Automotive Manufacturing Solutions

OEMs and LSPs see light at end of the tunnel 
But OEMs warn lower inventory is permanent and 'smarter, faster, leaner' is still the driver. Our Editors report from the conference.

Car makers, carriers and LSPs in debate

The 10th Automotive Logistics Global conference concluded on a positive note, with more than 220 delegates from OEMs and LSPs hearing what they’ve been waiting to hear for more than 18 months: the US recession appears to be over and vehicle sales look set to increase.

But the changes to working methods brought by the downturn are significant. Ford’s global inventory reduction in 2009 so far has been 29%, a saving of $1.5 billion, revealed Joe Hinrichs, Ford’s group vice president, global manufacturing and labour affairs, who gave a keynote address at the conference. He said that the company had maintained unhealthy levels in recent years.

“This is definitely a permanent change [toward lower inventory],” commented Susanna Webber, executive director for global logistics at GM. “On the material side it is driving us to be smarter and faster, with a leaner approach.”

JD Power’s Jeff Schuster, executive director for global forecasting, said that US sales should surpass 10.4m this year, while 2010 should top 11m. It is a far different picture from the 13.2m seen in 2008 and the 16m the year before that, but JD Power expects the market to return to more normal levels of 15m by 2012.

Production, however, will be more subdued, reaching 8.5m this year (from 12.5m in 2008 and 15m in 2007) as OEMs adjust to leaner vehicle and material inventory in an attempt to align closer to the market size and imports continue to bite.

(Left Image; L-R) Kuhne + Nagel’s Jim O’Farrell <br />(Right Image, L-R) Knutilla, Ryder; Lewis, Toyota; Weiss, Chrysler

Schuster said that, collectively, supply was around 30 days compared to peaks of 120 days back in January, and normal levels of around 70-80 days. While supply may not stay quite as low as that, executives from Nissan, Toyota, General Motors and Honda also confirmed that the change in strategy is permanent, and that it is strongly influencing the way logistics processes are managed throughout the supply chain.

Together with sales & marketing

Organisation charts have been pulled closer together, whether in procurement, logistics, inter-continental operations or with sales and marketing, noted Nissan North America’s Mike Steck, vice president for supply chain management. “I’m not sure that a day goes by when I don’t speak with our sales and marketing team,” he said.  “We’ve all had to adjust to be more flexible in manufacturing.”

But the industry should be bullish in the medium term, according to Dr David Cole, chairman of the Center for Automotive Research. He said that the structural, labour and inventory changes that the industry is making could eventually lead to the most profitable period for carmakers since just after World War II, with lower legacy costs and fewer incentives.

That optimism was welcome, but OEMs were also keen to stress caution about going forward. Each has had to make significant cuts and changes within their own organisations, notably GM and Chrysler, which have both emerged from bankruptcy with smaller logistics divisions.

Flexibility in the supply chain remains the most important challenge for OEMs and LSPs.

Transport balance

Cole: on to big profits

Secret voting done in real time at the conference revealed that 40% of attendees believed that balancing transport capacity with demand would be the toughest thing for inbound LSPs, while 43% thought as much for outbound logistics.

Chrysler’s Steve Tripp, senior manager for worldwide vehicle transportation, anticipating a bumpy, uneven recovery, stressed that information sharing between OEMs and LSPs would have to improve.

“The market could move up or down in 10-20% directions in the next few years,” he said. “We will have to stay very close with the providers.

Webber, Weiss, Lowe with conference chairman Yiakoumi (L-R)

If you [finished vehicle logistics providers] aren’t close to our production schedules, then get very close to them.” 

Meanwhile, LSPs said that the most important way to keep a relationship strong with OEMs was to constantly offer innovations and opportunities to cut cost.

“This year, if you want to be heard, you have to tell the OEM that you can help lower cost, help pay as you go and lower inventory,” said IT-provider i2’s Kelly Thomas, senior vice president of product strategy.

Thomas saw the trend continuing toward “cloud computing”, with non-intrusive software that has much lower upfront costs.

Wallenius Wilhemsen Logistics has achieved savings in the back office. The company's president for the Americas, Christopher Connor, said that  the company had moving all of its accounts receivables and transactional processes to El Salvador for the labour savings, as well as putting more than 25% of its ships into layup. 

While uncertainty will be a factor in everyone’s plans, the carmakers at the conference made it clear that there would be more opportunities next year, both at home and abroad. Chrysler’s Tripp and GM’s Vicki Streukens, director of vehicle logistics, said they expected US export numbers to increase significantly next year as those two companies pick up the pieces from their bankruptcies. “To say that the numbers would at least double would not be an exaggeration,” Tripp said.

(Left) Attentive delegates (Middle) ADMi’s Brazeau and Porsche’s Long (Right) Lowe from Ford

Hinrichs also suggested that now is a time of opportunity for providers willing to partner with Ford as it expands its footprint in regions such as Asia and introduces more global vehicles to the North American market. Ford is bringing its European Focus model to production in Detroit, which will increase the amount of ocean containers per week from 20 for the current Focus to 200, because of the new model's global content.

His colleague Rick DeMuro, director MP&L for Asia Pacific and South Africa, said that following recent announcement about new plants in India and China, with further announcements to come soon, Ford will increase its capacity in Asia Pacific from 0.5m units per year to 1.5m by 2012. 

Autmotive Logistics Global is part of a series of conference dedicated to logistics which bring together executives from OEMs and Tier suppliers with LSPs of all types. The next event is Automotive Logistics India, in Pune from 2- 4 December, and after that Automotive Logistics Europe at its new location near Bonn, Germany, from 2-4 March 2010.