Russia's largest commercial vehicle maker Gaz is working to improve its logistics processes as part of an ongoing overhaul of operations designed to cut its high debt ratio and build on an impressive return to profitability since 2008.
Under the leadership of president and CEO Bo Andersson (pictured), formerly global purchasing and supply chain chief for GM, discipline in purchasing and supply chain management has been at the heart of its turnaround, which is estimated to see a 4.5% net income for 2011.
Speaking at last week's Automotive Logistics Europe conference in Bonn, Germany, Andersson told delegates that the debt the company owed to the supply base was personally embarrassing when he took over as president in June 2009. That debt has now been paid back, including to Gaz's logistics service providers, an achievement all the more significant given the culture of non-payment in the country.
"There is a culture in Russia not to pay," said Andersson. "I don't believe in it [and] we have improved our operating cash to $200m by paying on time and getting better terms."
Gaz has 1,345 major suppliers, with roughly 400 within three hours of its main manufacturing plant in Nizhny Novgorod. It manages 56,000 part numbers from those suppliers to build around 105,000 LCVs per year, 14,000 buses and 10,000 military trucks.
Productivity was also poor when Andersson joined, despite a workforce of 100,000. Under Andersson's leadership Gaz has taken out 50,000 people and doubled the turnover.
"The first step I took was to take out 10,000 managers or 66% of the management group. Secondly I took down all salaries by 30% until we reached profitability in February 2010," he said.
Supply chain consolidation
Gaz is working on the consolidation of its supply network and at the same time is planning to consolidate the number of its plants from 13 down to five (from an original 18). It is also working on standardised transport times and introducing milk runs, no small feat in a country that moves 80% of freight volume in tonnes by road, with 80% of imports moved by truck on a poorly maintained road network covering 933,000km.
As for IT solutions, he pointed out that they were very simple compared to his experience in the military (Andersson served in the Swedish army) but that the company was making improvements using internet tools step by step.
One of the logistics advantages Gaz has is that it produces the main components for its light commercial vehicle production in house.
"We are good with local transport, and we own the trucks ourselves," he revealed.
He also pointed out that Gaz handles its own customs clearance, an area of Russian logistics well-documented for its inherent difficulties.
"We have in-house customs clearance, which means we are one of the few factories that have customs officers in our plant and we run this as a business," said Andersson.
Customs clearance as critical for Gaz's contract manufacturing operations, which will rely on SKD/CKD imports. While the OEM abandoned the production of its own passenger cars in 2010, it has agreements for contract manufacturing with the VW Group, GM and Daimler.
"This is important because we have the second largest automotive assembly area in the world, in Nizhgy Novgorod. It is on 3,000 hectares of land [and] we have filled up our old passenger car factories today making Skodas."
Gaz imports SKDs for Skoda Yeti production and later this year will start making the Octavia from CKD kits. It has signed an agreement with VW to build 110,000 units a year.
The company is also due to assemble the VW Jetta, Chevrolet Aveo, and Mercedes Benz Sprinter van this year.
Dealer schedules
While Andersson admitted that his new role as president of Gaz had taken him away from a pure focus on supply chain logistics he said moving from the production of 200 LCVs a day in 2009 to the current output of 500 required a lot of focus on supply chain and scheduling.
One of the biggest changes was the move to build-to-order set by a monthly fixed forecast delivered by the dealers on the 10th of every month, along with a forecast for the following month.
"What is revolutionary, and what I like, is that on the 25th of that month the dealer pays for those vehicles in cash."
Andersson explained that the decision to implement such discipline was to remove the number of late or unfinished vehicles from the process
"Since they are not our vehicles, they need to leave the line everyday," he said. "The logistics supplier takes them out of the door and they have 2-5 days to deliver them to the dealers (if it is not in the Far East). We measure them on delivery precision, quality and cost. It is a very big change and to compensate the dealers we gave them a 4% greater margin, so they are guaranteed an 8% margin to do this prepayment."
See the forthcoming edition of Automotive Logistics for an in-depth report on the GAZ Group's tough restructuring and its focus on improving supply chain management and logistics.