The reason behind Renault-Nissan’s restructuring of its logistics organisation was to reinforce the importance of supply chain planning and integrate it fully into the day-today business from the design stage forward. Marcus Williams reports on the progress that has been made since the establishment of the Global Supply Chain Department
When Renault replaced its logistics department with a new unit called the Global Supply Chain Department (DSCM) in April 2008 it did so to improve group performance and reduce costs through greater efficiency. About a year later, the company went a step further together with Nissan and created an umbrella organisation for the shared physical transport flows between the two, called Alliance Global Logistics.
The synergies put in place under the management systems have led to cost reductions across the Alliance’s global supply chain that are expected to make savings of €130m ($174m) in 2010 out of a global budget of €3.7 billion, more than double that achieved in 2009 when logistics synergies saved the company €55m.
It has also managed to significantly reduce stock levels, cut late deliveries by 30% and bring down vehicle damage levels significantly, with an impressive 40% fewer vehicles now harmed in transport.
As Yves Caracatzanis, director of Renault Global Supply Chain since September, made clear at the company’s supply chain update meeting at Renault headquarters in Paris in November, the point of the new department was to reinforce the importance of the supply chain function and integrate it fully into Renault’s business from the design stage forward. Renault terms this a ‘Design to Logistics’ principle, rather than having logistics ‘tacked on’ as an afterthought.
“Previously, logistics had followed other functions without being integrated with other important decisions in the supply chain,” says Caracatzanis. “What we’ve done for the past two years is to make the supply chain team work with the project team, from the first conception of the vehicle, including working with the engineers to develop the parts.
“We had to get the message across to engineers who are not familiar with logistics,” he added.
Parts are now being designed with more consideration for logistics and transport, including an imperative to reduce packaging, according to Caracatzanis.
Reducing packaging, both in trucks and containers, is important as a way of compensating for the increasing cost of transport in certain regions as the economy recovers. “It is really an important subject for us in the future,” says managing director of Alliance Global Logistics, Christian Mardrus.
Renault claims that thanks to this economic approach to logistics, the company has made logistics cost savings of up to 40% for certain components, with no detriment to safety or equipment levels.
Working with other departments has also brought benefits for the Alliance as a whole. Collaboration with the purchasing department, for instance, has brought sea freight costs for the company down by 12% and last year the two carmakers launched their first-ever joint tender for global ocean shipping.
The Alliance has also issued a number of shared inbound tenders this year and intends to accelerate the practice in 2011. These tenders are not just about pooling vendors, according to Mardrus, but about establishing common specifications. Wherever possible, all tenders are now organised jointly by Renault and Nissan.
While these are limited in France where Nissan doesn’t have any plants, and non-existent in North America and Japan for Renault, in India the Alliance is building networks together on common structures.
It has invested strongly there and will start assembling Renault Fluence and Koleos models at the Chennai plant in April 2011 following the roll out of the Nissan Micra in May 2010, which is already exported to markets in Europe.
The alliance has also set an objective of sharing more facilities, including parts consolidation centres. For example, Nissan has one in Chennai while Renault has one in Pune and providers are encouraged to use whichever centre they are nearest, part of the Alliance’s new approach for sharing distribution depots and capillary distribution routes.
“We are in the process of putting into place a better use and optimisation of our parts centres because we have a network around the world that we can better use,” says Mardrus.
The company has set a number of objectives for working together, including the use of more common parts, which should further encourage shared parts centres. The Alliance intends to multiply the number of common parts by five.
Another area of potential for such cross-sharing includes aftersales, where the Alliance has plans to combine its sales network. “Little by little, we are moving towards sharing the same stores,” says Mardrus, “and after that share the transport. This will permit us to converge and find ways that are common and unique. We are intending to accelerate this in 2011.”
This year, the Alliance will also increase cross manufacturing between the two brands, which was started in 2010. More Renault factories will produce Nissan vehicles and vice versa. An interesting side result of this convergence for parts and manufacturing is likely to be an increase in cross programming and supply chain coordination, responsibilities that are usually left to the supply chain organisations of each carmaker, headed by Caracatzanis for Renault, and John Martin for Nissan.
In general, the carmakers plan to build management and supply chain networks together in geographic markets where they enter together, such as India with the Chennai plant, and Renault’s planned plant in Tangier, Morocco. But a shared strategy is also carried out for new vehicle segments, such as the logistics for electric vehicles. The Alliance is looking at logistics responses that are specific to each country’s different regulations on electric vehicles and batteries.
“We have unique solutions to share between Renault and Nissan,” says Mardrus. “In Japan, it is pretty much just for Nissan because they are more or less alone there, but in Europe we have the same solution.”
For finished vehicles the principle is the same for building shared structures, but in some regions the situation is impacted by current agreements. Renault has an exclusive contract with Groupe Cat for vehicle movements in Western Europe, though how exclusive it will remain after 2012 has yet to be determined. Groupe Cat, once a Renault subsidiary, was sold in 2001 but retained close ties with the carmaker.
Renault now plans to change the shape of this contract when the current five-year term is up in 2012 and is working with the company to improve performance before it decides on its future direction.
“I am not sure that a new exclusive five-year contract will be put in place with the same format,” said Mardrus. “[It] will be different.”
He said that while Renault would certainly continue to work with Groupe Cat, the strategy it would pursue “was yet to be decided upon” and that once efficiency had been improved “deployments and new services would be considered”.
With the exclusive quality and length of the contract terms under review, Renault has indicated that it may lean more towards Nissan’s practice of biannual re-tendering and network realignment. While that loss of exclusivity could be a blow for Cat as it competes for its traditional business, on the other hand the provider could also find itself gaining more access to what Mardrus terms “new domains”. Cat has yet to comment on the situation, however it is currently pursuing global expansion in markets such as South America and India.
Logistics has long been a source of cost saving synergy for the Renault-Nissan Alliance, averaging €25m a year over the past decade, and it is relying on improvements driven by the DCSM and Alliance Global Logistics to continue in the coming years. This includes Alliance Logistics Europe headed by Colin MacDonald, which has already contributed €50m through synergies, and Alliance Logistics Russia, set up to coordinate logistics for the plants in Moscow (Avtoframos), St Petersburg (Nissan) and inbound for Togliatti (AvtoVAZ).
In two years we have advanced a lot,” says Caracatzanis. “We can go much farther, and those steps are being taken.”