European Automotive Industry10.3.14
A Q&A with Thomas Blank from Agility
Thomas Blank is CEO of Agility GIL Area Central-Europe. He has worked with auto manufacturers and suppliers throughout his career. He recently spoke to Tradelanes about the industry.
What’s different about automotive logistics?
With the complexity, I would compare automotive with pharmaceuticals, but automotive logistics are much more driven by need to cut costs. Vehicle makers applied lean principals much earlier than other industries in their supply chains. You need on-time deliveries. Delays cause line shutdowns and that might send thousands of workers home for the day and create a lot of damage. A line shutdown costs $25,000 to $50,000 an hour or more. The complexity of building a car is tremendous, much more so than a PC, for instance. We could build a PC in our garage. But think about how much coordination you need to get all the first, second, and third-tier automotive suppliers lined up with their products sequenced properly, not exceeding any buffer stocks or having the wrong parts at the wrong place.
Talk about the complexity for a moment.
It used to be that carmakers made red cars one week, blue the next week. Now every car that comes off the line and out of the paint shop is a different color and is customized in any number of other ways. Some parts are going direct to the OEM’s assembly plant. Others from second-tier and third-tier suppliers might go to the first-tier supplier assembling them in, say, a dashboard. Some OEMs manage their in-house logistics within the plant or at a supplier park, others rely on 3PL companies. Finished vehicles can go by road, rail barge, even air to dealers, and you can have last minute things (final seating configurations, for instance), added after a vehicle arrives in port. At the end of that chain, you can have another 3PL taking delivery and doing pre-delivery inspections and small repairs. Then you’ve got spare parts streaming out to distribution centers, dealerships and aftermarket wholesalers and retailers. Last, there’s even a stream of branded merchandise – key chains, apparel, coffee mugs – going to dealers.
What’s going on in Area Central- Europe?
One of our core businesses is outbound consolidation services for several truck makers and their suppliers. We receive parts into our Stuttgart gateway from 300 to 400 suppliers, consolidate them and build special containers. The containers combine parts from different suppliers in the sequence that is required for final assembly so the OEMs don’t need to unload everything for one part. The frequency of shipments from different suppliers varies. We maintain a customersupplier database and make sure the right parts are arriving at the right times for consolidation.
Vehicle makers want predictability. If you tell somebody transit time is five days, they want to know in how many cases can you guarantee delivery in five days? And if we give you six days, how much can you improve your performance and predictability? They would build up buffer stocks or extend the allowed transit time if you could guarantee shipments 99.99% at the destination at the right time. It works both ways. If you deliver consistently too early, this means they’re building up stocks they don’t want and can’t handle.
Visibility is a huge challenge in automotive, isn’t it?
The biggest issue for customers is to be able to filter for the data they need. They can get any data they want – six months of forecasts for thousands of suppliers and thousands of part numbers. And they can break down orders placed over a period of time, which gives you a feel for the complexity of what they have to manage. A lot of times they don’t want to see what’s going right, they want to see what’s going wrong. If you look at the problems they have, let’s say they’ve got 500 suppliers, they may not be able to get the right packaging from their suppliers so they can’t double-stack at the consolidation hub, which is something that offers real efficiency and savings advantages.
Are OEMs starting to use air freight strategically, as opposed to using it when something goes wrong?
I don’t know if anybody will admit to budgeting for air freight. One industry executive told me, “We don’t budget for air freight. We believe our processes should be robust enough to not have air freight.” Today a lot of things are being planned by air freight, but automotive companies will always try to avoid it because of its huge cost, particularly on things that aren’t highend parts or a great portion of the value. If you have to fly interior door coverings just because you forgot to order them, that’s a problem. Last year one manufacturer we work with had a lot of air freight every day for most of last year, a lot of it. There were production quality problems, and they didn’t order enough of a certain stock. Containers were held up in customs at the destination port, and they had some faulty fuel-injection pumps. So several delivered containers had to be sidelined, and they had to fly in parts.
What’s going on in emerging markets?
You have OEMs building plants in maturing markets. There are 13 to 15 companies producing in Brazil for local and Latin markets, for instance. Other markets are too small or immature. So you are often supplying CKDs – Completely Knocked Down cars that come in a kit. That’s typical where there are high duties on foreign labor content on assembled cars. So you load containers with the CKD kits, which are assembled at destination so the local content percentage goes up and duties don’t price the vehicle out of the market. Those markets shift. Thailand used to be a CKD market. It had relatively low labor costs but good quality of labor. It became a good environment for building factories and getting support from the government. You could reexport from Thailand. Over time CKD production from Nissan, Toyota and Honda became full-fledged production. It made more sense to ship parts there for manufacturing or to do parts manufacturing there, than to do kits.