The motor industry has always operated on a global scale, but increasingly manufacturers are developing integrated global infrastructures. Malory Davies examines some of the latest supply chain developments.
KPMG’s global CEO outlook survey in May 2015, found that one third of motor industry CEOs regarded geographical expansion as a critical challenge over the next five years. And it is very apparent that many leading automotive manufacturers are gearing their supply chains to support their global growth. Both Jaguar Land Rover and Mercedes Benz have been developing logistics facilities to supply manufacturing plants around world. And last year, Volkswagen opened a 250,000 sq ft export hub in the Port of Duisburg on the Rhine in Germany. It is using 3PL syncreon to run the site which provides logistics supply operations for plants outside of Europe. It chose Duisburg for its rail and inland waterway connections to Rotterdam and Antwerp.
Jaguar Land Rover has invested £10 billion to support its global expansion over the past five years and it has seen sales double. In August it signed a letter of intent with the Slovak government for a new manufacturing plant in the city of Nitra in western Slovakia.
CEO Dr Ralf Speth described the expansion of the business globally as “essential to support its long-term, resilient growth. As well as creating additional capacity, it allows us to invest in the development of more new vehicles and technologies, which supports jobs in the UK. With its established premium automotive industry, Slovakia is an attractive potential development opportunity for us. The new factory will complement our existing facilities in the UK, China, India and the one under construction in Brazil.”
JLR’s first manufacturing facility outside the UK opened in China in 2014 and there is a new plant under construction in Brazil. In total, it employs more than 32,000 people globally – a figure that has doubled over the past few years.
Speaking at the Logistics & Supply Chain conference earlier this year, Mike Mychajluk of JLR’s supply chain and external engagement explained how it was harnessing its supply chain to support this growth. JLR is pushing its suppliers to increase production for its UK plants, but increasingly it wants them to increase production for its overseas plants.
A new export centre at Hams Hall became fully operational in September 2014 and at peak will send out up to 140 ship containers a day, he said.
The company chose Slovakia as the preferred location for the new plant because it is close to a strong supply chain and good logistics infrastructure. Subject to the outcome of the feasibility study, a final decision is expected later this year. That feasibility study will explore plans for a factory with an installed capacity of up to 300,000 vehicles over the next decade. The plant is to manufacture a range of aluminium Jaguar Land Rover vehicles. It is anticipated that the first cars will come off the production line in 2018.
In China, it inaugurated Chery Jaguar Land Rover Automotive Company in October last year, following the two-year construction of a 400,000 sq ft factory. Located in the Changshu Economic Development Zone north of Shanghai, the factory is part of a RMB 10.9 billion joint venture investment plan. The facility will have a capacity of 130,000 units when it is fully operational. JLR facilities in China also include parts distribution centres at Chongqing, Suzhou (two sites), Beijing & Guangzhou; training academies at Shanghai, Beijing and Guangzhou, and 161 operational dealers.
Brazil will be the company’s first wholly owned overseas manufacturing plant. It will be operational in early 2016 and will produce the Discovery Sport. It will be sourcing a range of components from local suppliers as well as importing some parts from its global supply chain.
Mercedes Benz’s cars division has also been investing in its supply chain to support its global expansion. In July, it opened a new consolidation centre in Speyer in the south west of Germany – part of a multi-million euro investment in its global logistics organisation.
The €90 million centre consolidates production materials from European suppliers and initiates the transport to its production plants in China, the US, and South Africa. The opening of the centre is part of a new strategic approach that involves the integration of the global Supply Chain Management unit into the central production organisation at Mercedes-Benz Cars reporting directly to board member Markus Schäfer.
Schäfer said: “Logistics plays a key role for our company’s success. Our objective is to gear our supply chain management organisation towards growth and to make it even more efficient and flexible. This approach marks the next step in our global production strategy.”
In line with the “Mercedes-Benz 2020” growth strategy, Mercedes-Benz Cars is expanding its global production and supplier network close to customers and markets. Mercedes-Benz expects the planned increase of unit volumes to lead to a significant expansion of merchandise flows throughout the global production network, especially at plants outside of Germany. The increasing product complexity resulting from a larger number of engine versions and personal customisation options, for example, are putting an additional strain on logistics operations.
The investment at the Speyer site is designed to respond to this. The company is considering setting up similar consolidation centres in the upcoming years, notably in growth regions like China and NAFTA.
The global Supply Chain Management unit, which employs some 7,500 people is led by Alexander Koesling, head of supply chain management at Mercedes-Benz Cars. The unit’s responsibilities include: planning and managing the global production programme; and ensuring the production capability of Mercedes-Benz Cars locations through the delivery of required materials – including on-time deliveries of supplied parts and components from suppliers and MBC facilities to the plants.
In addition, the unit is responsible for securing the supply of materials and material flows to the stations where the parts and components are installed within Mercedes-Benz Cars vehicle and powertrain plants; and managing the global transport of new vehicles from manufacturing plants to customers around the world.
“We create the necessary conditions for on-time production at our plants. Our investment of several hundred million euros in our Supply Chain Management organisation will optimise logistics throughout our global production networks. By reducing our logistics costs per vehicle we will improve our competitiveness, since logistics have a major impact on our overall cost position,” said Koesling.
When it becomes fully operational in 2016, the Speyer consolidation centre will ship several hundred sea containers every week via inland waterways or rail to Antwerp and Bremerhaven, where they will be loaded onto freighters and transported to Beijing, Tuscaloosa in the USA, and East London in South Africa. The centre extends over a distance of one kilometre and has around 79,000 sq m of hall space. In addition, the centre includes a 21,000 sq m container yard and an administrative building.
Operational logistics at the centre – the transhipment of supplier materials from trucks to containers – is managed by Syncreon, which employs around 400 people in its on-site operational material transhipment and administrative units. Transport specialist Contargo, in turn, is responsible for transferring sea containers to trucks and moving the containers to inland waterway or rail transhipment centres.
Up until now, logistics service providers in Bremen were solely responsible for managing shipments of materials from German and European suppliers to the major Mercedes-Benz plants abroad.
Thanks to the new consolidation centre in south-western Germany, deliveries from European suppliers south of the Main River will no longer have to be shipped over long distances, which will significantly reduce logistics costs.
Sourcing: £2bn supply chain opportunity for UK
The Automotive Council UK reckons that there is a £2 billion supply chain opportunity in the motor industry. In a report published in November last year, the council, which brings together government and industry, said there is a realistic opportunity to increase local sourcing to the UK Tier-1 community by at least £2 billion each year – and that is on top of a £3 billion Tier-1 opportunity identified in 2012.
It pointed out that the UK is the second largest producer of premium cars in the world after Germany with over 40 manufacturers. In 2013 more than 1.6 million vehicles and 2.5 million engines were built in the UK, with 80 per cent of production being exported. And the council believes that the number of vehicles produced could top two million by 2017.
The council came with seven key points to boost the UK supply chain:
- The high value import commodities should be investigated to determine the feasibility for increasing UK sourcing.
- Specific support should be given to SME supply chain companies to grow their long-term competitiveness.
- Identify successful suppliers with the potential capability to be competitive and help them to grow through export support.
- Further develop the process of matching buyer and seller through targeted ‘Meet the Buyer’ events.
- Encourage more entrants to automotive from other sectors through cross-sector engagement, particularly for premium and high-technology product manufacturers within the aerospace, marine and motorsport sectors.
- Develop a network of SME supplier best practice clubs using an industry standard framework for benchmarking and non-competitive collaboration.
- Continue to work with the finance community to develop a common understanding of the needs of SMEs and look to develop targeted solutions, such as funding for tooling.
Procurement: Volkswagen hones its supplier network
The need to be more agile in terms of both innovation and global development is encouraging motor manufacturers to reappraise their sourcing and procurement strategies.
Earlier this year Volkswagen set out its Future Automotive Supply Tracks (FAST) initiative which is designed to enable it to meet both the demand to innovate and realise its global strategy more quickly.
It has now nominated the first 44 suppliers who will be collaborating with the group on a new common strategic level. It chose these suppliers for their outstanding performance in their respective field of competence based on a systematic selection process.
“In future, it will not be the corporation with the best negotiating skills that has the advantage, but the one that has also successfully established an optimal supplier network”, says Dr Francisco Javier Garcia Sanz, member of the Volkswagen board of management responsible for procurement.
“The nominated FAST suppliers are important beacons in our network and I am looking forward to even closer and more intensive collaboration.”
Volkswagen FAST is a fundamental element of the Group’s “Future Tracks” programme and is designed to equip Volkswagen AG’s automotive network to meet future challenges.
Volkswagen started in February 2015 with extensive performance evaluations to get to the first 44 suppliers.
In the next step, it plans to deepen top management level discussions with the nominated partner companies. The respective strategies and technological orientation in the individual categories will be more closely coordinated and aligned. The aim is to implement joint technological innovations faster than in the past and to realise vehicle projects worldwide more efficiently and effectively.
The first nomination phase will come to an end in spring 2016. Suppliers not yet nominated still have the opportunity to qualify for the FAST programme.
It plans to hold the “FAST Summit”, the first exclusive strategy conference with all partners, in spring 2016.
There is to be a sustained increase in the number of product and process innovations and in the speed with which these innovations are turned into real experiences for customers. In future, suppliers are to be involved in the relevant product innovation cycles within the Group at an even earlier stage than previously. In addition, the production networks will be harmonised more closely to generate further synergy effects and derive the optimal benefit.
The group contains more than just the Volkswagen brand. It is now the challenging to be the largest motor manufacturer in the world. Its car brands include: Audi, SEAT, Lamborghini, Bentley, Bugatti, and Škoda. Not only that it controls MAN and Scania commercial vehicles – and just for good measure Ducati motorcycles. So, the FAST initiative, which is designed to prioritise investments and make efficient use of resources in closer cooperation with suppliers, will touch much of the supply market.
The benefit for the suppliers is that they will be involved in innovation cycles within the group at an earlier stage, and be able contribute ideas to the pre-series development of vehicles at an earlier stage. At the same time, production networks between Volkswagen and its partners will be harmonised to generate synergies.