Mike White, Senior Vice President, Global Automotive Sector, DHL Supply Chain discusses the new DHL report, Lean and resilient: The new automotive supply chain hybrid, with Martin Kahl
Is the current automotive industry set-up capable of being as nimble and agile as it needs to be, to achieve a lean and resilient ideal?
Manufacturers certainly have an issue in relation to their sourcing decisions, and where the end manufacture takes place. There is some static risk after manufacturers have invested in the point of production, and they are reliant on their own and third party service providers to fill in the gaps, supporting volatility with network mode planning in place to support any blips in the pipeline.
What needs to change in order for the current supply chain to operate at its optimum capacity?
Because of industry globalisation, issues will always arise, meaning that we will not be able to guarantee 100% that we will make the strategic plan. We will always need to have a tactical alternative to plan A. We would evaluate the supply chain, and take a total logistics cost management approach to each situation.
Whittling down cost has led to the risky business of single source supply. How can the industry move away from this to being agile, yet still cost effective?
It is all based on the levels of cost people are happy to go to, and what they believe the value of making those changes would be in relation to the end benefit. The only thing a logistics service provider can do is offer alternative solutions to OEMs or Tier 1s in relation to the logistics cost and mode of choice. The sourcing decision on supply for new models and new plants generally takes effect after the research, around about a two-year period. Then we start to think about freezing that sourcing decision 12-18 months into the new build expectations, with a freeze on the actual supply chain anywhere between three to two months prior to job one.
As long as we can, from a logistics point of view, be part of that sourcing decision and give the customer information about opportunities and cost impacts in relation to it, they will make an informed decision.
They may even try to influence a supplier to establish alternative facilities closer to their sites. We’re seeing that more and more as manufacturers don’t want to invest in one plant to produce one car, they’d rather produce four or five down the same line. Even when there is difficulty with a single source component, which is very rare, they can still flex their production movements down the line and maintain production schedules.
In terms of production and sales, the industry is moving more towards emerging markets. Is that happening because of demand for vehicles in those emerging markets, or are OEMs and suppliers simply chasing low cost production?
It’s not to do with cost, because they’re going to invest in new plants and tooling to support demand in that region. It’s down to: ‘what and where am I going to sell, and how can I sell more of these vehicles, and increase my market space in that region?’
After they’ve made that decision, they start thinking about reducing costs and bringing in synergies, they may decide to build five vehicles down one line or in that particular plant. They may move some powertrain activity closer to it. There are also governmental incentives to invest in foreign countries, but normally there’s a caveat for that – the government will put a restriction on local content after a period of time.
Investing in a facility involves a long-term commitment, and OEMs usually take suppliers with them. A long-term joint venture may be involved. Does the wage rate itself really matter anymore?
It matters once they go into contracts for service solutions. It doesn’t matter to their overall strategy of building or selling that vehicle in any given market. But there is certainly still disparity in relation to wages.
Have you observed any trends in investment in emerging markets versus re-shoring?
I haven’t seen a big retraction of manufacturing from one location to another but certainly there has been a movement of parts and materials that support the manufacturing. Much of the metal-in-white and bodywork material is produced in one country and then shipped to another to support the manufacturing of the same OEM. It is not necessarily about re-shoring and bringing back that capacity, it’s just matching demand where there is an opportunity to support a new vehicle.
What are the implications for companies like DHL of the automotive industry moving towards mega platforms?
We’re able to saturate a network which is already in place. We can support an increase of capacity more easily than having it in multiple locations for end receipt. We certainly would have an opportunity to saturate and improve our network, and we can pass that improvement in cost back on to the customer.
Are there any risks to the automotive industry of using mega platforms like this? One obvious example that springs to mind is that a recall on a model built on a mega platform would affect numerous other models.
Yes, and natural disasters are also risks. Also, ultimately, you’ve got the workforce and the infrastructure in place for one facility building numerous vehicles, in some instances, for different markets. If there are union-related issues, taxation or governmental issues, for that one particular plant, there’s a huge element of risk there for the OEM to deal with.
Do you see a return to the use of supplier parks?
Yes, although they never really went away. We operate supplier parks across the globe, but now there is a valid interest in having a flexible line feeding from external supplier parks close to the plant, to free up space to support the manufacturing of multiple models.
Globalisation will see suppliers based on different continents needing to cut the lead time on delivery into a plant. Offloading, decanting, delivering to marketplace – all this can be taken off their hands by a supplier park, and even sequenced into the vehicle manufacturing plant directly from there.
We will bring in all the levels of inbound manufacturing sequencing, just-in-time, assembly, kitting, and final configuration to line side, point of fit, directly from a marketplace in a supplier park rather than the plant, to free up space and allow them to take on more production capacity.
How can OEMs, suppliers and LLPs pre-empt the unknown?
It’s about forward planning. When you go to a new model, the suppliers, the logistics service providers and the manufacturer, all need to make sure that the sourcing decisions are correct, and that the supply chain has proven alternatives in place, with backup.
Is there a technology that you would like to see that could change things, or is it a number of factors?
Technology will certainly play a part. DHL Link is a scenario where we can combine all system interfaces and connectivity into one platform and have that skewed out into a reporting format to evaluate down to model level build requirements of the ‘will make’ scenario, down to the minute on routing schedules. The visibility of having known parts and components in the pipeline, en route, will make production schedules key to making decisions. Should there be an effect of a strike action, bad weather, whatever, it’s red-flagged prior to jeopardising the production, to be able to set up and establish an alternative routing mode, or even switch production in time to maintain the levels of manufacturing.
To achieve that, there are already products on the market, such as RFID tags, which are too expensive for the automotive industry to deploy across all parts and components. Almost all technology is expensive in the first year and gets cheaper. RFID will get cheaper, and I’m sure we’ll use that a lot more. Then it’s all about communication. We are very much embedded with our customers in plant. We are pulling material in from origin-based networks and reviewing and establishing scenarios of change, mode change, and supply change whenever it’s needed. Having the opportunity to make those decisions, giving us the autonomy on behalf of the manufacturer to make those decisions is key. Rather than just technology, it’s about trust and relationship.
We definitely need to have a plan B and remind everybody that things can go wrong. We already have technology in place, we just need to be smarter about how we use it.
Martin Kahl is the Editor of Greenstreetsoftware.info