliers. An example is with Chrysler at a Ceva-managed crossdock in Nashville, Tennessee, though there are nothing similar in the intercontinental network.
“For any suppliers who might be worried about it, collaborating with us will not just mean a reduction in your piece price,” Krathwohl reassured delegates. She also said there was more opportunity to work with providers across regions to better engineer the networks. GM will start operating facilities next year in Indonesia and Nizhny Novgorod in Russia, as well as in Vietnam the year after, and Krathwohl said she was strongly in need of services that were more advanced than those currently on offer.
“I struggle to get LSPs or logistics companies that do network engineering in markets like Brazil, which is a service that I take as a basic,” she said. “It does not really exist in places like Vietnam or Indonesia.”
While global flows to and from North America are growing, the most important shift is still happening regionally, which is the increase in production south and, in particular, in Mexico.
IHS figures suggested that vehicle output from plants in the Midwest has dropped 4% to around 40% as a share of North American light vehicle output since 2007, with a further 2% fall predicted by 2019. Meanwhile, Canada's share is forecast to shrink from 16% today to 11% by 2019, although a new labor accord agreed recently could slow this decline.
Plants in the southeast, meanwhile, now represent 23% of production (up from 20% in 2007) and will reach 26% by 2019. Mexico has grown from 13% in 2007 to 19% in 2012, and is forecast to rise to 23%. That means the country is set to add nearly 1.5m more units of production in the next four years.
These trends are perhaps best exemplified by Nissan North America, which is currently investing $2 billion in a new plant in Aguascalientes, close to one of its current factories in Mexico. It will start with an initial capacity of 175,000 units, and will include a supplier park. According to Chris Styles, director of logistics in North America, production in the region will increase by 16% this year to 1.45m vehicles, with about half of that volume from Mexico. In 2013, Nissan expects to produce more than 1.9m vehicles in the region, with significant growth also expected for its US plants in Tennessee and Mississippi.
Balancing flows The growth of Mexico represents significant challenges for logistics. Even if many tier one suppliers, such as Delphi, have a large number of plants in the country, much of the lower tier supply base is still in the US, which means that southbound flows from the US to Mexico are still larger than the other way around. This leads to logistics inefficiencies and increased inventory. “There are not enough tier one and tier two suppliers in Mexico,” says Robinet. “They can’t necessarily get their factories up and running in time to meet the growth. Mexico needs more engine and transmission capacity, for example.” This will change, however, according to Sylvia Hill, North America and international logistics director at Delphi. Then "it will be an opportunity for many logistics providers to help improve efficiency on our border flows and for roundtrip movements,” she told delegates.
Nissan's Styles revealed that, in efforts to reduce logistics cost and hedge against currency exchange risks, Nissan is substantially increasing parts localisation in Mexico. This was recently at less than 40% of the total, but increased last year to 60% with a target for the end of financial year 2012 of 90%. Styles said that Nissan is working with suppliers in Mexico to improve the quality and reliability of their technology and delivery. “Logistics information and operation will be key at ports, on the road and for rail operators as they add capacity,” he told delegates.
Styles also revealed that Mexican-based material sourcing was likely to increase for the US and for South American production as well. Nissan will add production of a vehicle currently only built in Mexico to its plant in Mississippi, which should drive northbound material flow. Mexico is also an important and growing sourcing option for Nissan production in Brazil.Sylvia Hill pointed out that Mexico benefits from a high level of logistics competence. Delphi already moves across the border 300 times a week, using crossdocks at El Paso, Laredo and Los Indes; it has 530 international lanes and uses six ports. “Mexico benefits from a strong and growing base of both local and global providers,” she said. “Some providers are only focused on one region or only one mode, but in general the competence is strong.”
That may be true, but Mexico is still lagging in infrastructure as well as customs procedures. Hill pointed to outdated processes that have not changed in 15 years, and complained that an expedited customs service, which allowed qualifying 'low-risk' shippers to move more quickly across the border, is being phased out to be replaced with a higher-security program.While intermodal capacity has improved, there was still concern that investment in port and rail infrastructure might not keep up with anticipated growth. Union Pacific Distribution Services president, Kate Betsworth, pointed out that about 75% of the freight it moves in Mexico is still along the roads, many of which are patchy in quality and have many tolls.
But in a sign that railway capacity is currently able to handle the current volume, GM’s Christine Krathwohl admitted that she had been wrong about previous anxieties. "I was concerned about the rail network and getting vehicles out of Mexico in the third quarter, but the performance of the railroads has been phenomenal,” she said. “You [the railroads] were right and I was wrong. I’m still worried about next year, but it has been a very strong performance.”
Another obvious concern in Mexico is security. While the country has become infamous for an escalating murder rate and many thousands of drug cartel-related deaths, the incidents that appear to have the most impact on day-to-day business are related to theft and highway crime. According to Hill, there are more than 1,800 reported cases of highway crime in Mexico every day. “Security is a major concern for us and is something we monitor closely all the time,” she said.
Despite the risks it presents, however, Mexico appears to be winning as the area showing the greatest opportunity for logistics providers and manufacturers right now in North America. “We think those who best understand Mexico will really benefit in the future,” concluded IHS' Robinet.
After several years of delayed launches, the number of new models being rolled out all at once is causing some stress in the supply chain, and is expected to do so over the next three years.
“We’re dealing with a lot of back-to-back launches,” said Dana McBrien, associate chief advisor for Honda of America. “It puts a strain not just on our tier ones but down through the supply chain. We’re stretching the capacity of many suppliers, right down to our rack manufacturers, to make the changes as well.”
The number of global launches, defined by IHS as a vehicle produced in volumes of at least 50,000 units per year, will reach 133 this year compared to 85 in 2011. The number is expected to remain high for the immediate future, with the next three years forecast at 136, 120 and 126 respectively, followed by a drop to 98 in 2016.
“During the crash we didn’t make tools [for supplier production]," says IHS Consulting's Robinet. "Even though we are doing it now, the launch events are big challenges for logistics and suppliers.” General Motors' Jeff Morison, director of material, logistics and containers, pointed to launches as exacerbating production and logistics bottlenecks. “We have a lot of launches as markets come back and getting the material is a huge focus,” he told the conference. “Most of our critical items on a day-to-day basis are related to material availability.”
According to McBrien, the shortages have led to increased levels of expedited freight. “We hope the shortage won’t last too long, but we see it as continuing to be an issue for the next six months or so,” he said.
While many of the curent supply chain bottlenecks relate to material shortages, there have also been some issues concerning logistics. According to Landstar senior vice president Scott Grady, a capacity shortage for trucks is predicted by mid-2013. “Smaller carriers do not have credit facilities,” he said, and added: “There has been a loss of capacity following new driver regulations that restrict hours and increase rest breaks.”
Grady also pointed to a high rate of empty mileage and generally poor asset utilisation across the inbound freight network. Today, the average trailer is running 82% full, he reported. “Back in the 1990s, 80% was the right number,” he said. “But today, with higher fuel and equipment costs, it is no longer a good enough number.”
On the outbound side, Chrysler’s head of worldwide vehicle transportation, Steve Tripp, said that after the unhealthy years of 2009 and 2010, when he admitted that OEMs paid rates that were often below cost, 2011 brought with it unhealthy capacity shortages in the other direction. That year, Chrysler and others were also hit when Allied Systems pulled its capacity following wage and rate disputes. “We were unhealthy in many ways last year and I think that there was too little [car haulier] supply and we paid rates that were too high,” he said.
Bill Kerrigan, director of KGI Global Logistics Consulting, said performance in the finished vehicle sector was still characterised by a 'hurry up and wait' scenario and that there was still too much unallocated volume. He said that while there are signs of improved efficiency within individual verticals such as ocean freight and rail, the wider problem between those verticals was down to a lack of interoperable discussion.
“I don’t see the ocean carriers talking to the railroads or the railroads talking to the processors, and I don’t see anyone talking to the freight forwarders,” he said.
Kerrigan said the industry needed to talk about improvements across the board for a more uniform and efficient network.
Rick Powers from the Port of Baltimore agreed that there was a lack of interoperability, with only a couple of companies within their own verticals showing any real progress, but he saw a lot of positive signs in the industry and noted that things were moving quickly. Powers equated velocity with space and said that if everyone has a good amount of velocity in their business the port would not have to find more space, which is more expensive to develop and build.
Norfolk Southern's Timothy Butt said that the welcome return of high volumes brought with it the challenge of improving reaction times to challenges such as the the quarter-end increase in volumes that carmakers demand for shipping, or the knock on effects of a supply chain partner having its own capacity issues.
That said, while the market still sees shortages in some regions or at certain times (such as the end of month or end of quarter), Tripp described current capacity as being in a 'Goldilocks' era. “Vehicle logistics capacity is not too hot, not too cold, not too much, not too little,” he said. “And I think that for the next few years at least, despite the obvious and warranted economic risks, we will stay in the sweet spot, with healthy competition.”
Tripp hastened to add that innovation and efficiency would still have to play a significant part in outbound development, particularly for a trucking and rail sector that generally runs around 40% empty on average, according to OEMs and providers at the conference. “Those who don’t find that extra two-tenths of a cent per mile in fuel efficiency, or who don’t find more backhaul efficiency, will slowly shrink in business,” said Tripp.
A legislative quirk holds back potential
An idea for innovation in the finished vehicle sector that made another appearance at the conference this year was a convertible trailer built by CTM, which can be used to carry finished vehicles and cargo, or a mix of both, and is a piece of equipment that the company believes could help reduce empty mileage in the car haulier business.
However, CTM has run into a snag in US federal regulations that does not permit freight to be carried directly on the rig’s tractor, according to Ken Hulshof, a former Missouri congressman currently working as a lobbyist for the company. This means that, although it is legal to carry vehicles on the front section of the trailer as well as, oddly, a camper van, a container or freight pallet is not allowed. “We’re lobbying Washington to change the law, but we need the help and support of the industry,” said Hulshof.
Shipping has its ups and downs
The shipping industry also has its own impetus for improving efficiency. Ray Fitzgerald, president of Wallenius Wilhelmsen Logistics Americas, pointed to significant costs changes in both directions, including strict low sulphur fuel emission control areas (ECA) in Europe and North America, and the widening of the Panama Canal.
The ECA zones require fuel with sulphur levels of no more than 1% starting from this year. However, that number will drop to just 0.1% by 2015, requiring shipping lines to either switch to fuel that is nearly twice as expensive, or fit their vessels with exhaust scrubbing technology. Fitzgerald said that the changes would require more dialogue between OEMs and shipping providers to deal with the changes.
On the other hand, work on the Panama Canal will allow ships to pass through that are up to 50% wider than the current vessels. WWL says these so-called HERO (high efficiency ro-ro) vessels could offer significant advantages. “Such ships will be more stable and will require less ballast as they won’t need to go as deep,” said Fitzgerald. “Their scale will mean that they can consume much less fuel than existing vessels relative to their cargo capacity.”
He thought that such ships would become the standard for the main shipping routes, such as from Asia to America. The growth in emerging markets will result in more fragmented trade lines, and so WWL suggests there will be more regional hub concepts, where vehicles are trans-shipped to smaller vessels. “The big vessels will trade on the major flows, but the older, smaller tonnage will move on to the fragmented lanes for ‘fringe markets’ in ro-ro terms,” he told delegates. “Brazil and Mexico could be two examples.”
But for international flows, the ability to share and consolidate freight with other manufacturers – or even sectors – appears more difficult for a carmaker like GM, which moves full container loads and would struggle to find others of the same scale. “With LCL, we’re concerned not only about the price but also the control that we might lose over the transit time,” said Morrison.
Jeff Hurly, senior vice president for automotive at Ceva Logistics, revealed that a total 10.5% reduction in transport costs had been identified, 40% of which is in container utilisation, 15% comes from a shift from LCL to FCL, and most of the rest is from lane or carrier changes. Any 'quick wins' were implemented immediately, while an action plan was developed to address the others, he told the conference. In the next phase of the project, Ceva has suggested exploring areas including developing consolidation networks in Europe and Asia Pacific, more use of vendor managed inventory, and the implementation of a transport management system.
A similar example of close collaboration between LSP and OEM is seen between Ford and Penske. According to Matt Jorgensen, inbound logistics and customer service transportation manager for Ford, the carmaker had intensified its efforts to reduce inventory and carrier costs during the economic downturn. “In 2008-09 our task was to reduce inventory by 30% and reduce carrier costs,” said Jorgensen. “When we looked at the data we found that during this period we saw a spike in service disruptions, which were up 158%, which was having an impact on about 50% more units in our network.”
The two companies found that 60% of the service disruptions could have been mitigated or prevented if there had been more communication from carriers to notify Ford of potential delays. Penske’s solution was to add a GPS-based estimated arrival time for its carriers along with the pickup, arrival and departure notifications it already used. Once a carrier departed with cargo, it send its location once an hour to a Penske control tower, which could then react to any delays.
The system has been rolled out to a substantial portion of the inbound carrier base, excluding intermodal and milkrun routes, says Penske's senior LLP manager Kevin Denomme. Any route of more than an hour is required to use the system. “Around 45 carriers or more submit GPS information,” he told the conference. "We have 65,000 weekly transactions coming in, and we’re working with about 55-60% of our scoped routes.”
Outsourcing and a matter of trust
Visteon’s Pfeiffer pointed out that an important part of such horizontally-orientated outsourcing projects was that a contract logistics provider's recommendations did not automatically entail shifting more volume into its own freight forwarding networks. “We had quite a few discussions about the difference between Ceva’s freight management and contract logistics,” said Pfeiffer. “Ryder, which we use as a 3PL in North America, is a great example where the pressure is not for Ryder Supply Chain Solutions to source Ryder trucks. We want our contract logistics companies to look at where the opportunities exist, but with no guarantee for additional business in other units.”
It was also a point critical to GM’s Morrison, who also works closely with Ryder in North America. “We have service providers for supply chain management and I think what always amazes me is the selflessness to not take this business for the rest of your company,” he said. “It becomes a trust issue. If you thought the result from Ceva, Ryder or another would be very self-serving, you would question whether you got the right result out of the study.”
The Gefco effect
Such trust and collaboration with providers, together with finding the best opportunities to pool freight volumes, is particularly relevant given the changes in GM’s logistics management elsewhere in the world. A notable example is in Europe, where Gefco will officially become the carmaker’s 4PL this coming January. While perhaps not directly relevant to the North American market, many providers and carmakers will no doubt be watching the arrangement closely, particularly in how successful or not Gefco will be in consolidating flows between GM, PSA and other manufacturers.
“We’re excited about Gefco in Europe," said Christine Krathwohl. "They’ve been critical to our success in the past and have been a great supplier to us. In Europe, we have only a 6% market share and so there are a lot of volumes that can be shared.” Ford’s Harley also saw the Gefco development as a good opportunity, and compared the contract in some measure to Ford’s own relationships in Europe with DHL and in North America with Penske. He thought that ownership by the Russian Railways, which is now finalising a deal to purchase 75% of Gefco, would give the provider more firepower. “Ownership by the Russian Railway is a great opportunity for Gefco and it should give them a chance to breakout,” he said.
He added that Ford was interested in Gefco’s ability to pull together volumes as well. Ford has a joint venture in Europe with PSA to build powertrains, so it could also see more of its volume pooled with other manufacturers. “That means that if the 4PL arrangement is good for GM – and this will sound like a quote from the past – it should be good for us, too.”
Forecasting the aftermarket
Concerns in the aftermarket, meanwhile, focused on the importance of maximising service levels to dealerships, while also optimising inventory and reducing other primary logistics costs. UTi Worldwide’s Mike Valentine, regional vice president automotive, Americas, pointed out that aftermarket forecasting is more difficult than production forecasting because of a lack of understanding at the management level and a lack of resources for the necessary IT to implement and maintain it. Valentine relayed an example of how it enabled Reeds Motor Group, South Africa to improve its service level from less than 60% to 90% through its software solution. “We also helped Reeds to reduce it inventory by 31%. The problem was that it was carrying too much of the wrong service parts and not enough of the right ones,” he explained.
Vicki Streukens, director of North American logistics for General Motors customer care and aftersales, said that although GM’s overall service level is between 97% and 98%, its facing fill rate is 89%. “We are trying to react to our customers better. For example, we have provided pooling of inventory for our Saturn brand and we would like to do it again,” she said.
Rob Hillman, director of aftersales IT at VW of America, announced that it is in the process of offering next day service to its dealerships; previously, standard service would take two days. One of its challenges is that the lead-time from its service parts centre in Kassel, Germany to US dealerships is 60 days. Since Volkswagen of America’s backorder rate is 1.7%, Hillman said that there is a big opportunity for improvement.
“Our dealerships are increasing their breadth of parts that are available for next day delivery. The question is whether we make a suggested order for dealerships or provide automatic stock replenishment. We will probably do a pilot programme of both.”
As a means of mitigating its geographical and distance challenges, collaboration is essential at Ford, which includes leveraging transportation efficiencies by combining inbound and aftermarket freight at its Origin Distribution Centres (ODCs). “We also work with other OEMs and with other industries; thus, we collaborate both internally and externally,” said Roger Huff, manager, North America and Ford customer service division logistics, at Ford Motor Company.
“By commonising our inbound and aftermarket flows, we obtain a higher cube from the ODC and we also reduce the cost footprint through better packaging. Although the lead-time is slightly elongated, the cost of inbound and aftermarket logistics is declining,” revealed Huff.
Visibility is essential for keeping costs down and service levels high. “We have good visibility on mis-sales and with our automatic replenishment, we also have good visibility on the location of a part and how quickly the dealer needs it,” said Streukens.
The conference is part of the worldwide Automotive Logistics series, which in 2012 included:
- Europe (in Bonn, Germany 28Feb-1Mar – view report);
- China (Beijing 18-20Apr – view report);
- Russia (in Moscow, 19-21Jun – view report);
- South America (Sao Paulo, Brazil 4-5Sep – view report);
- India (Pune 5-7Dec)
Plus a conference dedicated to the outbound sector:
Finished Vehicle Logistics North America (in Newport Beach CA, USA, 31May-1Jun – view report);