Overcoming Automotive Logistics Challenges – Part II

Supply Chain Nation recently sat down with Automotive Logistics Group Publisher, Louis Yiakoumi, about the hot topics in this industry. In Part I of our blog, Mr. Yiakoumi discussed the major industry challenges. In Part II he will cover what automotive companies are doing to overcome those challenges.

SCN: What are companies doing to overcome the key challenges facing the automotive industry?

Yiakoumi: Carmakers are beginning to look at total costs. Before, they might say to purchasing, “You guys have done a brilliant job; you’ve reduced your costs by a million dollars because you’re buying everything from India. But you logistics guys, you’re doing a terrible job because your logistics costs have gone up by half a million dollars.” And the logistics guys would say, “Yeah, but you’re buying everything from India, so the logistics costs have gone up.” Now the carmakers are trying to look at total costs. They’re factoring in, as much as they can, the logistics and supply chain costs. That recognition is very, very important.

Carmakers are also bringing in logistics at an earlier stage and looking at logistics in a broader format. The biggest savings won’t be from trying to make transportation cheaper at a plant, but looking at why logistics cost are so high for that plant. Is it because some of the biggest parts are being shipped from another manufacturing location? Could long-term term cost savings be achieved by building a stamping area in the plant to make those bigger parts there, thus reducing logistics costs drastically? By looking more broadly than just how can we reduce the transportation or warehousing costs, they will find the big savings, the billion dollar savings.

Some of the carmakers and suppliers have very decentralized logistics and supply chain structures and they’re beginning to bring these together and look at how they can bundle volume and share assets. The same can be said for IT. Different plants often have different IT systems, which is crazy. They struggle to communicate with each other, so having more centralized systems will enable them to be more efficient, which is being done. But I don’t think they’re investing enough in IT to really measure what they need to measure, to understand what they need to understand, to enable them to reach the world-class status that everyone aspires to.

Carmakers are beginning to take other areas more seriously as well. For example, in India, where there have been poor driver standards, carmakers are investing in driver training. The Indian government is also investing in driver training. So these are some of the things they’re trying to work on together.

Governments themselves are trying to come up with solutions. The Chinese government is looking at logistics in its broadest format. They’re trying to look at logistics and supply chain, as opposed to just transportation. And the good thing for us is they see automotive logistics as a test case. They can look at how to improve automotive logistics and other industries will follow suit.

The logistics companies are trying to globalize and they’re investing more in regions around the world. It’s tough for them to do that because the returns are going to be longer term, but at least that’s being done. Perhaps one of the changes needed is to develop real partnerships between the carmakers and the logistics companies. There’s still that fear that they’re not real partners. They feel that carmakers want them to invest heavily in regions like India, but the carmakers aren’t giving the long-term contracts that will enable that investment. There is still that fear that if they go to India or whatever region, invest heavily in the people, IT, assets and so on, that after a year or two the carmakers could just drop them for cheaper suppliers. There’s actually innovation being brought into different regions, but I still see that when it comes to logistics and supply chain, they’re just trying to implement what they’ve done elsewhere with slight tweaks for some transportation issues, but there’s no real innovation in trying to overcome some of these joint challenges.

Are we doing enough to overcome these challenges? No, we’re not. So there’s a challenge for everybody, including JDA, to make sure that we all do what we can to ensure the automotive industry leads automotive logistics investment to enable it to grow.

SCN:  What were the biggest themes, trends or surprises to come out of your recent Automotive Logistics conference?

Yiakoumi: Our conference in Detroit in September had a very positive feel and there was a lot about the continuing growth in North America and what it means for the supply chain. Mexico was a hugely important issue; there’s excitement about the development of Mexico as a region. We looked at the challenges such as cross-border flows, managing the exports and imports, and dealing with the Mexican domestic market. Logistics in Mexico is actually quite developed, but there are still high cargo rates, and questions about port and rail capacity.

There’s still uncertainty about how secure growth is. Around the time of the conference the potential government shutdown was looming. So people are just being a little bit more careful. Also, the capacity of tier suppliers isn’t enough to supply the carmakers as they would like, but the tier suppliers aren’t investing enough partly because of that economic fear in the back of their minds.

There was a lot of talk about the next generation because logistics isn’t a sexy area and automotive logistics is perhaps particularly not sexy. If you speak to supply chain students at universities and colleges, particularly around North America, they all want to work for Apple and Google as opposed to the automotive industry. I think that we need to raise the level of importance of automotive logistics.

The other thing that we got out of this conference is that there has to be better logistics engineering—to move away from price cuts and to make sure that assets are utilized efficiently. We need better use of IT in every area—in visibility, measurement, management, in making things more electronic. All of these things will have a big impact on improving automotive logistics. It’s about measuring, understanding and improving the processes—getting the best information from IT and using it in the correct way.

Automotive logistics as an industry needs investment. To do that, we need investment from the carmakers. We need it from the tier suppliers and from the logistics companies. We need it in every area. I still don’t believe the carmakers realize how important automotive logistics is to their businesses. They see it as a delivery service, but it’s the enabler of so much of what they do. Globalization is a big thing for carmakers and logistics is the enabler of globalization. The environment and green issues, logistics has got a huge role to play in that as well. So we’ve got to make the carmakers understand how important logistics is.

SCN: Thanks, Louis, for your great insights.

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