The sales climate might be decidedly mixed in Europe, but Ford is pushing through with big changes and improvements in its logistics networks, from substantially more intermodal transport to time-critical vehicle logistics. Christopher Ludwig catches up with Ford’s Matthias Schulz
Matthias Schulz has bold ideas for the changes he wants to see for Ford of Europe’s logistics. He speaks passionately about sustainability, including increasing the use of rail and short sea, even at a time when road freight rates remain historically low. He points to how Ford can reduce inventory up to 30% for certain ocean flows if it finds cross-company solutions across logistics providers. He has a vision for transforming outbound vehicle logistics to a precise science of time-based deliveries, not unlike the 30-minute timeframes used for factory logistics.
“If no one else in the industry does time-based deliveries, we will do it,” he predicts.
That is not to say that Schulz, who became director of Material Planning and Logistics for Europe in September 2009, is out to reinvent the wheel (or rail wagon). If he has a vision, it is one that stretches from the current path on which he is helping to lead Ford of Europe’s logistics. Ford has already increased its use of rail, for example, with some remarkable innovation and partnership, such as a block train between its Valencia plant in Spain and Saarlouis plant in Germany that carries inbound material and vehicles by splitting the train between containers and wagons.
There are also concrete examples of improving cost by working across providers, including for material moving to Ford’s St Petersburg plant in Russia. And while his outbound vision may be years away from its ideal position, Schulz already sees its outline taking shape thanks in part to a pilot programme for RFID tagging in Cologne.
For Schulz, who originally studied mathematics similar to that of Stephen Hawking, innovation is central to Ford’s supply chain approach, and particularly for its relations with providers. “The strength of the logistics companies is coming up with the latest ideas and innovations. This way, Ford can tap into opportunities that are outside of what you would normally find in a carmaker,” he says.
Perhaps nowhere is this focus on innovation–and the expectation for it–as great as for Ford of Europe’s lead logistics provider (LLP) setup with DHL Supply Chain. It is a concept that Ford and DHL (formerly Exel) have developed for more than a decade, with DHL functioning as an extension of Ford in managing the carmaker’s inbound network. At one point, Schulz even refers to the LLP as Ford’s reference for innovative logistics. “You need to be able to go to the ‘think tank’ that has the idea, then meet the people like us at Ford who see the opportunities to implement it,” he says.
Such passion for innovation is currently defining logistics at Ford of Europe, and giving it momentum at a time when the carmaker, like most brands in Europe, has suffered sales decline in much of the region following the end of trade-in incentives.
Also important is Ford’s ongoing “One Ford” plan, which includes more global platforms, including several derived from Europe, and more global parts flow. Ford is also developing a global order-to-delivery system, which will standardise ordering and forecasting processes in all regions.
From an outsourcing perspective, the LLP model is perhaps the defining characteristic for Ford of Europe’s logistics. DHL Supply Chain maintains full control of Ford’s inbound network for all of its European plants from the UK to Russia. “The predictability is now at a level at which it is difficult to see how it could get significantly better,” Schulz says.
He compares the relationship to a marriage that has developed and matured over the past decade. “It is meant to be for life, and at this point time I can’t see why we wouldn’t continue, as it has been so successful and we see more opportunities,” he says. “I can’t see Ford moving backwards to doing all of this by itself again.”
But while DHL oversees the network efficiency, Ford maintains full responsibility for logistics procurement and has the final say in how DHL runs its trade lanes. Schulz believes this responsibility is an important distinction for the many other logistics providers it uses throughout Europe. Indeed, while acknowledging the blurred boundary between Ford and DHL, he is clear that DHL Supply Chain maintains a firewall between itself and DHL as an asset-based carrier, meaning that DHL does not award itself business or compromise competition with other logistics providers.
“Ford would lose all creditability with other providers if they were to perceive an advantage for DHL,” says Schulz. “In reality, DHL is probably tougher on [its other divisions] than anyone else,” he says.
“This is one of the vows of the marriage. If we did not have that firewall, that would be the end of the marriage.”
Such a perception of favouritism would be particularly counterproductive since Schulz is committed to building logistics solutions in a spirit of plurality among providers. He cites examples of inbound flows to Russia in which Ford has reduced costs by more than 30% in recent years, mainly by aligning the business of five or more providers, including precarriage to ports, ocean carriers, post carriage, etc.
Such cross-company dialogue also allows Ford to increase its use of rail and intermodal transport, according to Schulz. Ford has increased rail for inbound material between Spain and Germany; it now moves more than 50% of material out of Italy by rail, while a similar figure is achieved from Sweden using both rail and short sea. Ford has also introduced a short-sea exchange between Italy and Valencia. Finally, as mentioned, a particularly unusual solution was begun in late November between Valencia and Saarlouis with vehicles and parts on the same train.
To meaningfully increase rail, Ford has had to find ways around using only block trains, the traditional way to run cost-effective train loads in Europe. However, as volumes are insufficient for block trains on most lanes, Ford works with DHL, primary carriers and rail providers between borders to share loads or to reengineer the network.
In the case of the shared block train of containers and wagons, once Ford starting building the C-MAX at Valencia and the Focus at Saarlouis, there was no longer enough inbound material to be moved five times a week between the two plants. However, there was still a need to move vehicles built by each factory to the other market. To maintain the frequency and the scale of the block train, Ford decided to combine the inbound parts and the vehicles.
“Many companies came to us with ideas for fancy containers for vehicles to balance the loads, but we were able to find the simple solution that works best for all. It was a matter of putting the right providers together in a room,” says Schulz.
Schulz adds that, once the right configuration was found, these modal adjustments have come without compromising service, lead-time or inventory levels. “We found now that we are able to match our road rates as well as keep inventory at the same level or better,” he says.
For sea transport, as mentioned, Schulz sees the real progress potential on helping smooth the handovers and exchanges. He points out that the sailing time between Hamburg and St Petersburg is only two or three days, but the real delays happen at those interchanges, and it is a challenge to align providers. “But when you do align them, suddenly you can take 30% out of the supply chain, and offset previous issues of lead time or inventory increases,” he says.
Schulz believes that the most important way to increase rail, besides cross-provider partnership, is to use flexible equipment that can be easily shifted off rail in the event of disruptions to service.
“If you don’t have a flexible solution to get you on the road for that 1% or less of the time when the rail won’t run, then you are dead,” he says.
Schulz points out that innovation in this case was a matter of finding the right kind of combination road-rail equipment. “We didn’t need to invent anything new,” he says. “But it was a case where finding this innovation presented us with a huge opportunity.”
Increasing the proportion of returnable containers for both long distance and more regional shipments is a passion project for Schulz. Ford already has a longstanding relationship with the container-pooling provider Chep, which manages a pool of pallets and larger foldable containers for Ford. The European container pool is organised on a regional basis, where Spanish suppliers get their containers from the Valencia plant, irrespective if they are suppliers to that factory; likewise, Southampton supplies pallets to British suppliers; the factory in Genk is the source for Benelux suppliers, while Cologne and Saarlouis provide pallets to the rest of Germany and Eastern Europe. Russia was recently added to the network.
But Schulz would like to see more focus on the reverse logistics of durable packaging, something that he refers to as “one of the great unknowns and great opportunities [of the supply chain]”.
Schulz recognises that aligning return container loads is difficult, requiring coordination with supplier factories that usually serve multiple OEMs and have uses for the containers at incongruous times. Nevertheless, Schultz sees more opportunity to improve, particularly as global material flows continue to increase. Ford of Europe has always had a considerable exchange of material with North America, something that has now risen even more as North American production of the Europe-derived Fiesta and the new Focus begins. As Asia Pacific also increases production of global models, material flows to and from this region have risen.
“With incremental volume and a rise in logistics engineering, you find opportunities that you didn’t have before,” Schulz says. “Durable [returnable] containers, for example, were something we didn’t do by default, but now we can since there is a similar part on the other side of the ocean that you can put in the same container coming back to Europe.”
Naturally, the increased levels of global flows bring risks, including the need for premium freight. Schulz believes that Ford has a robust risk assessment process that helps plan for such costs as well as mitigate risks, including getting logistics engineers involved at an early stage to prevent “bad shippers” from being sourced too far way. “We are part of the approval process for parts sourcing, and we can approve or reject these decisions based on a total cost model, rather than lowest piece price,” he says. “The lowest piece price alone will usually get you very far away from Cologne, Saarlouis or St Petersburg, for example.”
But a global chain is a reality, nonetheless. In the transition to local suppliers, there is generally a large increase in global supply flows, while in some cases a part used for a global platform produced in North America, Europe or Asia Pacific might retain only one tool set to serve multiple regions.
But certain components almost always come from Asia such as microchips, for example, which continue to be in short supply globally. Such expensive but lightweight parts are usually sent by air. When supply runs short or there is an air disruption–as happened during the Icelandic volcanic eruption–there is no means to speed up delivery.
Mitigating such supply risks is part of a major, global initiative currently being undertaken by the Ford Motor Company in unveiling a new suite of order-to-delivery systems. The goal of such systems, as detailed in a prior interview with Ford’s executive director for global MP&L, Stephen Harley (Finished Vehicle Logistics s July-September 2010), is to increase predictability and lower inventories, beginning with tier suppliers, right down to the final date for vehicle delivery. Pilot programmes in North America will begin soon, and will then be rolled out across Europe.
The great point here, says Schulz, is that a global system allows Ford to share best practices and ideas in each region, much in the way it does already with its ERP system, CMMS, and a global release system it uses. “The leverage that comes with a global system is tremendous,” he says.
Before those products arrive, Ford is already trying to emulate the order-to-delivery system and has put particular emphasis on cutting leads times and improving promised delivery dates for finished vehicles. Over the past year, Ford has achieved an average lead-time reduction across Europe of nearly two days.
For Schulz, however, the Holy Grail is to drive precision for outbound logistics to the same extreme as inbound, meaning pickup and delivery windows of around 30 minutes. “We already know within half an hour when a box of parts will arrive, and it’s difficult to imagine why it can’t be the same for something as valuable as a vehicle,” he says.
Achieving this goal must include a dramatic increase in outbound visibility; something Schulz believes can be aided greatly by the use of RFID. Ford recently trialled RFID at the factory gate at Cologne, and Schulz says that it now has the capability to use RFID at its vehicle compounds too. RFID tags were affixed to vehicles as well as carriers, with a reader at the factory gate. When drivers entered, instructions were given electronically about which cars to pickup. Upon leaving the gate, the readings would again be recorded, and the gate only opened if the driver had taken the correct vehicles.
“It is very impressive to watch, as the driver’s paperwork is done electronically, and we know exactly when he’s arrived and left, and that he’s taken the correct vehicles because the gate won’t open otherwise.
“When you have seen the success of this project, you can imagine the potential for time-based vehicle logistics.”
But Schultz does not pretend this utopia will arrive quickly. He admits that there is at least one major hurdle to overcome, which he chooses not to disclose yet. But he does suggest cryptically that he may have a possible solution for it. Automotive Logistics, he says, smiling, will be among the first to know when it’s been solved. Schulz’s enthusiasm for time-based vehicle deliveries is evident, not least because he believes his vision is achievable. The answers already exist in the market, he says, but putting the right pieces of the puzzle together could be transformative. “To say that the result will be a brave new world would perhaps be a disservice to Mr Huxley,” says Schulz, referring to the visionary British novelist, Aldous Huxley. “But you will see a new world nonetheless.”