The balance and progress of in- and outsourcing logistics strategies in both inbound and outbound at the major OEMs over the last decade, and the consequent rise of logistics service providers (LSPs) has in some ways mirrored the varying integration of component making at the larger carmakers.
To get a good perspective on this area, we look at the activities of General Motors, Ford and Toyota and their use of LSPs.
General Motors – Vector stimulates LSP sector
GM had traditionally run much of its own logistics operations globally, outsourcing the final trucking, rail and sea operations to hauliers etc. In 2006, Vector SCM, a global logistics management joint venture between Con-way and General Motors, was created out with a European Vehicle Visibility (EUVV) program for General Motors Europe (GME), providing comprehensive outbound logistics visibility and exception management of finished vehicles to all GME dealers across Europe covering all modes. The idea was noble; directing a complex network of more than 70 outbound service providers moving some 1.7 million GM vehicles to 54 countries annually, the Vector programme was intended to give visibility to approximately 11 million shipments per year, supporting finished vehicle delivery.
Advantages were forecast to be a reduction of 2.5 days in average transit time leading to better cash flow, improved consistency of delivery to dealers and customers, and to help to trim inventory levels through better total supply visibility.
It did not quite work out like that. As the recession started to grip, and the LSPs continued to improve their ‘total vehicle logistics’ expertise (due in no small part to being invited in to Vector), so GM returned to dealing with both inbound and finished vehicle movements itself.
Con-way, partly through its involvement with Vector, has become an industry leader in the transportation and logistics industry and now delivers logistics services through its Con-way Freight, Con-way Truckload, and Menlo Worldwide Logistics companies. Whilst it certainly would have grown its global footprint without the Vector JV, being able to bid contract-by-contract and almost ‘cherry-pick’ contracts from GM and other OEMs, it has undoubtedly strengthened its position as a major LSP. GM has tended to award its business to Ryder and CEVA since the dismantling of Vector.
Special contracts, outside expertise
As vehicle configurations change and transport requirements become more specialized, so it makes sense for the OEMs to outsource on an almost vehicle-by-vehicle case. An example is GM’s choice of Comprehensive Logistics (CLI), to manage global inbound logistics and value-added subassembly processes for the 2011 Chevrolet Cruze. Under the agreement, CLI will receive parts and components from hundreds of global suppliers and build complex vehicle configurations for just-in-time delivery to the automaker’s assembly lines in Lordstown, Ohio. CLI having been a six-time recipient of GM’s Global Supplier of the Year award no doubt contributed to the choice.
Ford Penske and UPS
As with bringing in a management consultant, an LSP can often uncover recoverable costs and hidden profit opportunities in an OEM’s operations. In North America, Ford has worked with Penske on several Six Sigma-ordered logistics projects. As its lead logistics provider (LLP), Penske worked to create a more centralized logistics network, saving the carmaker money by reducing inbound carrier discrepancies, eliminating unnecessary premium costs and reducing shipment over-supply.
Centralisation was also a key factor. When Penske came on board, each of Ford’s 20 North American assembly plants managed its own logistics operations. This variegated approach gave (in theory) total control of logistics at the plant level, but meant under-utilised materials handling and transport equipment.
Centralising all inbound materials handling for 19 assembly plants and seven stamping plants sped up the chain and increased visibility and Penske benefited, being appointed Ford’s North American LLP.
Four wheels, two wheels
While UPS handle all Ford’s North American outbound finished vehicle distribution network, moving vehicles from assembly plants to dealerships in the US, Canada and Mexico, in the motorcycle market, the LSP also has an interesting and valuable contract with Harley-Davidson. As the bike maker continued to grow sales of motorcycles, so its accessory and parts sales rocketed, and indeed put more strain on the supply chain than the finished bike deliveries. A key element of this pressure is less-than-truckload shipments from suppliers to factories, where using a simple parcel service is not appropriate. The answer was to create a ‘cross-docking’ facility for inbound and consolidate there instead of at the factory, simply put, leaving the factory to make bikes and the LLP to sort the parcels.
Toyota – TPS translated into logistics
Of all the world’s carmakers, Toyota’s Japanese production and supply system is possibly the most intimately linked with logistics efficiency. Indeed, the Toyota Production System (TPS) with its disciplines of kaizen, or continuous improvement, depends heavily on an efficient supply chain management and logistics system and in North America this led to an interesting outsourcing strategy. In 1987, APL Logistics, a US company, and Fujitrans Corporation of Japan, created a 3PL called VASCOR (3PL) to service the Toyota Motor Manufacturing Kentucky plant, Toyota Motor Sales and the Norfolk Southern Railroad.
In theory, TPS demands making, buying and moving one piece at a time but this does not quite work in logistics; VASCOR picks up from within a network of 500 suppliers and delivers to any one of eight crossdocks that Toyota’s LPs operate for the OEM. The ideal is that no item sits at a crossdock for more than 12 hours, with most shipped out in less than six hours. These shipments are accumulated by region and get divided by to plant demand and shipped directly to the plant.
As in component versus module purchasing, vertical integration versus strategic outsourcing in parts and services, logistics management has been farmed out during the good times and the bad. Where logistics differs is that its development has benefited more than any other discipline from the rise of the Internet culture, in attitudes to online purchasing and management, and from its involvement in so many different commodities and markets. Experience and skills gained in these new areas of commerce often transfer to automotive and the large and powerful LSPs will continue to rise, exploiting their range of expertise and the constantly improving global transport infrastructure, to better serve their automotive customers.