Changing patterns of demand have prompted motor manufacturers to restructure their supply chains, and the UK is seeing record results.
UK car manufacturing broke all-time export records in 2012, with volumes sent overseas exceeding 1.2 million, up 8 per cent on 2011, according to the latest figures from the Society of Motor Manufacturers and Traders.
Registrations of new cars within the UK were also up 5.3 per cent on the previous 12 months – the best result since recession struck in 2008. Of these, UK-built cars accounted for 13.5 per cent of the market share, representing an 11.1 per cent rise.
Business Secretary Vince Cable said that along with total UK car production increasing by 9 per cent in 2012, this success reflects a solidity be proud of, “[It] is a great tribute to our manufacturing strengths, particularly in the face of challenging trading conditions in Europe and strong international competition.
“The UK is achieving success by making products that are in demand across the world. We have a diverse and innovative automotive sector with some of the most productive plants in the world and a flexible, skilled and committed workforce.”
Indeed, there are some 2,350 UK companies that regard themselves as automotive suppliers, employing around 82,000 people, according to the SMMT.
To give an idea of the strengths of the UK supply base, further figures estimate that 80 per cent of all component types required for vehicle assembly operations can be procured from UK suppliers, and of those suppliers over 70 per cent manufacture their products in the UK.
In terms of cash, a government survey last August highlighted supply chain opportunities worth some £3 billion in the UK automotive industry. The study by the Automotive Council for the government shows that the total value of business placed by UK vehicle makers with UK suppliers could top £11 billion.
One factor in the UK’s attractiveness for manufacturing is the waning attractions of the competition.
John Stocker of Gefco says that in the UK: “Many Tier 1 suppliers are planning for growth, in many cases as a consequence of ‘Near Sourcing’ projects by OEM’s in response to growing risks in supply chains from ‘Far Source’ vendors.”
Energy prices, shifting labour laws, transport costs, quality and productivity have all made outsourcing manufacturing further afield less attractive. Extended distances will make any supply chain riskier, less responsive and often more costly.
Ford is looking to make savings by rationalising its supply chain, and as part of its massive restructuring plan announced in October, it intends to reduce vehicle inventory at its European dealerships, moving to a shorter, leaner supply chain.
“The new business practice will have a long-term positive effect on profits for both Ford and dealers, while customers will benefit from fresher vehicle inventories, quicker delivery and improved resale values,” it said.
Stocker sees nothing unusual in this strategy. “There is great interest in supply chain rationalisation among the OEM’s and recent collaborations between PSA/GM and the long term logistics contracts awarded to Gefco by both of these organisations are to drive out costs and improve efficiencies in key markets,” he says.
Gefco, 75 per cent owned by Russian Railways, and a PSA Peugeot Citroen subsidiary, will this year take over the majority of General Motor’s logistics business accross Europe (including Russia).
This is part of GM’s plan for a global alliance with PSA, and represents one the largest ever logistics agreements in the European motor industry.
It covers the majority of the Opel/Vauxhall, Chevrolet and Cadillac marques and includes services such as material and component deliveries to manufacturing plants, delivery of finished vehicles to dealerships and the transport of after sales spare parts to distribution centres.
Following record sales figures in 2012, including Land Rover’s best ever year with sales up 36 per cent, Jaguar Land Rover is building a new advanced engine manufacturing plant in Staffordshire, as well as a new logistics facility at Ellesmere Port to support production of the Range Rover Evoque and Land Rover Freelander 2.
DHL will manage the purpose-built automotive logistics site to back up its operations at JLR’s Halewood plant on Merseyside, creating around 300 new jobs.
JLR also plans to spend an additional £1 billion with UK suppliers over the next four years in response to continued global demand for the Range Rover Evoque. This is in addition to the £2 billion supply contracts it awarded to more than 40 UK suppliers in March 2011.
Announcing the investment last year, JLR chief Dr Ralf Speth said: “The demand we have seen across the globe for the Range Rover Evoque means we are able to significantly increase what we spend with our suppliers, which is great news for the UK economy, and the thousands of jobs JLR supports in its supply chain.”
DHL has provided JLR’s with a complex inbound logistics service since 2009, incorporating some 500 automotive component suppliers in 17 countries. DHL’s system was designed to reduce costs and enable more responsive logistics planning, and has yielded a ten per cent improvement in supply chain efficiency.
Other 3PLs have not been afraid to speculate to close in on this lucrative market either. Yusen Logistics is opening a specialist automotive operation at its 81,000 sq ft Tamworth facility, to serve nearby automotive manufacturers.
Yusen’s Ian Holland said: “The automotive business is dependent upon maintaining flows at all times, speeding components and sub-assemblies through lengthy international supply chains, while minimising inventory and cost.
“In recent times, we have seen automotive supply chains tested to the limit, particularly in the light of [2011’s] natural disasters, and this new operation is all about robustness and removal of risk from the automotive supply chain. This is particularly relevant now, with the uplift in manufacturing volumes that we are currently seeing.”
The automotive industry was also the driving force behind an uplift in property. The sector accounted for some of the largest lettings of industrial space last year, according to property agent DTZ, with Vantec Europe taking 420,000 sq ft in the North East to service a Nissan logistics contract.
Graham Knight of industrial agency GVA agrees that the sector has been key in boosting demand for space. He says “Many automotive manufacturers are pressing their suppliers to expand production and move closer to their main plants, predominantly to reduce logistics pressure and provide the ‘just in time’ services that their customers have come to expect…
“Growing demand has absorbed whatever availability there was in the market and the Midlands is now a region that is severely lacking in quality, large industrial space, with JLR having recently leased one of the region’s only remaining industrial units of over 100,000 sq ft.”
Happily, speculative building by developers may well be back on the agenda, since Chancellor George Osborne’s recent announcement that new developments built between 1 October 2013 and 30 September 2016 will be exempt from empty property rates for 18 months.
But the growth of automotive business is also being constrained from other quarters, specifically restricted access to finance, according to a report published by the Smith Institute, commissioned by the SMMT.
Paul Everitt, SMMT chief executive, said: “A lack of expertise within the finance sector is holding back growth in the UK automotive industry.
“Vital opportunities for companies to grow and develop their businesses are being hampered, because banks have not responded quickly enough to the need for local knowledge and sector expertise.
“There is a unique opportunity to re-build manufacturing capability and capacity in the UK, but it requires industry, finance and government to shift gear and ensure growth businesses get the financial support they need.”
To address this requirement, the SMMT has launched a supply chain finance initiative called Meet the Funder, which aims to bring together suppliers with lenders.
“Improving access to finance is vital for the growth of the UK automotive supply chain and to securing high-value jobs and prosperity for the long term,” said Everitt.
The first event attracted 125 UK-based suppliers to meet more than 25 lenders, to discuss the financial needs of the UK’s £4.8bn automotive supply chain and foster a two-way dialogue between the sectors.
Everitt has been encouraged by the work achieved by the initiative so far. “I am delighted that the finance and automotive industries are working together to build strong commercial relationships and maximise the opportunities flowing from sustained investment by global vehicle manufacturers.”
So with volumes, exports and registrations all on the up, the UK automotive sector is in bullish good health. And with recent steps in the right direction, we can hope that financiers and property developers will continue to buck the trends of the recession, step up to the challenge, and do their bit to keep our suppliers supplying.
Case study- Supply chain optimisation for safety parts firm
Autoliv, a developer, manufacturer, and supplier of automotive safety systems, such as air bags and seat belts, has taken on GXS for B2B consolidation and integration.
The firm’s strategy for long term success requires suppliers who can deliver the added value and safety features now demanded as standard in high end models, while meeting ruthless production speeds, for example in the case of Land Rover of as little as 77 seconds per car.
Autoliv chose to implement GXS Trading Grid Messaging Service, the global electronic transaction management service, to boost operational agility and responsiveness.
“We are committed to innovation and customer service,” says Ivan Corvillo, Autoliv’s EDI Manager, Europe. “Our technology, which saves around 25,000 lives a year and prevents ten times as many severe injuries, is critical to car manufacturers everywhere. We are determined to match manufacturers’ speed of operation without compromising our world-class product standards.
“However, researching, developing, manufacturing and testing new product solutions, not to mention ensuring they are fed into our customers’ assembly processes at the right time and in the right order, requires a rapid and effective flow of business documents across an increasingly complex global B2B network of trading partners. GXS Trading Grid has made this look easy. It has become a vital component of our ultra-agile business model.”
With 48,000 employees operating from 80 plants in 30 countries, and 600 suppliers worldwide with 10 to 20 new partners coming on board every month, Autoliv faced a huge integration challenge with its suppliers.
GXS enables simplified document exchange, enhanced supply chain visibility and streamlined communications with trading partners.
It helps businesses to streamline complex processes, enhance customer service and secure competitive advantage.
Corvillo says: “Using GXS Trading Grid Messaging Service, our partners and customers were able to exchange information electronically, quickly and securely, regardless of document format or geographical origin. This has resulted in immense productivity gains and efficiency savings for us.”
Case study- New system for Nissan logistics
Fergusons Transport has reorganised the planning of its automotive logistics services for car builder Nissan with advanced routing and scheduling software from Paragon Software Systems.
The Paragon system calculates routes and schedules in minutes, replacing time consuming manual planning that took weeks to complete.
“Paragon was a natural choice for Fergusons Transport. Nissan’s logistics partners favour the software and it came highly recommended. I am over the moon with the software. It saves us so much time by delivering the information we need in minutes – no more weeks and weeks of poring over spreadsheets,” says George Mallaby, the Fergusons IT support controller.
“We can quickly run the plan, assign the routes to the drivers and get on with the business of Nissan’s logistics,” says George Mallaby, the Fergusons IT support controller.”
The software enables the company to react quickly to fluctuations in Nissan’s manufacturing cycle, adjusting plans to meet varying demands for parts.
Running a combination of “production” and “service” routes, Fergusons Transport is maximising truckloads and making better use of its available driver time.
“Not only have we been able to optimise our routes and schedules, we are also more flexible. The software provides instant answers to any ‘what if’ situations, enabling us to be ready to meet any changes in Nissan’s requirements. This is important as the car industry is a volatile marketplace and we have to be ready to react to changes in demand,” says Mallaby.
Case study- Emergency delivery
Multi-national automotive components supplier Faurecia, was suffering production delays at a manufacturing facility in northern France which were threatening to cause downtime at an automotive plant the north-east of England.
In response, they enlisted Priority Freight that worked out the express road freight option was not going to deliver within the required time-frame and so sourced an air charter from Vatry Airport some seventy-five miles away.
In total three pallets of parts had to be shipped at the same time, and due to the requirements of the pallet dimensions, an AN-26 aircraft was on procured and a truck dispatched to the Mouzon factory.
With the delivery vehicle awaiting the plane at Durham Tees Valley airport to make the 35 mile trip to the facility at Washington, County Durham, the consignment was successfully delivered within a transit time of eight and a half hours.
Faurecia had complete visibility and traceability of the consignment throughout the transit.
Downtime at the receiving factory was avoided.