A wake-up call for the supply chain 

This year has taught the global automotive industry a number of important lessons. The Covid-19 pandemic has put into sharp focus the importance of supply chain resilience, revealed how crucial collaboration is between carmakers and their parts and logistics suppliers, and shown how valuable digital technology is in dealing with a crisis.

At this year’s three-day Automotive Logistics and Supply Chain Live conference industry leaders outlined how they had dealt with the impact of rolling production shutdowns, the supply problems caused by border closures, and the impact of lockdowns and physical distancing on the workforce. Moreover, they recognised the significance of the Covid crisis as a wake-up call to bring in some radical changes to both the inbound and outbound supply chains, not least as the automotive industry moves towards an electrified future. 

The sudden and severe disruption caused by the coronavirus pandemic’s sweep from east to west revealed blank spots the supply chain. At ALSC, carmakers frankly admitted they did not have visibility of component supply beyond the tier one or tier two level. What they did admit was that digitalisation was the answer to that lack of visibility and that may be a valuable lesson as lockdowns in Europe are renewed in the face of a second wave.

Filling in the blanks

Amlan Bose, COO and senior vice-president at Smart Links Technology (and former vice president of Ford’s regional supply chain and logistics in Asia Pacific) said it took the coronavirus crisis to reveal to Ford that it did not have proper end-to-end visibility. Covid also accelerated the critical need for digitalisation, according to Bose.

“We have been producing cars for the last 100 years so thought we knew how to run the supply chain and logistics, but we were wrong,” said Bose. “The term end-to-end is frequently used by us but we realised that we don’t know what we don’t know.” 

Bose said that most carmakers, including Ford, had a complete lack of visibility beyond tier two suppliers, and often all the way from tier one to tier X. When the coronavirus pandemic hit it was a major obstacle in reacting with contingency.

However, lessons have been and are being learned, and they need to be factored into company IT systems. 

“For us resilience is how to build a digitised knowhow for today,” said Bose. “The moment I have digitised knowhow then I know what I know, but I also know what I don’t know. From there you can start taking action.”

Martin Corner, vice-president of global supply chain management at Volvo Cars, agreed that connected systems were absolutely fundamental and said his department was trying to put them front and centre of the carmaker’s digital strategy for logistics as part of its overall commercial transformation. The problem for those in the carmakers’ logistics departments, however, was that they are often left with the scraps.

“There is a capital expenditure list at the start of the year and logistics usually comes at the bottom,” said Corner. “This is why we end up with legacy systems and brute force, and Excel spreadsheets and picking up the telephone.”

Corner said the supply chain management people at Volvo were looking for off-the-shelf operating systems that could attach as simply as possible to Volvo’s own architecture.

“The big challenge is to move away from the thinking that every time we have to make a change it needs to come from inhouse and the IT department then has to make sure all the architecture is compliant with Volvo’s way of doing it,” he said. “Actually, we say ‘no, let’s become more agile and as an OEM act a bit more like a start-up in this situation’.” 

The move toward a more agile organisation has been possible thanks to processes supported by digitalisation.

Susanne Lehmann, director of production for the North America region at Volkswagen, said the challenge of securing online simulation tools to support the carmaker’s supply chain experts in making the right decisions at a time of ramp up in North America was multifaceted and needed the involvement of all parties, including the supply base. By way of example Lehmann said it was necessary to be able to quickly see whether engines could be sourced from other markets, how fast they could be imported and how much money it would cost. It was also crucial have visibility of how productivity was affected by changing production schedules. That was achieved through digitalisation.

What digital tools and the high degree of communication they support have managed to do is break through the traditional silos that existed just six months ago.

However, digital tools are only as good as the process they help to support, according to Miguel Tavera, director, global inbound logistics and containers design at GM.

“We tend to see a tool as the end but you have to combine the tool with the process,” said Tavera. “If you don’t have a good process to track your vehicle and parts and do something about it, in reality the visibility tool will not help you that much.”

Tavera said GM was already on the journey to upgrade logistics systems and software for greater visibility in its inbound logistics and he said the company was looking at it from a total logistics perspective, from inbound to outbound processes.

Connected services

Regarding outbound logistics specifically, Nissan is looking at how it can use the new tools at its disposal to meet to more accurately track vehicle distribution and the status of the vehicle being delivered. Chris Styles, senior director supply chain management logistics, Nissan North America, said that connected services and the potential of the connected vehicle to facilitate the process was ramping up very fast. Nissan is using a lot of new connected car technology, but Styles admitted his department was still working to understand what they could get out of it from a supply chain standpoint. 

Styles said it was a question of whether the carmaker was shifting from an RFID or some other type of tracking solution to one where it could use the embedded connected solutions that are already in the vehicles. 

“That is not just to track them but to know the status of the vehicle and the battery charge level, and everything down to the vibration level,” he said. “Can we get to the point where we can measure the vehicle that closely and get a feel for what is happening to the vehicle throughout the distribution process?” 

Ultimately, Styles reckoned, the goal is to use those tools in the areas of outbound distribution that where they make the most sense and get the quick wins. 

Martin Corner said the number one strategic challenge at Volvo was in matching vehicle distribution with demand through new channels of communication and different levels of service.

Corner said the current vehicle distribution model used by all carmakers was “stone age” and based on filling trucks for point-to-point flows via some form of storage location.

“We have been doing the same thing for decades…but actually it is very obvious that within two or three years we are going to have to have some form of common pipeline with different business models, each with a different speed of service, and with different requirements of service throughout the pipeline.

Delivering EV
That is in part because the growth in EV sales is forcing those responsible for delivering them to make decisions they have not had to previously. Electric vehicles require a different infrastructure throughout the vehicle delivery process to make sure they are maintained and kept charged, something the industry never had to worry about before.

Lessons can be learned from the start-up carmakers demanding agility and flexibility from logistics providers not normally seen with traditional OEMs. Amy Paulsen, vice-president of logistics at EV start-up Rivian said that a big, historical OEM approach did not fit with its supply chain.

According to Paulsen, EV start-ups are looking for logistics providers who are nimble and flexible, and who can offer solutions to the specific issues start-ups have to deal with, such as the lack of process, lack of historical data and the high rate of churn in their product, process and location.

Marko Weisshaar, head of supply chain management of Ineos Automotive, stressed the importance of providers’ agility, since everything can change very quickly with start-ups. As such, logistics providers need to be willing to go on an adventure. He added: “They have
to be one of the best in their field – they have to have a proven track record and the right mindset.”

A V-shaped aftermarket

Those in charge of aftersales logistics have had to be particularly agile given the sharp arrest of parts sales and the sudden return of demand when service centres reopened.

“Demand fell off significantly with Covid and then there was a very quick recovery,” said Mike Schober, vice-president, parts supply chain operations at Toyota Motor North America, adding that in some regions such as New York and New Jersey the fall-off was as much as 70%. Demand has now come back with unprecedented speed. 

“No one saw demand coming back as strong as it did,” said Schober. “It is not yet back to where it was before the pandemic but is very strong and growing; we saw the highest shipping order lines [in the middle of September] since the pandemic began.”

Anu Goel, executive vice-president, group after sales and services at VW Group of America, put some figures on the fluctuation stating that the carmaker saw a drop in aftersales of between 60-80%. However, as with Toyota, VW has seen a strong return. “Demand has been a straight line back up,” he said.

That rebound has had an impact on the supply chain and is complicated by the fact that there is also demand for inbound parts for manufacturing. Suppliers are working overtime to keep pace with the demand but have suffered a lot of the same problems other businesses have.

“During the down period, especially when the plants were not producing, they lost some of their labour capacity,” said Schober. “People left for other jobs and trying to get them back into their operations has been a challenge.”

Toyota and other carmakers are having to lend support to the supply base and provide greater visibility on demand so that suppliers can meet it and not jeopardise output at the car plants.  

Labour planning

The question of incentivising labour back to the workplace to deal with returning demand is pertinent across the industry, whether it be logistics, transport or manufacturing. While most companies have overcome the cultural hurdle of understanding that digital tools have allowed white-collar work from any location, there are still people who need to be on the ground at specific locations doing manual tasks. 

“There are roles that don’t lend themselves to flexible working locations,” said Marc Brazeau, head of logistics, FCA North America. “For Gefco and some of the other service providers, we need their people on the ground in locations, in yards and those types of places.”

Brazeau said that one of the main topics discussed at FCA right now is how to collectively manage labour requirements for staff that are not able to work flexibly and who are subsidised by the federal government.

“In North America we are struggling (and not just our industry) with the federal government’s subsidisation of the workforce,” said Brazeau. “We have seen that it’s difficult to bring people back in a timely manner if they are making more money with some of the subsidies that are available to them.”

The Coronavirus Aid, Relief, and Economic Security (Cares) Act provides economic assistance for US workers and families but will expire in December if an extension is not granted to the aid programme by Congress. Workers may have to wait until January for the extension to be granted subject to the outcome of the US election.
 
Brazeau added that in certain areas, most of the company’s planning time has been around labour availability as opposed to manufacturing capacity or material availability. 

“That will be the challenge over the next 12 months for us: how do we stabilise that and how do we incentivise the workforce that won’t be seeing the benefit of flexible work locations,” he said.

The full range of sessions from ALSC Live 2020 are available to watch here