While Nizhny Novgorod has long been a vehicle production centre for Russia, this year it is emerging as something of an international, if not global link in the automotive supply chain.

Driving this change has been Gaz, a Russian commercial vehicle maker, which is ramping up contract production for the VW Group, GM and Daimler. At the same time, Gaz has launched an assembly plant in Turkey, to which it is shipping semi-knockdown kits. Bo Andersson, Gaz’s president and chief executive officer (pictured), said the company will use the plant, in Sakarya, outside Istanbul, as an export base for southern Europe, as well as a hub for global sourcing now that Russia has lowered import tarrifs on some parts.

Gaz’s contract manufacturing is in a start-up phase. Today it builds daily around 60 Chevrolet Av e o s, 40 Skoda Yetis and seven Vo l k s w agen Jettas. It is also in pre-production of the Skoda Octavia and Mercedes-Benz Sprinter van. When those models are fully launched, Gaz will build up to 600 passenger cars per day.

To manage this expansion, Gaz has modernised its central receiving and storage area. The 80,000 square metre building holds inventory across all brands the plant produces. “We have upgraded the building to global standards and put in new forklift trucks, charging stations and all the highest standards for storage and protection,” said Andersson.

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Bo Andersson: WTO makes the supply chain more creative
While GM, VW and Daimler have responsibility for inbound logistics, the global pedigree of the products makes visibility for incoming material crucial. While the Yeti has its supply base mainly in the Czech Republic and central Europe, Jetta material arrives from Mexico, while the Aveo comes from South Korea.

The amount of material arriving at the plant, and the subsequent parts handling, is now the greatest challenge, said Andersson. Gaz, which handles all the picking, warehouse and line-feed operations in-house, will receive around 500 trucks of material per day. The internal transport area between the central storage and the body shop or assembly plant is around 4km. “It’s a huge amount of material and repacking that we need to do to make sure that we have the right inventory available on the line,” he said. “In some stations we have two hours of parts, and elsewhere up to four hours of consumption.”

Andersson said that quality is the most critical factor, from picking all parts accurately to meeting paint standards, necessary not only to meet high customer expectations but also to maintain Gaz’s margin. “It’s important that we execute without many errors or rework. If we have to repaint, for example, we will not make money,” he said .

Creativity in purchasing

Andersson, who has turned Gaz’s operations around since arriving in 2009, is also taking Gaz’s own supply chain global, something he understands better than anyone from his time as GM’s purchasing chief. Gaz has already added global components to its light commercial vehicles, including imports from the likes of Bosch, ZF, Tirsan and Cummins, from whom it imported 50,000 engines last year from China.

WTO membership has also eliminated duties on a range of parts, including plastic body panels, door handles, wire harnesses, glass and wipers. “This has stimulated our purchasing people to focus more on global sourcing,” said Andersson. “It does not mean that we give up on our Russian supply base, but we have to make sure we’re competitive on a landed basis."

Turkish production has also created a sourcing base. Andersson pointed out that Gaz has localised tyres and wheels following input from its Turkish partner, Mersa. “That quickly led us to source tyres and wheels for Russia from Tu r k ey as well,” he said.

While WTO has also led to fiercer competition in Russia following lower import duties on light commercial vehicles (a segment in which Gaz has 50% market share), the OEM has been somewhat shielded by Russia’s imposition of a recycling charge for imported new and used vehicles. Andersson explained that the levy was necessary to protect the Russian market from a flood of older, used vehicles from Europe or Asia. He added that Gaz is “50/50” on whether or not it might get into the business of recycling vehicles itself.

But Gaz has felt the pain of trade retaliations, too. Ukraine, a major export market, has imposed a similar recycling charge on only Russian-made vehicles. “We’re considering exporting vehicles from Turkey to Ukraine,” he said.

Gaz’s evolution as a contract manufacturer and a global purchaser and producer is an interesting case study in the modernisation of Russia’s industrial base. Andersson points to the competitive pressure from both the WTO and the exposure to Turkish supply base as driving supply chain creativity. “We will have margin pressure but this forces you to become more competitive, leaner in purchasing, production and sales,” he said.