Close
Agility Logo

    FUTURE OF LOGISTICS

Search
Close
  • Home
  • Topics
    • Digital Innovation
    • Emerging Markets
    • For Startups
    • Regions
    • Small Business
    • Smart Shipping
    • Sustainability
    • Trade
    • Trending Topics
    • Regulations
  • Future of Logistics
  • Ship for Success
  • Emerging Markets Index
    • Overview
    • Rankings
    • Surveys
    • Videos
    • Downloads
  • Smart Shipping
Menu
  • Home
  • Topics
    • Digital Innovation
    • Emerging Markets
    • For Startups
    • Regions
    • Small Business
    • Smart Shipping
    • Sustainability
    • Trade
    • Trending Topics
    • Regulations
  • Future of Logistics
  • Ship for Success
  • Emerging Markets Index
    • Overview
    • Rankings
    • Surveys
    • Videos
    • Downloads
  • Smart Shipping
Search
Close

FUTURE OF LOGISTICS

Home

Automotive Supply Chains

Automotive Supply Chains
All Blogs| Digital Innovation| Trade| Trending Topics

Automotive Supply Chains

  • 10 October 2014

SHARE POST

Share on twitter
Share on facebook
Share on linkedin
Share on print

DISTANCE IS RELATIVE
Christopher Ludwig, Editor of Automotive Logistics magazine, discusses automotive supply chains.

As someone who spends a lot of time travelling to major automotive markets and speaking with logistics managers, I am often asked about global trends and even to make predictions about automotive logistics. That’s natural since Automotive Logistics has some claim to being a publication of record in this niche sector. But it’s equally humbling, as we are neither industry practitioners nor futurists. I am usually more comfortable asking the questions than answering them.

In truth, comparing the strategies of manufacturers in New Delhi with those in Beijing, Moscow or Detroit is as confusing as it is revealing. While there are some nearly universal issues (the push for lower inventories, the importance of supply visibility, a shortage of qualified drivers and managers), many other hot topics take on different meanings when you cross boundaries, or when you move upstream or downstream. A prime example is for “near-shoring” localization, which is being discussed at length from the US to the UK, Russia and China. If you look carefully at what is happening globally, the supply chain is hardly returning to some mid-20th century vertical integration; rather, our reporting has found that it is simultaneously converging and becoming more dispersed.

Cutting logistics costs

Firstly, transport costs, currency fluctuations and risks of line stoppages have long encouraged local supply for car plants. The notion of a “global” supply chain has always been somewhat exaggerated; by weight, major factories bring most supplies from within a few hundred kilometers. But a degree of low-cost country sourcing, vehicle platforms shared across regions, and a host of historic supplier decisions have in recent years led to longer average distances for inbound deliveries to plants.

As a result, some carmakers are tightening the screws on their supply chains, particularly in North America and Europe. General Motors has a goal of cutting $1 billion in logistics costs over four years, and bringing tier suppliers closer to its plants is a stated objective. Nissan, meanwhile, intends to take out 5% of logistics costs year-on-year for the next three years; it has not only encouraged suppliers to locate nearby, but has brought some inside its plants, including in Tennessee; Aguascalientes, Mexico; and Sunderland in the UK.

DID YOU KNOW? The average car is made up of about 1,800 separate parts. This includes large components, such as the engine, which contain thousands of individual pieces. When every individual piece is counted down to the smallest screw, a single car contains about 30,000 items.

However, without considering the total supply chain, shifting the location of final component assembly can be a zero sum game. More of the value and technology of a car comes from tier suppliers, and the top companies are not always next door to car plants. They have global supply chains of their own. A German diesel system manufacturer with a plant in China will localize production of most components but may still import certain pumps and applications from Germany. Tier two and tier three Mittelstand suppliers in Germany, or clusters of component makers in the Shanghai region, have strong economies of scale in both production and advanced engineering. Uprooting or extending these companies too quickly could lead to costly part changes or quality issues that exceed logistics savings.

Of course, many carmakers have learned the hard way that the inverse can also be true, where the costs of shipping parts (especially following changes) from afar can be much higher than any initial labor or engineering savings. In either case, neither proximity nor cheap labor can make up for botched quality.

There is therefore a hyper-fine balance to be struck between what supplies should be localized or doubledtooled, and those that can be sourced from far away. Analytics can play a role in helping to determine this, particularly when considering a region’s risks and development potential. Some metal stampings might be obvious parts to bring closer, but there may not be an algorithm to determine the pace at which an OEM should localize all of its powertrain or safety technology. And even when it does, supply is likely to be more than local. In June, Nissan and Daimler opened the first Infiniti engine plant outside Japan in Tennessee; however, the plant will serve both Mercedes-Benz in Alabama as well as Infiniti in Japan, and eventually it seems likely to supply Mexican production as well.

What’s far to you is near to me

In 2014, Nissan and Daimler opened the first Infiniti engine plant outside of Japan in Tennessee. However, the plant will serve both Mercedes-Benz in Alabama as well as Infiniti in Japan, and seems destined to supply Mexican production as well.

Supply chains wound too closely can be more inefficient than those spread out. While it is clearly attractive for plants to be located in regional clusters surrounded by suppliers, in countries with poor infrastructure and underdeveloped logistics services, poor communication between clusters can hold back development and scale. A supplier based in Kaluga, south of Moscow, might serve OEMs locally but would struggle to supply others 400km away in Nizhniy Novgorod, a distance that would be covered across consolidation or “milkrun” services if they were in the US and western Europe. The suppliers in each cluster therefore risk fragmentation and over dependence on fewer customers, while carmakers lose the flexibility and competition of alternative suppliers.

The opposite side of the spectrum might well be cross-border trade between the US and Mexico, where NAFTA integration and strong intermodal logistics and consolidation services allow manufacturers to increasingly make use of the best suppliers on either side of the border. What does “near-sourcing” mean when in some cases a supply chain is integrated across 3,000 km, from the American Midwest to the Bajio in central Mexico? And with the number of OEMs growing with plants or plans to build in both the southeast US and Mexico, parts exchanges are likely to increase across these regions as well.

The integration across the European Union has long been an example of this potential. In the future, if infrastructure and logistics services were to develop, deeper trade ties in Southeast Asia should launch similar supply chains, including across Thailand, Indonesia and Malaysia.

I am not denying the trend or the rationale of OEMs in simplifying what have, in some cases, become unnecessarily complex logistics flows. But being global or local, near or far is relative these days. Car platforms are usually global, even if built locally. When capacity is full in one location, supply will be taken from another, whether it is between Georgia and Alabama or Rayong and Sao Paulo. That is a flexibility few manufacturers will give up, no matter where it comes from.

For more information about Automotive Logistics Magazine go to: www.automotivelogisticsmagazine.com

SHARE POST

Share on twitter
Share on facebook
Share on linkedin
Share on print
PrevPrevious ArticleOn The Front Lines
Next ArticleAutonomous ShippingNext

RELATED POSTS

A Guide to the Digital Supply Chain

Digital technology is changing the way the world does business and doing so at an extraordinary pace.

Read More »

The secrets of scaling your startup

Since Homoola launched in 2016, the business has scaled up rapidly, carrying more than 7,000 loads in the first year and seeing average monthly growth of 35%.

Read More »

Kuwait: the startup powerhouse that’s just getting started

Can Kuwait transform itself into an innovation hub and a private sector-led knowledge economy?

Read More »

LATEST POSTS

Modeling Tool

Modeling Tool

The Cutting Edge of Supply Chain Design: Low carbon shipping options can be immediately identified using a new modeling tool created by Agility.
Read More
DevOps: For the Logistics Industry, the Time is Now

DevOps: For the Logistics Industry, the Time is Now

With COVID-19 accelerating digitalization, the pressure is on for logistics industry players to industrialize their digital transformation programs.
Read More
Future-proofing the Supply Chain

Future-proofing the Supply Chain

The greatest immediate threat isn't the pandemic, it's trade protectionism.
Read More
Data-Driven Decision Making and How to Get There

Data-Driven Decision Making and How to Get There

Accurate data and effective supply chain technology are more critical now than ever before.
Read More

STAY CONNECTED

Twitter
Facebook
Linkedin
Youtube
Vimeo
Future of Logistics Subscribe

SUBSCRIBE TODAY

Understand what matters. Get insights into the ideas, trends, technology and strategies shaping the Future of Logistics.

Subscribe
Agility Logo White
Agility is a leader and investor in technology to enhance supply chain efficiency, a pioneer in emerging markets logistics, and the leading provider of digital tools that empower small businesses and individuals to manage their logistics online.
Twitter
Linkedin-in
Facebook-f
Youtube
Instagram
Whatsapp

Download Application

   

NAVIGATE

Agility Insights

COVID-19 Updates

Emerging Markets

Future of Logistics

Ship for Success

Smart Shipping

Resource Center

Topics

Digital Innovation

Emerging Markets

For Startups

Incoterms

Regulations

Trade

Topics

Trending Topics

Shipping Tutorials

Small Business

Sustainability

Visit Us

Agility.com

Agility Ventures

Agility Logistics Parks

Investor Relations

Sustainability

Worldwide Directory

Shipa.com

Copyright 2021 Agility
   |   Privacy Policy   |   Terms & Conditions

   Connections   |  Employee Webmail

Like many websites, Agility uses cookies to personalise your browsing experience. Learn moreAccept & Close