Investment is rising for North American car manufacturing; production here is at its highest level for a decade, with more coming online. Most new factories will be in Mexico, but there is expansion across the region’s supply chain. Toyota is spending more than $2 billion to increase capacity, mainly in the US and Canada, and has just announced a further $150m for its V-6 engine plant in Alabama and $50m at two aluminium plants in Missouri and Tennessee.
Most OEMs, especially the Japanese, are expanding for similar reasons: to take advantage of the growing US market while avoiding currency fluctuations and supply chain disruptions. But what about logistics costs? Few would deny that such savings are important. However, as the sourcing of semi-conductors or plastic mould injection parts demonstrates, logistics savings won’t always outweigh the labour, capital investment and material costs necessary to buy or build a part locally (read here). Supply chain executives need to have the right data on logistics to help inform these decisions. [sam_ad id=6 codes='true']
That sounds simple enough. However, it assumes an OEM looks at its supply chain centrally and in its totality. The historic reality among many carmakers, including Toyota to some degree, has been a supply chain divided according to individual plants. There are good reasons for that, including that the plant is the primary customer for inbound logistics. Plus, if you’ve only one or two plants in a region, and they are located thousands of miles apart, opportunities for integration could be few. But in more densely populated networks, OEMs without a central view will miss chances to consolidate freight and set standards.
In North America, Toyota has taken big steps towards creating a stronger central logistics function (read here). Now under the leadership of Steve Brown, vice-president of Logistics Control, this group has redesigned inbound trucking routes and improved monitoring of returnable packaging. Brown and his team are also better able to see a complete view of logistics costs for supplier locations, including the implications for inventory, packaging returns, routing, consolidation and lead times. Brown does not pretend logistics will always determine if a part should be built in-house or purchased, or if plant capacity should be expanded, but as Toyota mulls such options in North America, the full impact for logistics on each decision can be understood, and its influence can be as big, or as small, as it should be.