Automotive supply chain strategies are being influenced by shifting markets and globalisation, but increasingly now it is consumer demand that is steering innovation, says Johanna Parsons.
Automotive manufacturing levels are set to hit pre-recession levels next year, according to The Society of Motor Manufacturers and Traders. But the marketplace has changed, and manufacturers will have to adapt to changing customer expectations.
The proliferation of trends such as smartphone apps, social media, and the general consumerisation of IT, have been influencing the high tech and electronics sectors for years. But now consumer driven innovations are having an impact in the automotive sector.
Intership’s 2013 E-commerce Report found that 97 per cent of professionals in the automotive industry believe mobile commerce will be an important factor in the next 12 months.
This means that the whizzy add-ons like integrated sat-nav, Blu-tooth connectivity, touch screen interfaces, and even wireless charging pads, that have been creeping in to the lists of optional features to tempt potential car buyers, will become more and more common.
Picking up on this, Jaguar Land Rover recently went into a partnership with tech firm Intel to enhance R&D on future vehicle “infotainment” technologies. Dr Wolfgang Ziebart, Jaguar Land Rover engineering director, said: “This will ultimately develop unique and innovative technologies that will continue to drive the appeal of our products.”
Such consumer requirements have been becoming an increasingly important factor says Chris Roberts of Unipart, who manages the firm’s global account for Jaguar Land Rover. He was part of the JLR-Unipart team that took the Overall Winner trophy at the 2013 European Supply Chain Excellence Awards for the firms’ exceptional results, achieved with astute co-ordination and complex collaboration with suppliers.
Roberts oversees fulfilment for the global aftermarket and he says he is seeing evidence of this trend for more personalised orders.
“There’s more variation for customisation in new models from Jaguar Land Rover, which of course makes it more difficult for us. We are dealing with more parts, but with low volumes it means that suppliers aren’t as interested.
“More variation means added complexity.” And when that variation includes high tech electrical components, you also have to factor in the big pressure of that sector – obsolescence. And that means a real challenge throughout the supply chain.
But Rachel Eade, the automotive sector lead of the Manufacturing Advisory Service says that it is the manufacturers who have risen to the challenge to deliver offerings like this that are keeping sales and cash flowing in these markets.
“The UK automotive supply chain has endured some extremely tough times and the ones who have survived have emerged stronger and with a desire to do things differently.
“And this is where we are winning. Our companies have recognised that high volume, simple parts will eventually end up in low cost countries so have changed their focus to add value, invest in new technologies and where they can, lead on design,” says Eade.
“The connected consumer is driving demand for a more connected car,” says Mark Morley of GXS. And in turn, he reckons this is influencing the general trend away from build-to-stock, with buffer stocks being reduced from 20 or 30 days to nearer ten.
“There is a slow shift to build-to-order production, mainly because it improves supply lines and provides more predictability for inventory levels… But it also helps the drive for the consumer to get their specific requirements,” says Morley.
Manoella Wilbaut, global commercial developments director of DHL customer solutions and innovation, says: “It is quite clear that a trade-off must be achieved between ‘make to stock’ and ‘make to order’ policies to benefit from a responsive and cost efficient supply chain.
“Their main concern is to make sure that manufacturers and logistics providers will not be trapped by overcapacity that dramatically impacted their profitability during the crisis.”
She says the solution seems to lie in a more flexible supply chain based on light asset models that would allow companies running business in those countries not to be harmed in case of a new activity slowdown.
“The logistics strategies are then more balanced between cost efficiency and flexibility,” says Wilbaut.
But a slowdown is not on the cards just yet. According to the SMMT, 403,136 new cars hit UK roads in September, the best month of registrations since March 2008.
Coupled with investments from manufacturers and major tier 1 suppliers, this upswing is causing OEMs, suppliers, logistics specialists and end consumers alike to make more considered investment decisions, as opposed to taking a more immediate view, according to Martin Warington of TVS Supply Chain Solutions, which serves customers such as JCB, Isuzu, Ford, and Amtek.
“Logistics’ strategies will need to be more flexible and customised to suit the increase in demand and suppliers who are in close proximity to the UK may be favoured over parts of Asia and the Far East due to a six-week lead time from order to delivery,” says Warrington.
Indeed, Eade says: “There is lots of evidence of re-shoring, especially products that are difficult to transport, heavy/fragile or for just in time vehicle configurations. UK OEMs also appear keen to increase local sourcing for supply chain security, logistics, cost and environmental reasons.”
As Chris Wells, director of night distribution at Norbert Dentressangle Transport Services says, motor manufacturers compete for sales in the showroom, and so backroom processes are simply not a point of competition.
“There’s no reason why automotive manufacturers couldn’t collaborate more and hold stock for rival brands to use distribution centres more effectively. A few companies already make premises available to enable cross-docking of parts and this could be extended to component warehousing,” he says.
And he reckons that this is starting to happen, as with the Renault-Nissan Purchasing Organisation (RNPO), where the latter has responsibility for managing parts for both brands from its warehousing facilities. And logistics, specifically at the customer facing end, seems ripe for a revolution.
“To make significant supply chain savings now requires a step change as most logistics operations are efficiently run. What we need is ‘someone’ to be a pioneer and integrate more operations from distribution centres for final mile delivery,” says Wells.
Wilbaut says that changes are already afoot: “Logistics services were among the first to enter RNPO scope and third-party-suppliers including DHL had to adapt their approach. Joint purchasing organisations are now asking for globalised solution offerings adapted to multiple internal customers.”
And Wilbaut explains that beyond collaboration for process efficiency and economy of scale, OEMs are teaming up to hedge the risks of heavy investments. “The development of shared tooling platforms not only reduces the development costs but also allows companies to mutualise both the inbound and outbound supply chain.”
As an example, she points to the challenge of the safe transport and warehousing of eclectic car batteries, which are subject to strict regulations.
Nissan’s production of the world’s first mass-market electric car, the Leaf, in Sunderland is a good example. To avoid the risk and expense of shipping batteries from Japan to the UK for assembly, Nissan persuaded the biggest supplier to set up a factory of it’s own next door.
“It is common now for automotive manufacturers to take key tier one suppliers, perhaps the top ten, that may contribute parts for say 70 per cent of the car, and encourage them to move to within five to ten minutes of the factory,” says Morley.
But this is also true for after-parts services. Mitsubishi Motors recently rented 273,300 sq ft of warehouse space at TPARK Sriracha in Thailand to serve as its distribution centre for automotive parts and accessories, near to its production facilities for the global small car.
“The centre has become the largest automotive parts and accessories warehouse in Asia for all export models manufactured by Mitsubishi Motors to over 140 countries worldwide,” says Nobuyuki Murahashi, president of Mitsubishi Motors (Thailand).
However, for firms that aren’t able to relocate huge segments of their supply and manufacturing capabilities, third parties can take care of a degree of this requirement to get closer to inventory.
John Pursey of Yusen Logistics explains that in the UK for example, increasing car build is resulting in inventory pressure, so OEMs are looking to remove both stock and complexity from plant.
“Yusen is seeing a growing requirement for satellite support as they seek to push sequencing back up the supply chain. With many tier suppliers too geographically distant to sequence locally, we’re seeing an increasing desire to sequence nearer to plant.”
A number of 3PLs are already providing sequencing services for tiered suppliers for the high volume, multi-marque platform end of the market, but Pursey says that Yusen has focussed on a niche for specialist model specific services, bespoke, tailored solutions for higher complexity models.
“The service maintains the benefits of shared use, while providing robust solutions and removing risk,” explains Pursey.
Fathi Tlatli, president global sector automotive, DHL Global Customer Solutions & Innovation developed this point at DHL’s Automotive Briefing in Paris last year. “Globalising platforms opens the supply chain up to more risk. Very often what looks efficient economically is actually very risky.
“People say we are seeing are more natural disasters – the truth is that the impact is higher… You have disasters every week, it’s about managing the impact.
“Globalisation of the market means more movements to less secure areas… which have less logistics contingencies. So tracking and visibility becomes more important,” said Tlatli. To that end, DHL recently launched a new service to facilitate the development, production and launch phases of new vehicles.
“OEMs will want to mitigate these kinds of risks impacting on production and delivery schedules as much as possible as the green shoots of recovery in the UK economy continue to grow,” agrees Warington.
But it is all too easy to put off the painful task of diversifying suppliers, especially for non-core components. Mark Morley of GXS gives the example of Audi using a single supplier for a pigment in its paints, which caused serious problems when that producer went out of action after the 2011 earthquake in Japan.
But that could be the exception that proves the rule of how high standards are generally. The automotive sector has responded to shifting markets and challenging customer demands by leading the way by building in layers of protection and supplier depth, and using collaborative work practices to become risk averse and ever more responsive.
So with such slick systems in place, the floor is clear for that “pioneer” to respond to consumer driven innovations and push the revolution to the next level.
Case study: Mitsubishi streamlines with GXS
Mitsubishi Motors manufactures automobiles in multiple countries, and its products and spare parts are sold in more than 170 countries throughout the world.
The firm exchanges a massive amount of transaction-based information daily between its offices in Japan and abroad, as well as with a significant number of partner companies around the world. So it needed a partner to support its global B2B e-commerce operations.
Mitsubishi had been developing proprietary software and middleware for each trading partner in house, but needed more resources as more customers joined the network. So it opted for GXS Managed Services.
The manufacturer can now easily integrate external trading partners, initially for transactions in Germany and France.
The on-demand IT frees Mitsubishi’s internal resources to focus on its core business. Mitsubishi has also reduced its B2B operational costs while boosting B2B e-commerce capabilities, with stronger links with European suppliers without making additional investments in headcount or software.
Case study: Mobis outsources parts DC operation to boost efficiency
Hyundai has grown to be the world’s fifth-largest motor group in less than 50 years, selling 4.05m vehicles in 2011.
Supporting the firm’s network of more than 360 dealerships in the UK is its wholly-owned aftermarket company, Mobis Parts Europe UK.
In 2006, Mobis invested in a parts distribution centre for the UK in Tamworth, Staffordshire, to be outsourced and run by Unipart Logistics.
At the time of go-live, the facility was receiving up to 19 containers a day and had four inbound streams coming in from Mobis in Korea and India, from other European warehouses in Belgium, Slovakia and Sweden, from local suppliers, and from the previous UK warehouse operation in Fradley.
Over an eight-week period from July the site received 28,000 lines, and by the end of 2008 another 25,000 lines had been transferred over from Fradley.
Neil Bennett, manager of Unipart Logistics’ operation at Mobis in Tamworth, says: “When we started the contract, the idea was to have the front half of the warehouse for Hyundai and the back half for Kia, but as the warehouse filled up we realised that we had to integrate the two, despite the increa-sed complexity. The mezzanine areas, for small parts, are kept separate, but that’s it.”
Inbound lines increased from 1,000 to 1,300 lines per day, and despatched lines have risen from some 4,500 to nearly 6,000 lines a day.
“Our target for both discrepancies and denials is 0.05 per cent, but we achieve 0.01 per cent most weeks,” says Bennett.
– Jaguar Land Rover is ramping up its UK operations, launching a massive recruitment drive. The firm says “Our drive for excellence covers more than premium design and world-class engineering. Ours is a truly global business, with opportunities in everything from Manufacturing to Purchasing, and from Property to IT.”
The firm has already recruited more than 1,000 graduates in the last three years. Its 2014 apprentice recruitment campaign is searching for up to 150 new recruits and the company is looking to build on the number of female students in particular.
– Ford has awarded Gefco a contract to manage its multi-user in-night distribution of spare parts within several UK regions, extending the two companies’ ten-year international partnership. It is the first global agreement between them to be launched in the UK market, and will see Gefco operate specialist double deck trailers to regional dealers directly as well as through three regional cross-docks.
– Toyota Ukraine has awarded Kuehne + Nagel a three year contract for warehousing services, to support the supply of more than 8,000 spare parts and accessories.
– CHEP Automotive and Industrial Solutions has launched a foldable large container with the Euro size footprint, as an alternative to the mesh box. It has a load capacity of 500 kg and features a protective dust cover.
– The Society of Motor Manufacturers and Traders has welcomed the government’s decision to relax cabotage rules for car transporters at peak vehicle registration periods. Some 400,000 cars and vans are registered in the March and September peaks, and the SMMT argues that there is a risk of bottlenecks.
– Goplasticboxes.com has developed a range of KLT storage containers specifically for the storage and distribution of car parts. MD Jim Hardisty says “In the last two years we’ve had considerable interest in our KLT containers from the top five car manufacturers.”
– Electric car racing series, the FIA Formula E Championship, has named DHL as the logistics supplier for its championship series, which starts in September 2014.