Improving service and profitability

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At first glance there is nothing out of the ordinary about Caterpillar Logistics’ new £53M distribution centre at Desford, Leicestershire, which is the new home for MG Rover’s worldwide parts operation. But the centre is unusual for two reasons: the warehouse, comprising 58,590sq m, is one of the largest in Europe – it could swallow 14 football pitches – and it also has very little, if any, automation.

MG Rover and Caterpillar Logistics have worked together since 2002 but the latter company had a close working relationship with the former Rover Group stretching back over 15 years. Land Rover, formerly part of the Rover group, was Caterpillar Logistics’ first ever external client when it outsourced its parts logistics operations to the company in 1987. Land Rover’s UK parts logistics are still handled from another building on the Desford site.

The new MG Rover business began working with Caterpillar in 2002, when it decided to move its parts business back in-house after many years in the hands of a third-party organisation. As a result, MG Rover’s management decided on a new approach to the new parts business. While the company -XPart – was to be wholly owned by MG Rover’s parent company, Phoenix Venture Holdings, the entire operation of the business was to be outsourced to a third-party logistics service provider. Caterpillar Logistics saw off two other contenders to win the contract, and is now responsible for all of MG Rover’s parts business.

At the Desford facility, Caterpillar manages negotiations with suppliers, demand forecasting, product pricing, marketing and promotions, new product introductions, electronic catalogues, the customer help desk, distribution and invoicing.

Caterpillar’s business processes and systems have improved performance in MG Rover’s aftermarket supply chain to unprecedented levels and integration with Caterpillar’s established global logistics’ network elsewhere in the world is helping the manufacturer to strengthen export markets – particularly areas such as Eastern Europe and China where logistics are notoriously difficult to organise – quickly and cost-effectively, meeting the customer’s needs in terms of product service and support.

“When we took over the MG Rover business, service levels were falling,” Steve Wunning, president of Caterpillar Logistics, explains. “Turning that situation around was a huge challenge, but we put all our resources into the task and now the results speak for themselves, MG Rover dealers are pleased with the marketing support we can now offer them and they are experiencing levels of service that are amongst the best in the industry, and we are still making improvements.”

“We have been on quite a journey in the past 18 months,” says John Parkinson, managing director of XPart. “But we have put our problems behind us. We are developing a whole range of new opportunities which is a really solid base for the future. The combination of Cat’s expertise coupled with our worldwide network strengths is allowing us to draw away from the competition.”

In the UK, XPart uses Caterpillar Logistics’ capabilities and MG Rover’s two-tiered distribution network to develop and launch an All-Makes parts programme that will position the company strongly in the post block-exemption economic landscape.

The centre

The Desford distribution centre is remarkable in that there is very little, if any, automation. The centre was built by Galliford and project managed by Caterpillar, which also worked with SSI Schaefer, who supplied the 25 miles of racking as well as bins. The racking goes to a height of 10m and there are eight levels of normal racking as well as narrow aisle operations. Schaefer also supplied the anti-collapse mesh.

The materials handling equipment totals nearly 40 Caterpillars, including counterbalance units, reach trucks, VNA cherry pickers, and low level order pickers. The majority of the trucks are electric, although there are a couple of lpg counterbalance forklifts.

Caterpillar grades the automotive spare parts A, B, C, D to represent which components are fast moving (A is fast-moving while D represents the slow-moving products). Wayne Kinton, operations manager at Caterpillar Logistics, says that 80% of the work is handled in 20% of the warehouse. That is for fast-moving goods.

The A, B, C, D system also applied to the three levels of bins, where picking is handled manually. Kinton says that for now manual picking works, compared with using RF or barcode technology. He says 30 lines can be picked within 15 minutes and the staff all undertake the same amount. RF technology, though, is ideal for replenishment, he adds.

The centre is very much a just-in-time operation and works 7.30am to 10pm with two shifts.

Warehouse data is held in a SAP system, the integration for which was undertaken by Caterpillar Logistics’ own information services department.

The transfer of MG Rover’s spare parts logistics operation to the new dedicated facility began just before Christmas and is expected to be completed by April 2004, representing the biggest inventory transfer that the logistics company has ever handled worldwide. The fully centralised logistics operation will complete the outsourcing of MG Rover’s parts business to Caterpillar and is designed to deliver improved service and profitability for the vehicle manufacturer.

The centre will process 2.5 million customer order lines a year with a total value of £170M (US$300M) – 11,000 lines will be processed daily. The parts are sourced from more than 800 suppliers and shipped to some 200 destinations worldwide.

Best practice

Caterpillar Logistics is recruiting up to 100 new staff to man the warehouse. The company has been hiring ‘Coaches’ – each of whom are responsible for a team of 12 Associates – since the start of last summer. Louise Spiers, of Caterpillar Logistics’ human resources department, comments: “The Distribution Centre Coaches are a vital part of the new operation. They deliberately come from a diverse variety of backgrounds but they all Caterpillar’s MG Rover x-file!One of Caterpillar Logistics’ most important initial activities for XPart has been to create a brand new Electronic Parts Catalogue (EPC) to support the full current MG Rover product range. Implications that need to be considered at the time of a new part introduction include ascertaining whether it will still fit onto older vehicle models, or whether stocks of the old part will have to be maintained to support the existing fleet.

For more complex parts the committees will also have to agree the degree to which the part will be broken down and its individual components available as spares.

With all the necessary data and drawings in place, a new part can be included in the next monthly update CD which is sent out to 1,600 dealers and wholesalers. Around 12,000 new parts are added to the MG Rover parts catalogue in a year. The catalogue currently contains 80,000-plus different part numbers relating to every Rover and MG model produced since the early 1990s. Information on older vehicles is stored in a legacy system. While every CD contains the same basic data, Caterpillar produces 11 versions of the catalogue for use around world.

At the dealership or wholesaler, staff access the parts catalogue using a conventional Internet browser – an approach that makes it easy for larger sites to give multiple staff access to the system and which paves the way for a future scenario in which everyone will access the EPC online, over the Net. Caterpillar constantly tweaks the user interface as well as the underlying logic of the catalogue in response to feedback from users.

Once users have selected the parts they need using the EPC shopping basket feature, they export the data to their own Dealer Management System (DMS). The DMS then checks local inventory to see if parts are available on site, and if they are not sends an order via the Parts Ordering System interface directly into Caterpillar Logistics for delivery. The automated, electronic transfer of orders is a significant part of the efficiency of a modern logistics business like Caterpillar, which prides itself on the accuracy of its inventory management systems – worldwide, the company’s inventory records are 99.8% accurate.

For the future, Caterpillar and MG Rover have the opportunity of adding even more functionality to the system – fault diagnosis guides, service literature and detailed product information. As ever, it will be customer requests that drive the implementation of these features. have been selected for their collaborative attitudes. They also have the motivational skills to optimise the team’s strengths.”

All the staff in the MG Rover operation will be trained in relevant areas and an introduction to Caterpillar’s culture of continuous improvement, including its 6 Sigma programme – a worldwide scheme that delivers significantly improved efficiency and productivity. They will also receive process training at MG Rover’s facility in Birmingham, in conjunction with XPart.

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