This year's conference, in the stunning setting of the Montreux Palace Hotel, was even bigger than last year's event, with 226 delegates attending - an increase of nearly 60 delegates. It kicked off with a lively cocktail reception, sponsored by Panalpina, which everyone used to start the networking process.

The first day saw presentations from senior executives in the automotive industry and highlights included: Kazumi Nakada's blistering tour of the application of the Toyota Production System to Delphi; a presentation from Karl May at BMW about building the Leipzig plant to order for logistics processes; Johannes Fritzen from VW Transport who talked about avoiding transportation; and Bruno Sidler, CEO of Panalpina on the role of LSPs. The busy day ended with a cocktail reception and Gala Dinner at the historic Alcazar Theatre in Montreux.

Following the success of the strategy last year, the second day of the conference was again divided into two separate streams, enabling those attending to get the most out of the expertise on offer. The special finished vehicles forum in the smaller of the two conference rooms excited some lively debate and the packaging and service parts sessions highlighted some pretty fundamental issues that need to be tackled between logistics providers and OEMs.

Our thanks go to all the sponsors, who assisted Automotive Logistics in making this year's event memorable. G-Log, the Flanders Foreign Investment Office, Panalpina and P&O Nedlloyd Logistics. If you have any feedback from this year's conference, please contact either Maxine Elkin or Louis Yiakoumi. Your opinions help us to continuously improve this event.

Model complexity requires joined-up thinking
Reducing inventory needs agile logistics
LSPs call for a different approach!
Honda calls for accountability

Model complexity requires joined-up thinking

Asking a group of people who work in logistics how to avoid transportation “is like asking a dog to watch a sausage”, according to Johannes Fritzen, President of Volkswagen Transport and the first speaker in the second session of the conference. But in an age of increasing complexity of model types, it has to be considered. Fritzen said: “In a nutshell, the variety of models goes up, individualization goes up and hence the complexity goes up. At the same time the number of vehicles goes down, product cycle times and manufacturing thoughput times go down. As an example, the Golf V consists of an average of 6,000 modules from a range of about 25,000 build parts, a seat assembly alone consisting of an average of 70 build parts from a spectrum of about 510 parts. As for the variants available to the customer, these add up to a staggering 300 million possible permutations, just on the Golf V. In these circumstances, when different departments within a carmaker and logistics company don't communicate or collaborate, there can be a lot of empty trucks moving around the supply of the model.”

Fritzen told delegates that for the production of the Golf V, VW Transport entered the process shortly before the start of production, which is the norm, but he argued: “The supply is fixed, all we could do was to optimize transport by combining the cargo.” The difference in design and size between the radios for the Golf IV and the fifth generation nearly doubled the transport costs.

Fritzen called for the approach to logistics to be integrated with the purchasing and even design if you want to cut costs in the logistics supply chain. He revealed that another way that VW is tackling this issue is to ask suppliers to “come up with a new way of thinking. Contractors are being asked to identify where transport can be avoided. This may come as a shock to some of our providers... but we guarantee you that what you give up, you will gain down the road. These partners will have an increased volume of work.”

Christian Zbylut, Executive VP Network Gefco began by saying: “It could seem strange to tell logistics providers to avoid transportation, but this is exactly what we have been doing for the past few years, working out how to reduce empty space on roads and rails.” He argued that it is for the logistics provider to take the initiative on this, commenting that vehicle makers and suppliers “cannot optimize at the same level as a logistics provider can”. He identified the increase in volumes moving to and from central Europe and warned: “Transferring production can generate economies but will increase transport costs... be aware of the logistics cost.”

Reducing inventory needs agile logistics

Kazumi Nakada, executive director of Lean Enterprise for Delphi Corporation, opened the Lean Manufacturing session with the statement: “I would like to propose a new collaboration between the manufacturing side and the logistics side.” Drawing upon 18 years working for Toyota in Japan as an engineer, Nakada described how, when Delphi began looking at its European operations in 2002, manufacturing was the first point of implementation for the principles of the system. He said: “Many companies have tried to implement the TPS, but companies often make a mistake. Our most important priority is to make the right choice at the right time but most companies make the mistake and prioritise efficiency. First of all try to pick up the big dollar bill, then pick up the pennies afterwards.”

With build-to-order programmes being rolled out across automotive manufacturing, efficiency can seem key, but getting the right product in place at the right time with high quality standards will bring efficiency into the system. All the cost savings in the world will not make up for a loss of customers. “Our job is as quickly as possible to meet the customer's expectation and with minimal gap.”

Delphi has 216 wholly owned plants, 42 joint ventures, 32 technical centres and operates in 41 countries - the challenges for logistics are immense.

Nakada described a process of change at Delphi that involves making its European plants operate on lean principles. Lean scheduling and logistics must work together with lean manufacturing, a process Delphi started in 2002. “We began trying to implement best practice in plants in 2002 in Europe with the aim of then copying and pasting the system globally.”

At La Rochelle, where Delphi manufactures diesel injectors, inventory in the clean room has dropped from three days in 2002 to between two and three hours now. This kind of reduction in inventory, which the Toyota manufacturing system demands, puts enormous pressure on the logistics processes to be as efficient, dependable and lean, reducing the amount of inventory in the logistics “pipeline”.

Nakada called for a paradigm change in logistics. Looking at the inbound logistics for Delphi from its French suppliers to Delphi's manufacturing operations in Tangier and Cadiz, the amount of inventory in the system wasn't lean. Between the suppliers and the French dock, there was a week's inventory; between the French and Spanish dock, a week; and between the Spanish dock and final point of delivery at the plant, another week. Together this meant three weeks of inventory spread through the system. The lean way is to use cross docking at the French and Spanish docks to reduce the three-week inventory to a three-day inventory. “This year my job is to look at how to improve the productivity of truck trailers,” Nakada revealed. “Over the long distance between cross docks you can use big trailers, but over the short distances between the cross dock and customer you can use smaller trucks with more frequent deliveries.”

“Because the manufacturing side has shaped up we don't need a one-day inventory, we need one-eighth inventory. That's the message.” The challenge for logistics companies is that how to support this complicated materials flow.

Nakada also highlighted the need to utilise the trucks better, describing the approach of carrying goods as cheaply as possible by moving in bulk as “stone age logistics”. The key is to remove inventory for the supply chain to support the lean manufacturing established in the plants. “Inventory is a sample of our system, like a blood check. This inventory will show up your problems because this is a comparison between the production and the consumption. If you have a gap here, you have a shortage or overproduction and from this you can start to fix the problems.”

LSPs call for a different approach

The role of logistics service provider seems like a straightforward enough topic for discussion, but what emerged from the conference session was a divide between the expectations of LSPs and the expectations of their customers. This is not surprising when manufacturers are targeting logistics as a cost saving area, but Bruno Sidler, CEO at Panalpina, argued that this situation helps no one and doesn't encourage cooperation and transparency between OEMs and their logistics ‘partners’.

“We have been able to reduce costs for our customers not just by getting costs out of the supply chain, but by reengineering processes. It is hard to do that because it is an upfront investment in resources and time, and the payback unfortunately only comes later. But without being able to do that it is going to be increasingly difficult in the future to deliver the cost discounts you need.”

“Most of the time we operate on an operational level. We do what we are told to and only when we can move into the tactical level are we really going to address the process change - that is where we will deliver in future most of the benefits. Please give us the information, we need to know everything: we need to know inventory levels, we need to know your cost basis in order to come forward with innovative ideas, not just with price slashing, but innovative ideas which create much more value, with cost savings that go beyond just shaving a couple of cents off a kilo of airfreight. We have not reached this level with any customers in the automotive industry.”

“Most of the time we operate on an operational level. We do what we are told to and only when we can move into the tactical level are we really going to address the process change - that is where we will deliver in future most of the benefits. Please give us the information, we need to know everything: we need to know inventory levels, we need to know your cost basis in order to come forward with innovative ideas, not just with price slashing, but innovative ideas which create much more value, with cost savings that go beyond just shaving a couple of cents off a kilo of airfreight. We have not reached this level with any customers in the automotive industry.”

Dan Ellerton, president, Automotive Worldwide at Exel, told conference delegates that, to survive as an LSP, “you have to be very good at what you do and managing your business. We have a period in which individual links in the supply chain are being squeezed...and there is still more to go. But it is a law of diminishing returns and we must now [identify where] the opportunities are and look at end-to-end solutions.” He called for LSPs to align their goals with their customers. This “creates the right behaviour and breaks down the silence. Without getting into names I will tell you that some of the biggest relationships we have are still measured on transportation costs. Even if we take days and days out of plant inventories, spare parts inventories, they are not allowed as savings in our relationship, because the logistics director is the transportation director and manufacturing get the saving on inventory. That's the way we engage and it's ridiculous”.

Caroline Stolze reiterated this: “Transport costs are not the big issue - we want to do more in the supply chain than just bringing down transportation costs. How do suppliers themselves restructure their processes? This is where it gets interesting.” Ray Runza, operations director, Logistics, Honda Logistics Centre UK, asked Panalpina's Sidler why the reality of the business was so different from Sidler's perception of it should be like. Sidler responded: “Well if you are squeezed to the bone, if you have a margin left, you try and hide it from your customers. I was going to meetings and customers were telling me that we weren't proactive enough. At first I was annoyed and felt they were unfair, but the truth is we are not proactive enough. It needs a culture change and that can only come if we sit with manufacturers and LSPs at the same table, at the same level, and discuss the solution. [We need to] find a way to compensate the provider in a fair manner, totally transparent, with a share in the gains.”

Honda calls for accountability

In the service parts forum, Ray Runza, operations director of Logistics at Honda Logistics Centre UK, called for more accountability from logistics service providers regarding aftermarket parts. He said: “The level of accountability in the transport industry for service providers is so incredibly low that I struggle to see how you survive as a business.” He called for more visibility of transporters' performance, a reduction in the number of partners and better information from providers. He said: “We would like to actually know the results on the day of delivery, so that we know our customers satisfaction before they tell us their dissatisfaction. We would like you to accept full liability: If you lose it [a carton] we expect you to pay for it. If you damage the product we expect you to inspect it and tell us it is damaged; why should we claim that with our insurers? I would like to emphasise, we don't want one euro from any provider, we just want you to do your job. In the area of spare parts, nearly all of our partners have accepted these conditions.”

Runza revealed that Honda is building an integrated transport system to enable Honda to know how to manage its 62 partners in Europe. Performance information is being inputted into one system to enable Honda to see the level of performance it is providing to internal customers.

Runza admitted that Honda is very bad at organizing return freight, a key area for cost savings, which is one reason why it has just signed Norfolk Line as its new single partner in Europe. The new contract aims to cut Honda's aftermarket logistics costs by 8.5 per cent in three years, by “improving load returns and combining Honda traffic with other Norfolk Line business. [This way] we can get better pricing and shared utilization.”

John Stephenson from Cat Logistics highlighted how model complexity has led to massive proliferation for the parts business. He warned: “You start to question whether that proliferation is affordable, for both parties - OEMs and their dealers. Holding all those parts for all those years for the customer is questionable as a sustainable strategy. My view is that something has to change substantially.”

Helmut Nittman from Ford described how Ford in the US met the challenges of 10-15 year service life policies by first asking suppliers to retain the liability for servicing parts after they go out of production, and by maintaining the tooling to reduce inventory in the supply chain.

Mike Storey from NYK Logistics questioned whether logistics for inbound parts to factories and spare parts could be integrated to provide cost savings. While accepting that there was no reason why not, Ray Runza said: “Personally, I think that our factory would be scared that mixing the business would affect their business, that if we mix the two transport operations, service to the factory could suffer.”

John Stephenson also argued that the service parts side of the business might suffer: “If the manufacturers were short on parts, we wouldn't get our supply.”

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