Outbound could start to look like inbound

A shift to lower finished vehicle inventories could mean that outbound logistics in Europe will more closely resemble the low stock, highly time-critical operations of inbound logistics for production, according to the head of logistics for Opel/Vauxhall, Elliot Swiss. The change in strategy could lead OEMs to procure vehicle logistics differently, including a reliance on specialist carriers for emergency freight movements.

 

Speaking at the ECG annual conference in Rotterdam last week, Swiss said that the carmaker had seen its inventory levels for vehicles drop this year to as low as 50% of its normal levels, which had led to changes in how Opel organised and procured vehicle logistics. “The industry made this change a long time ago on the inbound logistics side, where we measure inventory in hours,” said Swiss. “We could see a situation in outbound now where we measure supply in days rather than weeks or months.

 

“This is going to change the dynamic of the business,” he said. “We could see situations where OEMs have contracted services, and then also have agreements for premium services to make faster movements when necessary.”

 

Swiss’s words echo those spoken elsewhere, particularly in the North American and European sector. Several weeks ago, at the Automotive Logistics Global conference in Detroit, several logistics heads from carmakers said the lower vehicle inventory levels were here to stay, including General Motor’s Executive Director for Global Logistics, Susanna Webber (read more here). 

 

Opel is the European arm of GM, pending the sale of a controlling stake to parts supplier Magna International.

 

Swiss revealed that the inconsistent rises and falls across Europe, where demand has spiked in some markets this year because of scrapping incentives, has meant Opel needed to be more nimble when it comes to switching transport modes. For example, while rail has remained robust in Germany, elsewhere in Europe, where sales volumes had dropped considerably, Opel had to switch from rail and sea to road to move smaller loads of vehicles. In some cases, road was necessary even for long distances, such as from Spain to Russia.

 

Swiss said such variations meant that Opel was looking to double source vehicle logistics providers.

 

“We want contingency routes and secondary providers,” he said. “We are looking for LSPs to work with us to be the alternative carrier to handle the excess between the norm and the peak [vehicle flows].”

 

While some at the conference questioned whether OEMs couldn’t relax some lead times to allow LSPs to build the most efficient transport loads, this low inventory dynamic suggests that lead times could become even more critical.

 

Egon Christ, who is head of outbound logistics for Daimler, noted that lead times were particularly important in a low volume environment. “If there is a truck with just 50% of the vehicles it is carrying sold, it is absolutely critical to get those sold cars to the customer on time,” he said. “On the other hand, it would be nonsense to speed up vehicles to a stock yard.”

 

Swiss again compared the inconsistent volumes across Europe to inbound logistics. “For our inbound suppliers, material might move in an ocean container, or it might be two piece in air cargo, or we might charter a full vessel,” he said. “On the vehicle side, those that can offer that multi-modal flexibility will benefit.”

 

Swiss suggested that using more contingency plans and premium freight for outbound would not be limited to the exceptional circumstances of 2009, as long as production overcapacity remained in Europe. “Overcapacity causes you to do interesting things with production patterns. It might make sense to build a lot of cars in three days, and shut the plant for two days,” Swiss said. “Those patterns will cause a lot of those peaks and valleys.”

 

That overcapacity looks set to continue for the foreseeable future. Marius Baader, an analyst from the VDA revealed that German capacity utilisation for passenger cars fell to 70% this year, and is only expected to rise to above 75% in 2010. Arther Maher, from JD Powers and Associates, said he expects European capacity utilisation to be at only 75% in five years time.