The historically low finished vehicle inventory levels in North America are here to stay, according to several carmakers speaking on day one of the 10th Automotive Logistics Global conference in Detroit this week. Keynote speaker Joe Hinrichs, Ford’s group vice president, global manufacturing and labour affairs (pictured), admitting that the company had maintained unhealthy levels in recent years, revealed that Ford’s global inventory reduction in 2009 thus far has been 29%, a saving of $1.5 billion.
Supply across the industry is currently as low as 20-30 days, according to JD Power’s Jeff Schuster, executive director for global forecasting, compared to peaks of 120 days in January this year and normal levels around 70-80. While supply may not be able to stay quite as low as that, executives from Nissan, Toyota, General Motors and Honda also confirmed that the change in strategy is permanent, and that it is strongly influencing the way logistics processes are managed throughout the supply chain.
“This is definitely a permanent change [toward lower inventory],” said Susanna Webber, executive director for global logistics at GM. “On the material side it is driving us to be smarter and faster with a leaner approach.”
But the low levels are not without risk, particularly during unexpected sales peaks or the gradual recovery of the US market. Schuster noted that sales for small cars actually decreased relative to larger vehicles recently because supply was so low, causing customers to look at other products available.
For production, there is also risk as OEMs try to be more flexible in scaling up and down quickly. Hinrichs, who is responsible for material planning and logistics, manufacturing and labour relations, noted that draining inventory from the supply base as Ford has (and will continue to do), while at the same time increasing the global shape of its products and supply chain, presents a much tougher challenge for logistics.
“Visibility across the supply chain is more important than ever for Ford now,” he said. “We need to see not only whether a part is in a dock or has cleared customs, but we need to know exactly where it is because we might need it. The same goes for a finished vehicle.
“It’s a significant challenge because we want less inventory but more global parts and yet we want to be able to move quickly,” he said.
One impact of this suggests an increase in the amount of premium freight, and indeed one OEM on the sidelines told Automotive Logistics that its premium freight levels had reached those of 2007 despite the dramatic decrease in production. Hinrichs, meanwhile, stressed that Ford had also made progress on its ability to make decisions related to total cost – in some cases, for example, if a plant is missing a part, the company might be more inclined to shut down the plant temporarily if the cars produced there are not in urgent demand. “The days of keeping the plant going just for the sake of it are over.”
Hinrichs also suggested that now is a time of opportunity for providers willing to partner with Ford, as it both expands its footprint in regions such as Asia as well as introduces more global vehicles to the North American market. His colleague Rick DeMuro, director MP&L for Asia Pacific and South Africa, said that following on from Ford’s recent announcement about new plants in each India and China, and further announcements to come soon, Ford will increase its capacity in Asia Pacific from 500,000 units per year to 1.5m by 2012. DeMuro told Automotive Logistics that some of that capacity could also be for export outside Asia, particularly to Europe, as the EU and India work toward free trade agreements.
Hinrichs, meanwhile, revealed the increasing logistics complexity for its vehicle mix. Ford will begin producing the European version of its Focus model next year in Detroit. While the old Focus in North America required 20 ocean containers per week, the new Focus will have 200 containers. “That’s because it is a truly global product and Ford is now beginning to act like a global company,” he said.