Daimler expansion pushes distribution changes

With a global onslaught of new models planned over the next three years, Daimler’s logistics team is anticipating an increase in transport demand for its main manufacturing bases in Europe and beyond.

In November, Daimler once again gathered its vehicle logistics providers for its annual European Carrier Day, held at the Mercedes-Benz plant in Rastatt, Germany. Ostensibly, the event is an award ceremony for the top-ranking passenger car and commercial vehicle carriers in Daimler’s key performance indicator (KPI) monitoring system. But it was also an important strategy platform, during which Daimler’s logistics management highlighted changes being applied internally and across its distribution network.

The 2012 meeting may have been one of the most important for providers, coming as it did with the European economy struggling – or, at best, ‘inhomogeneous’, as several Daimler managers noted – at the same time that the German OEM has set out on an aggressive new model launch and growth programme across passenger and commercial vehicles. By 2015, Daimler will launch 10 new passenger car models to bring its total to 32. Sales volume is targeted to grow from around 1.3m vehicles in 2012 to more than 2m units by 2020. The company’s production footprint, meanwhile, will expand to include the use of alliance partner and contract manufacturing plants in France, Slovenia, Finland and Russia.

As a result, Daimler anticipates a significant increase in demand for inbound and outbound logistics in the coming years. “There will be derivatives of these new models and they will clearly require a lot of transport,” said Dr Holger Scherr, head of logistics for passenger and commercial vehicles.

Assuming these targets are met, such growth would come with several challenges for Daimler’s outbound logistics and its providers. Following a decline in profits this year relative to 2011’s record levels, Daimler’s logistics management made it clear that transport costs would be under pressure as part of the company’s ‘Fit for Leadership’ efficiency programme.

There were also questions about how well the European vehicle logistics market, which has struggled to invest in equipment and expand services, would be able to meet Daimler’s demands and standards. Scherr stressed that there could be no compromises in meeting Daimler’s quality and legal requirements.

“It is important for us that we handle this growth with integrity and abide by the rules,” he said. “We will not have any compromises – we have phased out providers who violated our standards or ethics before and would do it again.”

After several years of declining performance, carriers showed an improvement in KPI results this year. However, to make sure that outbound logistics keeps up with Daimler’s changing supply chain needs, Egon Christ, head of global vehicle transport, revealed a roadmap for changing outbound processes and strategies, including the creation of new management functions, a shift to distribution-orientated production, new multimodal transport hubs, a revised ports strategy and increased plant and compound opening hours.

“The inhomogeneous European economy, which has limited vehicle logistics capacity, creates bottlenecks every day in our network,” said Christ. “To meet our growth ambitions, we need to create a more flexible distribution system.”

More German growth outside Germany
The unevenness across Europe looks likely to continue, although Daimler and other premium carmakers appear more likely than others to be on the smoother side of the patch. According to Marius Baader, head of statistics and analysis for the German carmaker’s association VDA, the Western European passenger car market will finish 2012 about 8-9% down on 2011 at around 11.4m units, including precipitous drops in Southern Europe compared to relative stability in the north. Most other global markets have grown, including strong increases in the US, Russia and China. Western European vehicle production, which had stayed strong in recent years, also fell around 7%. Eastern European sales and production made small gains, however.

Commercial vehicle sales also dropped around 11% in Western Europe, while rising 17% in the US and 12% in Russia. Chinese commercial vehicle sales declined by 6%.

For 2013, the VDA has a similar outlook to 2012, with another 3% drop for passenger cars and a 2% decline for commercial vehicles forecasted in Western Europe, with single-digit growth in the US, China, Russia and India. Production will fare similarly, w ith Europe again seeing a 2% decline in the west to 11.37m cars, but new EU states in the east growing by 8% to 3.4m cars.

German production and exports of passenger cars, two stable engines of growth in recent years, have been impacted by the European slowdown – although they remain strong. German production is set to finish 2012 around 6% lower than 2011 at 5.5m units, which the VDA expects to rise 1% this year to 5.55m. With just one in four German car exports bound for the eurozone, the 22% drop for exports to these countries has not been calamitous, with the 2012 total at 4.15m units, or 6% off 2011’s record level. Baader said 2013 exports should rise minimally by 1% to around 4.2m units.

What is noticeable for German OEMs, according to Baader, is that production of their brands outside Germany is now larger and growing faster than at home. Foreign output grew 8% in 2012 to 7.7m units, and the VDA expects it to increase another 7% to 8.2m in 2013, led by growth in China, the US and Eastern European countries such as Slovakia, Hungary and the Czech Republic. “This is a clear trend which we expect to continue,” B a ade r s a id .

Partnership in production
Daimler’s own results do not fit neatly into the general forecasts, although they match a picture of at least stable or moderately increasing exports, with growing global production.

Passenger car sales for 2012 were on pace for another record year, likely to finish around 5% higher at 1.3m units. But the mid- and long-term targets are ambitious: 1.6m passenger cars by 2015, and more than 2m by 2020; Daimler expects trucks to grow from 426,000 units in 2011 to 500,000 units by 2015 and to reach more than 700,000 by 2010. The target for vans is to surpass 400,000 units by 2015, from 264,000 units in 2011.

China, Brazil, India and Russia w ill propel much of these increases, although Daimler also has a strategy for growing in Western Europe that will involve a broader production footprint and an increase in compact car models. “Europe will remain the top selling region for Daimler, and will grow in many ways thanks to the A- and B-Class models,” said Burkhard Osthaus, vice-president of sales operations.

This year marked the 13th time that Daimler presented the European Carrier Award for passenger cars. Akkerman Transport, from Moormerland, Germany, received the award thanks to regular loading checks in plants, a minimal damage rate and an advanced trucking fleet. Spedition Braase, from Fokbeck, Germany, won its second straight commercial vehicle award thanks to its reliability in picking up vehicles and punctuality in delivering to dealerships.

Austrian-based Vega, which won the inaugural innovation award, was credited with having developed an in-depth employee training film about axle shipments, as well as having created new protection measures during transport. For example, the company used a special kind of wrap for trucks moving long distances in Eastern Europe and Central Asia.

The compact car production network is a good example of the ways in which Daimler’s distribution will change in the coming years. At Rastatt, Daimler builds the new A-Class, launched this past autumn, and the B-Class. After recently adding a third shift, 2012 production will finish 16% higher than 2011 at 201,500 units. For this year, production is planned to be more than 292,000 units.

Daimler is also building a variant of the B-Class at its plant in Kecskemét, Hungary, which will reach 100,000 units of capacity this year. With three further compact models to be launched by 2015, and demand already strong for them, about 25,000 A-Class models per year will be built by contract OEM Valmet in Finland, starting in 2013.

These production flows must be integrated into the wider distribution network, and they form part of a European production network that is growing in its complexity as well as volume. As well as the Valmet plant in Uusikaupunki, Daimler started production in 2012 of the Citan van with alliance partner Renault Nissan in Maubeuge, France; it will also build a four-door Smart at the Renault plant in Novo Mesto, Slovenia in 2014. Production of a low-cost Sprinter van at the GAZ plant will begin in Nizhny Novgorod, Russia in 2013. Together with the Hungarian factory, these new sites will increase plant locations for cars, vans and commercial vehicles in Europe to 23.

New management functions
Along with the challenges of managing flows from other OEM plants, Daimler’s logistics team stressed that this changing network requires adjustments in vehicle logistics. “We have to focus more on network planning, as the challenges we will face with the new flows and volume cannot be met with the existing structure,” said Jan Maes, manager for European passenger car and commercial vehicle logistics. “We will look at redesign and alternative transport concepts for each new tender.”

Christ outlined several adjustments, which include changes to Daimler’s organisation such as the addition of a new manager responsible for multimodal logistics, Marieke Dressler. Daimler has also created a separate function tasked with managing transport capacity through the swings in volume at the end of the month or quarter, or during market launches. This team, called Operations Europe, is also responsible for procuring spot freight, including air freight, which Daimler used to ship 400 passenger cars in 2012.

According to Ralph Lehnhof, who leads the function, his team is responsible for identifying bottlenecks early. “In the past, the reasons for such bottlenecks were not really known,” he said. “Now we can find the root causes and deal with them.”

Early in 2012, Daimler combined the management of passenger cars and commercial vehicles, which are under Jan Maes’s responsibility in Europe. According to Maes, Daimler now bundles together its tenders for passenger cars, vans and commercial vehicles to better combine flows, fill empty backhauls or share providers.

In the case of vans and commercial vehicles, for example, this has involved combining transport to specialist bodybuilders. An example of combined commercial and passenger vehicles can be found at the Maubeuge plant in France, from where the Citan van is moved to 11 vehicle compounds in Germany, with distribution done together with passenger cars.

Changing processes and opening hours
On the process side, Christ pointed to plans for carrying out more production-based distribution in 2013 and 2014. In such a system, production would be batched according to geographic destinations, allowing Daimler to build truck or rail flows quickly. He also pointed to the potential of assigning different transport priorities for vehicles that have final customers, compared to those that have been built to stock.

“As part of Fit for Leadership, we want to smooth out high volatility in vehicle flows, and avoid blocking ramps or plant space with finished vehicle inventory,” s a i d C h r i s t.

Another process change that Daimler has already experimented with is extending opening hours at plant dispatch yards to allow for night loading. In theory, this should help relieve bottlenecks by allowing trucks to clear loads during off-peak hours, as well as to avoid rush hour traffic.

However, Christ admitted that a trial done this year at the Mercedes-Benz Bremen plant, in north Germany, had not been a total success. “We learned that if you are going to extend opening hours at one facility, then you need to look across the entire supply chain to really increase efficiency,” s a i d Christ. “There is an interdependency with the opening times of other compounds and plants to make this work, as well as the need to get LSPs to pay the premiums necessary to employ night drivers.”

Overhauling networks
Daimler is also looking at extensive redesigns to its physical logistics network and transport flows, from revising its European port network to changing or consolidating vehicle compounds. For commercial vehicle distribution in France, for example, Daimler has switched from consolidating France-bound vehicles assembled at German plants in Düsseldorf, Ludwigsfelde and Wörth at a French compound in Molsheim, near Strasbourg, to a new routing that combines direct dealer deliveries to France from Düsseldorf and Wörth with the compound, reducing mileage and transport times, said Maes.

Another redesign that Daimler is also considering is its network of seven vehicle compounds in Italy. Given the changing market in Italy, Daimler is now investigating several options, including consolidating to three hubs in the north, centre and south of the country. “In cases like this, where we are facing big changes, we have to start from scratch in our designs and negotiate with providers,” Maes said.

Perhaps most significantly, Daimler is planning a hub-and-spoke distribution concept for its main passenger car production centres in the north and south of Germany. The Hub Nord (north hub), at the Bremen plant, will act as a multimodal transit point, combining Bremen production with exports bound for the ports of Zeebrugge and Bremerhaven, imports from Bremerhaven, and vehicles bound for northern Germany. This hub will start operations at the end of 2013 with capacity for up to 500 vehicles, and expand to 2,500-unit capacity in 2014.

The Hub Sud (south hub), whose precise location was not revealed but appears likely to be close to Stuttgart, will combine vehicles from Rastatt, Sindelfingen and Kecskemét to facilitate flows bound for southern Germany, France, Southern Europe, Eastern Europe and Russia. When it is operational in 2014-2015, it will exchange vehicle flows with Hub Nord, serving as a kind of crossdock to help combine truckloads, block trains and to regulate distribution volume. “These hubs will act as additional nodes in the distribution network rather than replacing existing hubs at Bremerhaven or Zeebrugge,” said Christ.

The global distribution network has evolved as well. The carmaker is in the process of centralising more ‘plant to dealer’ responsibility with Stuttgart and Christ’s team, rather than importers or national sales companies. Currently, Daimler has full responsibility for 80% of vehicles, including Europe, Russia, the US and China. According to Thomas Banholzer, responsible for overseas distribution, this will increase soon to 95% with the addition of Brazil, Argentina, Mexico, Canada and South Korea.

Banholzer revealed growing complexity in the shipping network. Along with the main exports flows from Germany to the US and China (which were around 110,000 cars and 10,000 trucks in 2012), there are also growing exports from the US, South Africa and smaller vehicle flows developing from emerging markets. For example, Daimler is now exporting around 1,500 trucks built in India to markets such as Africa.

For India, Daimler imports around 5,000 cars a year to supplement production at its CKD plant in Pune. Currently, it ships vehicles in containers to Mumbai and moves them directly to the plant where they are opened. Banholzer expressed interest in switching these flows to ro-ro, pointing to reduced handling and fewer damages. However, such a switch affects inland transport, according to Gert Letz, responsible for inland distribution in Asia Pacific and South America.

For example, using ro-ro means going to a different port in the south of Mumbai, where it would be necessary to drive at night to avoid congestion through a 20km stretch of city. Daimler would also have to use a different insurance policy for moving the vehicles in car carriers, which is about five times more expensive. “Just these 20km would mean one or two days of added transport time and considerably more cost,” said Letz. “In markets like India we must do constant evaluations in making such decisions.”

LSPs: better performance, weak financials
While Daimler is redesigning its networks to meet growth, performance from outbound providers has recently improved. Dr Georg Hohlweg, responsible for outbound logistics performance, revealed that carriers reversed two years of declining performance in 2012, notably in quality control, loading factors and pick-up times. Part of the latter improvement was the result of Daimler widening its time windows after consulting with providers.

But while Daimler managers praised the improvements, there were still problems reported with subcontracted carriers. Hohlweg pointed to cases where subcontractors had damaged vehicle tyres with non-standard lashing, had incorrectly loaded vehicles and used older trucks. “Despite a small number of subcontractors used among our providers, we find that up to 40% of the problems caused in distribution come from subcontractors,” said Hohlweg, urging providers to do more to enforce quality standards with subcontractors.

Much of the previous decline in carrier performance in 2010 and 2011 had also been attributed to subcontractors, as many carriers made cuts or delayed investments to fleets. With the financial situation for most providers still difficult, Christ and his team urged providers to adjust to the economic conditions. Citing Daimler’s own production alliances, Christ suggested that more providers could work together to build comprehensive networks or offer new services. He also suggested that providers would need to look beyond Europe if they were going to grow, perhaps also in alliance with other carriers.

​“The 10 largest vehicle logistics companies account for about 80% of the sales in Europe,” said Christ. “These companies have tremendous know-how, and those players should work together with others to develop new services and to enter BRIC markets.”