With production line delays costing automotive manufacturers up to EUR1m an hour, emergency logistics is becoming an important part of the supply chain as vehicle manufacturers and their suppliers strive to keep the lines running. We catch up with Brad Brennan, managing director of emergency logistics specialist Evolution Time Critical, to find out how emergency logistics is increasingly being integrated with supply chain strategy.
j-a: We last spoke to you back in 2010. How has the automotive supply chain – and emergency logistics – developed since then?
BB: Since we last spoke we have celebrated our tenth anniversary. In that time we have grown significantly and become much more integrated with our tier one and vehicle manufacturer customers worldwide. Emergency logistics as we know it today didn’t really exist when we started, but cost-down strategies, especially with lean manufacturing and manufacturing in developing areas, have ensured that today it is a critical part of the automotive supply chain.
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Since 2010 we have seen a number of natural disasters which have shaped the industry, the most significant being the Japanese earthquake and tsunami in March 2011. As well as this being a terrible human tragedy, it shook the automotive industry to the core. Assumptions that were made pre-March 2011 were no longer sufficient. From our perspective, it meant that OEMs started to look far deeper into the supply chain. They always had a good view of their Tier 1 suppliers and some knowledge of their Tier 2 suppliers but anything beyond that would be less visible. Now there is a lot of work and investment going into looking even deeper, especially where there is no easy alternative source. Further urgency was added to this process by the explosion at the Evonik plant in April this year. As the event unfolded it became clear that a number of OEMs and Tier 1s were single sourcing from the company, causing major issues when production was shut down.
Another change is that supply chain analysis is moving up the agenda; it is now a board-level concern. A paper on this topic, presented at the 2012 World Economic Forum in Davos, recognised the economic motivations for increasingly lean supply chains but warned against insufficient contingency planning to support this development. I think that is a neat summary of where the industry is today and accurately identified an area that still needs further strengthening.
j-a You mention contingency planning. Are your customers are paying more attention to pre-emptive analysis?
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BB: Absolutely. Contingency planning has now become an important part of our business. As global footprints expand and both OEMs and Tier 1s are looking at new low cost areas, they are finding that with the financial reward comes a degree of risk. We now work with our customers at the planning stage of a new facility to ensure that the infrastructure is robust and flexible enough to mitigate the risk and make the reward worthwhile. It’s okay if it has points of potential failure as long as we have identified them, we have systems in place to provide as much warning as possible and we have a pre-defined solution that can be quickly implemented.
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By GlobalDataA good example of this is China. The cost of doing business in China is going up, which is inevitable as their economy develops and creates wealth in the region. Manufacturers are finding that they need to move their facilities further inland to gain the same financial benefits they had previously received from their plants closer to the major cities. China is a vast and complex country and once you leave the developed areas around the coast you find that the infrastructure quality drops off significantly. To reduce the risk involved in this necessary move, we work with our clients at the planning stage to create a comprehensive contingency strategy which can then be presented to the board to help aid decision-making. This strategy can then be transferred into an operational document and presented to the relevant in-house specialists as a thumbnail guide to supply chain crisis resolution in the area.
We have also found that we are increasingly being asked to embed our people within OEMs and Tier 1s, to ensure that their supply chains run smoothly and potential pitfalls are recognised and negotiated with the minimum of disruption. Again this is a reflection of the importance now placed on crisis avoidance.
j-a: I like that phrase ‘crisis avoidance’. Is it really possible to avoid supply chain crises?
BB: That depends on how you are defining ‘crisis’. We take many calls asking us to make an emergency delivery of a shipment that has been delayed. The first point is that if better monitoring systems had been in place, or if we had been called earlier, we may have been able to avert the crisis. An example is when a Tier 1 misses a delivery because of a supply failure from a Tier 2. Sometimes by making world-class supply chain expertise available to the Tier 2, their production can be maintained. The second point is that it isn’t always necessary to deliver the entire shipment in an emergency operation. It can be much easier, and much cheaper, to deliver a small quantity (perhaps by hand courier) to keep the line open, then follow-up with a conventional express delivery. Part of our job is determining where the actual crisis is and using our experience to make this as small a part of the task as possible.
j-a: What challenges lie ahead for the automotive industry, from a supply chain perspective, in the next five years?
BB: As always, the challenges in life are the flipsides of opportunities. We saw at Geneva this year that a growing number of vehicle manufacturers are introducing global platforms, with one major OEM announcing that it would double the use of shared parts in its next generation models. This strategy offers compelling benefits; it significantly reduces R&D and manufacturing costs, increases bargaining power with suppliers and is generally seen to be good for business. However, with greater manufacturing volume dependent on the same components, the problems caused by disruption in the production or distribution of those parts is amplified.
One trend we have already noticed is what is known as supply balancing. With OEMs sharing components across their various brands, when sales increase there is often a significant hike in demand for a single Tier 1 supplier. If this supplier has reached its production ceiling then the available supply has to be shared around the various plants. Emergency logistics is perfectly placed to facilitate the distribution of supply, often across continents, and we have been doing so with a number of our customers in recent months.
As we have seen with the move further inland in China, the search for lower-cost manufacturing locations is far from stabilising. We see growth in Africa, where heavy investments are making development areas very attractive, but dependent on maybe one airport and one freight terminal. We’ve learnt a lot about where failures may occur and how to plan to mitigate them quickly. These techniques now need to be part of footprint planning and daily operational management at these locations.
We have also seen an increase in the number of OEMs sourcing across regions. In the past, production of the parts of a single vehicle tended to take place in one region to minimise the potential for disruption. But we are now seeing that the economic argument for dispersed production has become too compelling to ignore. This means that an automotive production line in Germany, for example, might source parts from South America and Asia. This strategy carries a dual supply chain risk. The most obvious issue is that of distance and inherent transport complexity, the second issue relates to the suitability of the immediate infrastructure in developing regions. Neither is insurmountable though; contingency planning can mitigate the risk to an acceptable level.
My advice – based on more than ten years experience in keeping production lines running – is to plan before the crisis, then maybe the crisis can be avoided.
See also: Brennan’s 2010 interview with just-auto
