While some carmakers keep as much post-production work in-house as possible, port terminals and logistics providers believe they can do the work cheaper. With markets like India, China and North Africa expanding, will they be successful in gaining market share? Barry Cross reports.
Post-production work is among the functions commonly outsourced to logistics providers, however the range and sophistication of such services vary widely, from simple pre-delivery inspections (PDI) including washing, checks and simple repairs, to more advanced customisation and installation, including air conditioning, sound systems or leather work. The extent varies to which carmakers keep these services in-house, push them to dealers, or outsource to providers at ports or distribution centres. In the US and Europe, outsourcing such services has become widely accepted, however drops in sales and imports have brought changes. Providers are also starting to expand more aggressively in markets such as China, India and North Africa.
A chance to extend outsourcing in China
In August, Germany’s BLG Logistics and China’s Cinko SCM established a new joint venture in China–BLG Cinko AutoTec– that will operate a technical vehicle processing centre (VPC) at the port of Tianjin in the northeast of the country. Sven Von Gruenewaldt, project manager of BLG’s China team reports that the amount of technical treatment outsourced by OEMs in China is not significant yet, although much potential exists. “Technical treatment of CBUs for Chinese OEMs is nowadays mainly done after export. However, we offer the opportunity to process all the consolidated volume at our compound prior to shipping using our own personnel,” he says.
By contrast, import OEMs tend to do as much postproduction work as possible on consolidated volumes from different factories before shipment to China. “BLG believes it would be better for the cars, once they arrive in China, to be handled by our centre at Tianjin, where they could be stored, maintained and also undergo any necessary technical modifications. In our opinion, doing re-work at the dealer’s workshop should be the last option,” says Von Gruenewaldt. He is confident that such outsourcing could be provided at a price attractive to OEMs. Von Gruenewaldt believes further cost savings would result from optimisation of the transport chain by using dead time in the compound for technical treatment or using transport periods for spare parts management. “By doing this, vehicles would be made available to the customer earlier than at present,” he suggests. “We can also take care of all customs-related duties, which should speed up the logistics chain. Furthermore, by consolidating vehicles at our VPC, we can offer quality assurance services, including maintenance and the overseeing of transporters. This, in turn, would lead to less damage to vehicles.” In terms of the type of outsourced post-production work on offer in China, von Gruenewaldt says, “Maintenance mainly consists of tyre and battery service, cleaning and transport protection application or renewal. Technical services, for their part, can be anything from spot business resulting from production faults to installation of optional equipment or even building entire special editions. Those services are mainly custom-tailored and range from simply changing wheels to dismounting engines, gearboxes and axles.” Von Gruenewaldt says the company aims to provide postproduction work at various locations throughout China. However, he stresses that these will have to be profitable, not loss leaders simply offered as a means of capturing extra logistics business. In the meantime, the company expects to win more business working on imported vehicles, particularly as many existing compounds in China are limited in size and operating close to capacity. The growing export market should not be dismissed either, he says.
Outsourcing post-production work should not slow down the supply chain, he insists. “In our experience, outsourcing post-production work optimises the delivery flow and speeds up the supply chain. Cars get to the dealer faster and are available that much sooner to the buyer. This is one of the main reasons BLG Cinko AutoTec is asked to do re-work.” Von Gruenewaldt says that with space at production plants limited, it makes sense to forward vehicles as quickly as possible to areas where post-production work can be done before further transport. There is also an element of dwell time throughout the logistics chain anyway, so this time should be used profitably to work on the vehicles. Those needing rapid dispatch can be prioritised, thereby speeding up the whole process.
Will Indian OEMs hand over the reigns?
Another company seeking to expand its post-production in emerging markets is the GBA Group, which has moved into the finished vehicles logistics market in both India and Turkey. Marketing executive Alison Mitchell notes that its operations in these markets concentrate largely on handling exports. In India, the dealers mainly carry out post-production work for the domestic marketplace. For exports, postproduction work largely consists of repairing damages and ensuring the cleanliness of the vehicle, with some minor technical rectifications before loading to vessel, she explains. Historically, Indian OEMs have developed and managed their individual facilities at the ports and controlled their own quality standards for export vehicles.
Mitchell believes that GBA’s entry to India delivers benefits to OEMs and other providers. “The use of third parties is really the only option to cater for ever-increasing export and domestic volumes given the limited infrastructure,” she says. She admits that the profitability of such services in India depends on carmakers’ acceptance that a single service company can provide end-to-end logistics. “In my experience, outsourcing–together with accurate planning–can result in reducing wastage and delays within the complete chain. In India, the acceptance and implementation of the complete logistics chain being managed by a single supplier currently forms the largest obstacle in taking finished vehicle logistics to the next level,” she says. For what GBA will offer in India, she says that if trends currently taking hold in Europe were to eventually transfer to the sub-continent, the amount of post-production work will increase in both volume and variation.
Expanding terminals in North Africa
Barcelona-based Autoterminal has formed a new venture in Algeria, where Autoterminal Algerie commenced operations in September at the port of Djen Djen. An 800-square-metre warehouse is being renovated to offer post-production work as well as basic vehicle handling services, according to Jacinto Seguí, Autoterminal’s managing director.
“This is an important step both for us and also for Algeria, since this is an entirely new concept there. At Djen Djen, we will only be offering very basic post-production work. However, at a new terminal we are building at Bouira, to the south of Algiers, we will offer the same range of services undertaken at our facility in Barcelona,” says Seguí. He lists these as an automated, high pressure car wash, a paint and bodywork repair shop, an accessories fitting area and PDI. OEMs will be able to opt for bodywork assembly and the adaptation of vehicles for specific activities, such as police cars and ambulances.
The company already has an established relationship with many OEMs, offering a wide range of post-production services at its terminal in the port of Barcelona. According to Seguí, “It is difficult to know whether these are actually cheaper than what could be undertaken in the plant. But what we can say is that they are more flexible and totally adapted to the needs of the domestic market.” Autoterminal is always looking to pick up more work of this sort, as Seguí stresses that it generates more customer loyalty and boosts the company’s overall bottom line. “Autoterminal generates more value-added operations than any other company in Spain,” he says, stressing the overall benefit that these types of service bring.
Now that Spain is importing fewer cars than it did previously, Seguí confirms that the amount of post-production work being undertaken has fallen. He also notes that the type of work Autoterminal is being asked to do is changing. “In the past, we used to fit a lot of radios and even air conditioning systems. Now, these extras are often fitted as standard, so this work takes place in the actual production plant. Currently, we are being asked to install navigation systems and iPhone [accessories], make change to the upholstery by, for example, fitting leather, as well as converting some vehicles to run on LPG.”
Seguí believes that outsourcing such work to a provider is a better option than devolving it to dealers given that all the installations and work involved all have to cleared in advance by the OEMs, lead times agreed and quality assurance targets established. “The other option–letting concessionaires [dealers] carry out the work–presents problems such as material distribution, distinct lead times and the difficulty in standardising levels of quality across the network of concessionaires,” he says.
Established services in the US
WWL Vehicle Services Americas provides technical postproduction work for most global automotive manufacturers. In North America alone, it works with more than 12 manufacturers for exports, imports and even domestic consignments. Some of its post-production facilities are located at port locations, while others are in-factory sites. “Today,WWL Vehicle Services Americas has more than 15 operational facilities that specialise in what we call ‘auto technical services’,” says John Felitto, president and CEO of the company. Many services were developed from an acquisition in 2007 of Nissan’s processing arm, DAS. Today, WWL carries out technical work at Nissan vehicles at its factories and ports of entry in North America.
Felitto says that carmakers prefer to outsource this work so that their vehicles can be customised as close to the endconsumer as possible. Customisations include navigation systems, entertainment systems, spoilers, lighting, etc. Multipoint PDI is performed prior to distribution to the dealers. “As an add-on to WWL’s ocean transportation services–or as a stand-alone service–these technical services compliment the entire supply chain offering that WWL provides,” he says, adding that the services have more recently been extended to heavy equipment manufacturers.
He notes that, within the US, post-production work is carried out by both OEMs and providers. “Most manufacturers find ways to process cars that fit their production model. Sometimes the business is kept in-house, whereas other manufacturers would rather depend on an expert supplier who can leverage a network and streamline this with other transportation services.” In common with other providers, Felitto believes that outsourcing these services improves the overall work flow. “As an example, in this case, the further down the supply chain that customisation occurs, the quicker the end consumer will receive the exact vehicle they prefer. Typically, proper advance planning between the manufacturer and supplier will create more efficiency.”
BMW keeps it in-house but remains flexible
Not all OEMs outsource the majority of their post-production work. BMW is a case in point. Its production principle is designed to build on specific orders, which leaves fewer requirements for modification. Furthermore, the company uses a worldwide network of vehicle distribution centres (VDCs) where final preparations are made prior to delivery. “The scope of services offered in the VDCs includes market and legally required product adjustments, as well as in some markets the installation of after sales accessories. The VDCs are, in general, outsourced facilities,” says Mathias Wellbrock, head of global vehicle distribution. He notes that management, steering and quality assurance functions in these activities nevertheless remain in house.
The fitting of accessories is a core function of BMW’s own dealer organisation, but can also be performed as a support function at the local VDCs. “We don’t undertake post-production modifications as such. When VDCs do fit accessories, they do so in support of sales, marketing and the dealer to fulfil the original customer requirements,” he says. Wellbrock says that even the effects of the downturn did not prompt a re-examination of this policy. However, he does leave the door open to exploring future options with providers regarding post-production work on a business case basis. He stresses that BMW’s strategy is flexible, giving the company the possibility to adapt this to local conditions to provide the best solution for both BMW and its customers.