GM’s intercontinental material shipments have risen dramatically, changing the dynamic of logistics management and purchasing at the carmaker. Christine Krathwohl, executive director of global logistics and supplier diversity, tells how she is looking for global logistics engineering from providers and increased visibility to keep costs and flows under control.
General Motors’ Christine Krathwohl is among the most enthusiastic leaders in the world of automotive logistics. Whether speaking to suppliers, colleagues, students or even a visiting journalist with a binder full of questions, she bangs the drum loudly for logistics, describing global contract opportunities for providers, career progression for managers and the chance to bring change to the very ways and places in which GM does business.
“I’ve been telling my team how exciting a time this is for us in logistics,” says Krathwohl, pointing to dramatic growth in areas such as intercontinental material flow. “There is a huge opportunity for us to explore what we spend on logistics and why we spend it, and help decide what levers we might need to pull across the entire company to change it.”
The woman in charge of what might be the automotive industry’s largest consolidated logistics budget – incorporating the inbound and outbound transport services for all of GM’s majority-controlled operations globally – has a way of making this giant responsibility sound fun, or at least exciting. “I love my job,” Krathwohl says of the role she has held for 18 months since returning to Detroit from Germany, where she spent three years at Opel/Vauxhall.
“If you can’t enjoy managing these global operations and changes, then you shouldn’t be here.”
Logistics at GM has arguably never been as important as it is today. Driven by growing volume, an expanded production footprint and the use of global vehicle platforms, the logistics budget has risen significantly over the past three years and is forecasted to continue to grow over the next three. The supply chain has never been more global, as GM shipped more than 700,000 TEUs in full container loads (FCL) last year and more than 1m vehicles on ro-ro vessels. Along with North America and China, production has grown from Uzbekistan to Thailand, while yet more production capacity will come online in Russia and Indonesia in 2013.
For Krathwohl, this is the job that drew her to logistics at GM in 2002 after eight years with Ford Motor Company and Visteon. She has dived into the role with global gusto, spending time last year with container shipping lines in South Korea and Europe to prepare for a large ocean bid, working through supplier and logistics capacity issues in Thailand, on container and outbound bottlenecks in Brazil, and across North America to meet with railway and trucking providers.
Along with enthusiasm, Krathwohl has brought a collaborative approach to her dealings with providers and competitors, including crossdock sharing with Chrysler in the US. She considers strong supplier relations essential and is proud that a recent GM-commissioned Planning Perspectives survey on relations with logistics providers has shown improvements for GM under her watch. “I want suppliers to know that is not the traditional ‘beat-down’ that might have characterised GM’s approach in the past,” she says. “We want everyone to be successful. That ship or railroad can take any other product, so we need to have strong relationships.”
Logistics leads supplier diversity
Christine Krathwohl’s soft touch with suppliers was partly recognised by General Motors during the summer of 2012 when she took over responsibility for supplier diversity in the US and Canada as part of the carmaker’s dedicated programme for working with and purchasing material and services from minority-owned suppliers, which includes African, Asian, Hispanic, Native American or female-owned businesses.
GM, which was the first OEM to set up such a programme in 1968, has an 8% target spend for such suppliers. At 10%, logistics tracks ahead of this target. Interestingly, the logistics minority spend is dominated by inbound truckload providers, which make up a considerable amount of GM’s annual budget for truckload in the US and Canada.
A labour of love
Loving one’s job does not mean that it is easy. GM’s current logistics challenges stretch the length of the globe, and include a need to better consolidate freight flows in regions like Thailand or Brazil, as well as supply chain issues in North America during a launch calendar that will refresh 70% of GM’s model line-up in 2012 and 2013. In crisis-hit Europe, GM is shifting its entire inbound and outbound logistics management to Gefco in a fourth-party logistics contract (4PL) that could lead to significant savings, but which has left some providers unnerved about what it could mean to them. Gefco takes over inbound and outbound logistics in Europe, Russia and Turkey.
But Krathwohl strikes an optimistic tone even through these adversities. She believes the Gefco deal will give GM scale for efficiency in a region where it has less than a 10% market share, and gives assurances that Gefco’s logistics sourcing procedures will be closely monitored. Europe aside, Krathwohl points out that most of GM’s logistics issues are related to growth; be it a lack of supplier capacity or rail wagons to move vehicles in North America.
Krathwohl sees even the weaknesses of providers in some regions as opportunities for the right companies to prove themselves and gain more business. While GM currently uses providers for only a small amount of logistics engineering outside North America, Krathwohl is open to expanding services and even moving towards the lead logistics provider (LLP) relationships it enjoys with Ryder and Penske in North America.
“We’re always looking at who has the capability to be an LLP for us. We’re open to business propositions wherever we go,” she says.
Management overview: logistics as a purchasing powerhouse
To understand GM’s logistics growth and where further outsourcing and logistics engineering opportunities might be, it is worth reviewing the carmaker’s structure and processes for logistics, supply chain management and purchasing. Logistics is part of the Global Purchasing and Supply Chain organisation, GM’s central purchasing group accounting for some $100 billion annually in procurement across direct and indirect material, logistics and supply chain. Aligned to GM’s corporate set-up, the business is split between North and South America, Europe and International Operations (IO), which encompasses Asia Pacific, Russia, Central Asia, Africa and Australia.
The management of the supply chain is divided between the logistics and supply chain departments. Logistics is responsible for the procurement and execution of all material transport to plants and of vehicles to dealerships. The supply chain group manages supplier issues, including current and future material availability, capacity, engineering breakpoints and third-party services (whether on the assembly or warehouse floor). There are differences across regions, however. In North and South America, for example, logistics is responsible for the management of containers – how GM refers to the reusable plastic or metal packaging racks, rather than sea containers – while in Europe and International Operations container management sits with supply chain.The management of the supply chain is divided between the logistics and supply chain departments. Logistics is responsible for the procurement and execution of all material transport to plants and of vehicles to dealerships. The supply chain group manages supplier issues, including current and future material availability, capacity, engineering breakpoints and third-party services (whether on the assembly or warehouse floor).
There are differences across regions, however. In North and South America, for example, logistics is responsible for the management of containers – how GM refers to the reusable plastic or metal packaging racks, rather than sea containers – while in Europe and International Operations container management sits with supply chain.The management of the supply chain is divided between the logistics and supply chain departments. Logistics is responsible for the procurement and execution of all material transport to plants and of vehicles to dealerships. The supply chain group manages supplier issues, including current and future material availability, capacity, engineering breakpoints and third-party services (whether on the assembly or warehouse floor).
There are differences across regions, however. In North and South America, for example, logistics is responsible for the management of containers – how GM refers to the reusable plastic or metal packaging racks, rather than sea containers – while in Europe and International Operations container management sits with supply chain.The management of the supply chain is divided between the logistics and supply chain departments. Logistics is responsible for the procurement and execution of all material transport to plants and of vehicles to dealerships.
The supply chain group manages supplier issues, including current and future material availability, capacity, engineering breakpoints and third-party services (whether on the assembly or warehouse floor). There are differences across regions, however. In North and South America, for example, logistics is responsible for the management of containers – how GM refers to the reusable plastic or metal packaging racks, rather than sea containers – while in Europe and International Operations container management sits with supply chain.
While it works hand-in-hand with the supply chain team, led globally by Bill Hurles, Krathwohl’s logistics group is one of GM’s purchasing powerhouses outside direct material procurement, holding a central budget for global and domestic freight inbound and outbound, and since 2012 all customs and duties (which partly explains the increase in the logistics budget). Outside its own budget, logistics managers also procure some in-plant and line-side services that are managed by the manufacturing and supply chain groups, such as VAA sequencing, sub-assembly and warehousing.
GM’s logistics are most centralised in North America, with separate heads of inbound and outbound where other regions have just one. North America also takes the lead in intercontinental freight bids and global ro-ro tenders.
The carmaker’s logistics management is also fairly centralised in the other regions, with the exception of the IO team, where a small staff drives common sourcing processes and strategic direction across this diverse group of countries. While Krathwohl’s team procures and manages the freight moving intra-Asia and between other regions for GM-controlled plants, logistics at joint ventures are typically handled separately, such as those in China or Uzbekistan.
The North American model
While GM encourages standardisation in purchasing and operations, there are significant differences between the logistics services that it outsources or does in-house across regions, transport modes, inbound or outbound. While this variety is partly down to the differing capabilities of providers, Krathwohl makes it clear that she is open to change. “We want to leverage providers more,” she says. “But in some regions we do not find the services that we might take for granted in North America.”
GM’s outsourcing processing in North America is in many ways the most complex, at least for inbound. Here, there is a fine line between what GM manages itself and what it gives to providers. For example, its LLPs – Ryder in the US and Canada, and Penske in Mexico – carry out logistics engineering and material follow-up at plants – services which the carmaker has rarely outsourced elsewhere. Crossdock providers are also permitted to engineer collections.
In contrast, for regions or flows that lack the services of an integrated provider, GM contracts and engineers each leg separately. The European situation will be notable for the control GM transfers to Gefco, as opposed to the way it shares responsibility with LLPs in North America.
To better understand these differences it is worth zooming in on the North American approach. This begins with logistics engineering, which consists of a network and transport design phase followed by on-going analysis, or “dynamic routing” as Krathwohl puts it. Typically, GM engages its LLP well in advance of a vehicle’s launch with the expected volume and North American supplier data (intercontinental movements are handled separately). The LLP takes into account factors including lead time, ser v ice, transit time, cost, inventory and container investment to determine the best transport mode, whether that be full truckload (FTL), milkrun, less-than-truckload (LTL) through crossdocks, intermodal or rail.
Once the mode is determined, GM’s logistics team procures the transport directly, using its own purchasing prowess and scale in North America for the best price. Crossdock operations, which GM calls origin distribution centres (ODCs), are also contracted to separate providers, which are then responsible for milkrun collections to the ODCs. Premium freight management is outsourced – with GM strictly monitoring costs – by another LLP, Landstar.
Once GM agrees the truckload contracts, Ryder or Penske manages and executes the entire milkrun and truckload business to the plants (and the line-hauls from ODCs), including the track-and-trace of material and freight bill audit and payment. The LLPs make monthly or semi-weekly assessments for routing and frequency based on plant and supplier schedules, with recommended changes that must be worked out with the supply chain and manufacturing groups based on inventory levels or available floor space, for example.
The final piece is the material follow-up for all truck deliveries, which means that Ryder or Penske oversees the final hand-off at the plants (rail deliveries are managed onsite by a small GM team). This contract is split between the logistics, supply chain and manufacturing groups. Compared to other regions, the supply chain scope of these providers is quite comprehensive. “Ryder and Penske are involved across the chain for truckload delivery, from engineering, through transport and follow-up in plants,” Krathwohl says.
Elsewhere, GM has used providers only for limited logistics engineering, such as for some milkrun services in Brazil, or in Europe where several regional providers have done some design and route planning. However, Krathwohl wants to see more from providers, particularly in South America, Asia and for intercontinental flows. Few providers have been able to offer the systems and capabilities for such engineering, even though Krathwohl believes it is an expertise that should belong to them rather than GM.
“I don’t think GM should have huge teams of logistics designers. It’s not our core competency, and the prov iders should have more expertise than we do,” she says. “They would be able to offer someone with experience in this area a wider career path than an OEM could.”
While Krathwohl has used providers for only limited amounts of engineering, GM does this all in-house for outbound vehicle deliveries, even in a market the size of North America, dealing directly with transport providers, processors and yard managers. Again, the strength of purchasing in the logistics group takes a prominence here. “For finished vehicles, we’ve never found the right value proposition to use an LLP or 4PL to integrate services, and continue to do it ourselves,” she says.
Production shifts and outbound capacity
While, for inbound, Krathwohl wants providers to do more network engineering, for outbound logistics her concerns are more about transport capacity, particularly for future ro-ro trades, ports and for rail in North America, mainly out of Mexico.
GM’s intercontinental vehicle flows are more than 1m units annually, although compared to the big increases for material shipments, this number has been stable or even decreased recently. Around 15% of the volume is moved by short sea, mostly in Europe and some in Asia Pacific.
Krathwohl is generally satisfied with ro-ro service, even in light of slow steaming and other cost-reduction measures employed by the main shipping lines. But she notes that the ro-ro carriers have planned relatively few new ships over the coming years, while changes in OEM manufacturing footprints might hinder the lines’ ability to efficiently operate capacity, particularly from the traditional trade lanes.
“We believe that for shipping lines to manage bunker costs, there will be more feeder services and more transhipment, which will have an impact on transit time,” she says. Based on current industry forecasts, Krathwohl puts 2014 as the year when ro-ro shipping capacity could get tight (her view is shared by other shipping experts.
She admits, however, that these projections might not fully account for the impact that anticipated industry production shifts could have on ro-ro flows, such as plants moving from Japan to Mexico. “It is possible that this shift would free up ro-ro capacity but further strain North American rail,” she says.
North American rail capacity is among GM’s top concerns for outbound. Krathwohl is quick to emphasise how important the railways are to the carmaker in North America, as they are the dominant mode for vehicle delivery, and she praises their efforts to improve throughput and velocity.
Earlier in 2012, GM forecasted bottlenecks by the fourth quarter. But service has been stronger than expected, says Krathwohl, with network velocity the fastest for seven years. She adds that new operating rules for the reload pool should also improve wagon allocation. However, Krathwohl worries that the network was able to manage capacity in part thanks to a mild winter and, prior to Hurricane Sandy, fewer weather disturbances than in 2011. “We are concerned over whether the railways can maintain that momentum,” she says.
“Volumes are growing [in 2013], and while the railroads are putting additional railcars into the fleet, GM believes the overall pool is at least 5,000 railcars short.” With significant industry production capacity planned in Mexico, most of Krathwohl’s worries are south of the border, where GM has already felt strains.
She points out that cycle times for a wagon to be reloaded in Mexico are already around twice as long as in the US, which will be compounded as volume increases. Besides investment in fleets, Krathwohl admits that OEMs should work together more with the railways to eliminate waste, including co-loading vehicles. “Today, co-loading is generally unplanned, with some railroads requiring system enhancements to do it,” she says. “I think there is an opportunity coming here.”
Another solution could be more short-sea shipping from Mexico, although Krathwohl makes it clear that GM uses this mode on a spot basis, with volume allocated first to rail. “With short sea you end up touching the vehicles more, which can lead to more damage,” she says. Krathwohl does, however, expect that the use of short sea as a contracted mode in North America over the coming years will increase among all carmakers.
The intercontinental push
Along with a push for more logistics engineering outside North America and more freight consolidation in Europe, GM has focused on managing its global material network, which has grown substantially in recent years. For intercontinental, GM wants more logistics engineering and more consolidation, including with freight from competitors or suppliers.
Container flows for the carmaker have roughly doubled in the last five years, Krathwohl says.
This growth has been driven by building vehicles on global platforms in multiple locations. “GM has made a substantial move to global programmes, including in Thailand and Brazil, where we are now building the same truck,” says Krathwohl. “Thailand itself has seen a 176% increase in manufacturing volume this year .”
For intercontinental movements, GM runs ‘origin and consolidation’ networks, with containers filled at regional centres, and then moved directly to the plants with little de-consolidation at destination ports or warehouses. There are exceptions in North America, where some material moves through the carmaker’s established ODC network, but for the most part the containers are opened up for the first time at the plants. While North America is an important source of material, Asia Pacific.
Dominates much of the intercontinental flows, sending and exchanging material with every other region. GM uses freight forwarder consolidation points in China, South Korea, Thailand, Brazil, Germany, the US, Mexico and, starting in 2013, India. The OEM handles this freight across six different freight forwarders, says Krathwohl. The freight forwarders source the transport to the consolidation centres, although GM uses its own inland network where it is dense enough. Freight forwarders also source less-then-container load (LCL) shipping and air freight. GM procures full containers directly, although similar to its LLP setup in North America, the contracts are executed by the freight forwarders.
One of the things Krathwohl’s team is working hard on with freight forwarders is to eliminate GM material moving together with generic freight, which she calls “pure LCL”. Krathwohl prefers for GM components to move in full loads or to be consolidated with other GM material and shipped to its plants. While only a small percentage of the overall network moves with generic freight, it is more than Krathwohl wants, particularly in Thailand and coming into Brazil.
“We do not like pure LCL because you lose the visibility and control,” she says, adding that she feels the same about ‘pure LTL’ in truckload. “Even if GM-only material runs a little bit short on cube utilisation, we find it to be more competitive, faster, and with increased visibility [compared to pure LCL].” Krathwohl is, however, open to sharing space with other carmakers or tier suppliers, particularly at consolidation points. While GM’s material flow dwarfs most manufacturers, there could be an advantage to filling out its containers with smaller volume OEMs or tier suppliers whose lead-time and visibility requirements match those of GM.
GM has already successfully done this in North America, having combined a crossdock operation with Chrysler in Mt. Juliette, Tennessee, and is now doing the same in Laredo, Texas. “ We’re challenging our freight forwarders on improving cube, telling them that we are absolutely open to collaboration with other manufacturers to leverage consolidation points,” she says.
Krathwohl sees potential savings in the use of expendable packaging and containers, notably for global shipments and for International Operations. GM’s packaging is nearly 100% expendable for intercontinental moves, largely because of the cost in repositioning containers across long distances. “We have opportunities to cube more for IO, with better engineered flows and supplier compliance to our expendable packaging guidelines,” she says.
Krathwohl admits that container management is a challenge across GM. The company’s processes differ regionally, with Chep owning the containers and managing the loops in Europe for GM since 1993. In North America, GM owns and manages its own loop, and “has yet to see the business case work” for an outsourced model, says Krathwohl. But she admits that, like other OEMs, many of her plants complain about container shortages, losses and damages.
She remains open to any solution, from renting the assets to outsourcing the loops. “My door is open to having those discussions and to look at the business cases again to see what can and cannot work for us,” she says.
The base of container shipping
Krathwohl does not foresee major changes to GM’s intercontinental network, as she believes consolidating at origin works best for the OEM. However, she’s aiming for more network engineering from GM’s logistics group and from freight forwarders. She wants more control and visibility on planning and operations, part of why, in 2012, GM appointed an intercontinental manager, Nathan Lawson, to lead global bids together with regional buyers.
"We’re pushing harder on the engineering and design of the intercontinental business and where we can utilise matchback opportunities,” says Krathwohl. “In the past, for example, we would move with different providers and consolidation points between the US and Brazil in each direction, losing the opportunity for sharing return containers.”
Another opportunity is for better visibility, par ticularly on the intercontinental logistics spend. Freight forwarders and shipping lines do a fairly good job on transport visibility, says Krathwohl. During Hurricane Sandy, for example, GM knew which ports the lines diverted to following closures in the US northeast, allowing it to adjust routing. But many providers moving to consolidation centres are still without EDI links for billing, which holds back real-time transparency on costs.
“There is room for improvement in payment visibility. We don’t want to wait until we pay the bill to know what we’ve spent,” says Krathwohl. “We produce weekly reports for normal and premium freight that we want to be as accurate as possible.”
GM is also trying to make the best use of its large ocean volume in discussions with container shipping lines.The OEM’s volumes now place it among the largest customers in the world for container shipping, which gives Krathwohl and GM a stronger hand in negotiating than the carmaker has ever had before.
Given the volatility in the container shipping market, GM’s relatively stable freight flows, compared with retail seasonality, make it an attractive customer. “During discussions we are able to say that we have base freight, so we shouldn’t be anywhere near spot rates,” she says. “It’s a conversation that I could never have had with the steamship [container] lines even five years ago.”
But Krathwohl and her team’s newfound finesse for supplier relations is also in evidence here, with a focus on longer-term relationships. Krathwohl says that GM is looking to become more strategic instead of transactional. “Through partnership, we would like to minimise how often we change providers,” she says. “There is a cost to change that gets lost sometimes.”
So far, it seems to be working. Krathwohl reports that GM has been having its best-ever dialogues with shipping lines. “We’re talking more about long-term supplier relationships with the ocean carriers and how we can take a more strategic approach to riding out the peaks and troughs of the market.”
Looking to the local, but not always
Global sourcing and complex supply chains are no more new to GM than other OEMs. During the last decade, the OEM followed – or perhaps led – the trend of ‘low-cost country’ sourcing. But quality, inventory, risk and logistics cost are said to have ended this approach, particularly with the carmaker’s much discussed push for ‘total enterprise cost’.
The explosion of GM’s intercontinental freight, however, together with the rising importance of Mexico as a production and sourcing base, reveals a strengthening of long-distance sourcing, even if the majority of the supply chain remains regional. The difference, Krathwohl and other engineers have noted, is that these flows have grown as GM single sources some components while producing on global platforms.
Until now, GM’s decisions to ship long distances appear to have been aimed at minimising new tooling investments. But as volumes grow, there comes a point where the cost of adding plants or dual sourcing should be less than the extra logistics, inventory and containers would cost. Krathwohl senses that GM is approaching this critical mass for some flows, and anticipates that localisation will hold intercontinental freight at current levels, or even lead to declines.
Part of why Krathwohl is so excited is because she believes logistics will have a stronger voice in these strategic decisions. A good example was GM’s decision earlier this year to build a metal stamping plant next to its SUV plant in Arlington, Texas. Until now, GM has shipped stampings for the vehicles built at the plant – which are the largest it makes in the world – from as far as 1,000 miles (1,600km).
“This will be a huge logistics, container and inventory saving,” s ays Krathwohl.
While welcoming more considerations for logistics costs, Krathwohl is adamant that GM cannot make decisions just because the cost of logistics has risen or there is risk of disruption. Despite significant container imports, for example, good communication and contingency planning meant that Hurricane Sandy had no impact on production. Furthermore, Krathwohl accepts that, given production in places like Uzbekistan and Indonesia, shipping across single sets of tooling often still makes for the best total cost.
“We’re investigating localisation wherever possible, but it must be a total enterprise cost, not just to optimise logistics,” she says.
In the end, Krathwohl makes it clear that logistics will not be the stumbling block that prevents or slows global sourcing across platforms. “We’ve demonstrated at GM that we can move anything anywhere,” she says, proudly.
Rather, better visibility of transport-related costs and inventory should allow GM to use logistics as a kind of barometer for measuring the viability of a long distance supply chain. Today, the readings appear to be healthy and normal, but with the anticipated growth in intercontinental logistics, that could change.