With a fast flow of new cars being produced and an abundance of older vehicles still requiring maintenance and spare parts, Brazil is a busy land for carmakers and logistics providers. The arrival of new manufacturers from Asia and Europe may also kick-start new business, as Tony Danby discovers
Strong sales in Brazil over recent years have also put the country on the map as an important region for the global aftermarket. But as with inbound and outbound logistics, the country’s infrastructure and logistics constraints are causing challenges for service levels.
Renato Costa, director of aftersales logistics at General Motors in São Paulo, explains that the aftermarket in Brazil includes auto parts producers, OEMs, independent distributors, workshops and retailers. The market has grown over 10% yearly since 2008 and this should continue, he says. The Brazilian Association of Autoparts Manufacturers, or Sindipeças, also envisages growth of around 10% for 2011 compared to 2010.
The overall aftermarket for parts and services, which tends to follow the trend in vehicle sales, has also shown solid gains. According to Sindipeças, revenues of the spare parts market accounted for R$69 billion ($38 billion) in 2010, versus R$58 billion in 2009 and R$55 billion in 2008.
Matt Davies, FedEx’s sales executive for South America, says that even a recent cooling in car sales will be an opportunity for the industry and the aftermarket, as pent-up demand will increase the need for servicing and later for new sales.
FedEx has 600 employees, five operations stations, eight advanced operational posts, 150 vehicles and daily flights from the company’s global hub in Memphis that serve Brazil. “FedEx is making the necessary investments to attend to the demand of our customers such as General Motors,” he says.
Davies believes the future is positive as new OEMs arrive in Brazil with attractive pricing.
“This should stimulate the market in the medium term,” he says. The automotive repositioning segment should continue to grow at a good pace to accompany the growth of the national fleet, which is likely to reach 50m vehicles in circulation by 2015, Davies says, citing Sindipeças.
Opportunities for expansion also prevail. Miquele Lioi, business development director for DHL Supply Chain, says that as imported vehicle sales have grown, imported parts have been following the same path at an even higher percentage. “This growth has generated new demands for value-added services from the LSP’s, like re-labeling, repacking or pre-packing, kitting and even sub-assembling,” adds Lioi.
Most logistics specialists in Brazil highlight geographical challenges among the main logistics hurdles. Most of the activity is focused in the industrialised cities such as São Paulo and Rio de Janeiro. Other cities in the south, such as Curitiba, are also seeing industry arrive, with large international companies such as Renault already in place. Finally, the north and northeast of Brazil, which are among the poorest regions, are now seeing steadily-increasing demand for new vehicles.
With buoyant economic growth in these regions, Lioi says OEMs are starting to consider new regional distribution centres to improve service levels. “Today it may take up to 14 working days to deliver parts to a dealer in Pará state. This move from the OEMs to support their OES businesses tends to cause similar reactions in the entire aftermarket,” Lioi says.
Paulo Sarti, managing director of Penske Logistics in Brazil, also sees new areas for growth. The government’s recent move to restrict imports of finished vehicles by raising the import duty is leading some importers to consider building their own plants in Brazil. For instance, Sarti recalls that German carmakers BMW and Audi used to manufacturer abroad, but they have now committed to setting up manufacturing operations in the country, while Asian carmakers, especially from China, are interested in the market. Penske already has three potential new customers in its deal pipeline, says Sarti, without naming the companies.
Not surprisingly, on the LSP side a mix of international players such as TNT Express, DHL, Ceva and Penske are already vying with local players such as Atlas, Mira, Rapidão Cometa, IBL and others to snap up domestic distribution work for the aftermarket segment. Local specialists say most international LSPs are already there and if they are not, they are looking to get a foothold.
General Motors has 500 distribution points across Brazil’s major cities. “Brazil is a country of continental dimensions, so it’s a quite a challenge,” Costa says. The manufacturer’s aftersales warehouse is in Sorocaba, which has 86,000 square metres of space, some 100km from São Paulo city. The distribution centre handles the equivalent of 35 full-truck loads or 1,750 cubic metres per day (with an average truck being 50 cubic metres).
In the opinion of Costa, the aftermarket provides promising and stable business. “There are new models and a large volume of car parts, so GM expects to see continued growth next year, despite some slowdown in the economy,” he says. “We should grow even more by 2015,” he adds.
As part of its expansion, GM invested R$15m to expand its distribution warehouse in Sorocaba for aftermarket parts by 9,300 square metres (to a total of 88,000 square metres). The construction ended in August and GM plans to move 43m parts from the expanded unit, compared to 32m before the expansion, across North and South America. As a result, the manufacturer’s gross revenue for the plant is expected to reach R$1.6 billion, compared R$1.3 billion currently.
GM manages its aftersales parts warehouse in-house in São Paulo, although it deploys some providers such as Ceva Logistics for assets. GM uses four main partners–TNT Express, Atlas, Mira and IBL–for transport distribution.
Costa says that GM can get to almost all of the state capitals by truck in 24 hours. Although 70%-75% of GM’s loads go to the south and southeast regions, some cargoes are shipped by aircraft to the remote north and northeast. Some far-flung regions, such as the city of Manaus in the Amazonia region, can take up to 20 days to reach by road depending on the weather, which can often wash away concrete surfaces and gouge giant craters out of the weak tarmac.
Costa explains that GM is working hard with dealers to boost business. Typically, the cars remain with the dealers while they are under warranty, but after 3-4 years the owners tend to disappear to the independent aftermarket.
Italian carmaker Fiat, the market leader, deploys Ceva Logistics to handle all of its inbound, stock, outbound and transport operations for its 98,000-square-metre warehouse in Betim, in Minas Gerais state. Fiat has 573 dealers spanning the entire country, 63,500 SKUs in stock and dispatches 1,200 tonnes each month. The operation also handles 480,000 lines of orders a month.
Romens Martins Borges, Fiat’s spare parts logistics supervisor in the country, says Fiat manages its aftermarket not only through its plant, but also its suppliers. The logistics companies offer solutions for packaging and value-added goods that can facilitate the work at the dealerships and ensure a reliable delivery chain, he says.
Fiat and its suppliers are increasingly planning the delivery of aftermarket components to reduce the time in which vehicles must stay at the dealerships. Fiat deploys service level KPIs, which define the delivery percentages carried out by the OEM in relation to the quantities programmed by the warehouse. This demostrates the constant monitoring of product quality, he says.
Fiat’s dealers can place two kinds of aftermarket part orders: normal or urgent. Borges explains that normal orders are placed to meet the dealer’s stock needs and are processed in the warehouse for no more than three business days (counting from the day the order is placed). These dispatches are made by road because of their weight and size. Borges also adds that urgent orders are processed at the warehouse in a day and are then dispatched by air, express mail or road, depending on the final destination.
Marcelo Schmitt, Goodyear’s supply chain director for Latin America, says the tyre industry in the region–and especially in Brazil–has been seeing an acceleration in innovation with shorter life-cycles and a proliferation of SKUs.
According to Schmitt, consumers are increasingly better informed and interested in the benefits of new technologies and high value-added tyres such as Goodyear’s FuelMax and Aquamax. This growth brings different challenges in terms of distribution activities and value-added propositions.
Goodyear in Latin America works with LSPs for warehouse operations based on long-term contracts. Relative to transport, Goodyear uses local carriers with predefined lanes and delivery frequencies based on fixed- and variablecost contracts. All providers have balanced scorecards and the tyremaker has deployed the methodology regionally by country, while embedding it as part of its sales and operations planning (S&OP) processes and performance metrics.
In pursuit of best practices, Schmitt explains that Goodyear has issued guidelines describing how providers will be evaluated, which include a ‘service differentiation menu’ for customer choices and 3PL performance based on bonuses and penalties. The goal is to help build new industry standards, he notes.
LSPs are also confident about the expanding Brazilian aftermarket. Penske handles some 40,000 different SKUs from four warehouses in Brazil, of which three are in São Paulo and one is in Bahia state in the northeast. The company says the aftermarket is expanding, partly because of sales growth, but also because of new manufacturers entering the market.
Penske expects revenues of R$200m in Brazil this year for all of its operations, of which its automotive-related activities account for around 35%-40% of the total. The LSP does not own assets, but leases its four warehouses and works with dedicated and partner trucking companies for distribution.
Among its main customers, Penske works for manufacturers such as Ford, controlling the inventory and handling the distribution of parts–from tiny components up to large engines–to 700 Brazilian dealers, as well as handling the warehousing from a facility in São Paulo and another near Ford’s Camaçari plant in Bahia state.
Sarti also says that Penske adds value to aftermarket distribution, for instance, by setting up a type of assembly line to receive thousands of parts from three main suppliers. The LSP then puts them together in Ford-branded packages.
Penske also signed a contract with motorcycle manufacturer Harley Davidson to handle all of its parts, which are mostly imported parts. Harley Davidson recently took over the direct ownership of its dealer network and the LSP handles all of the shipments of parts for the motorcycles, plus other products such as merchandise from shoes to jackets.
Sarti says that LSPs, such as Penske, need to ensure that the aftermarket product turnover is as fast as possible and avoids large inventories. For instance, Ford has used the same warehouse for a decade and the company’s growth means that it needs to turn over parts quickly.
Penske, like most LSPs, relies on modern technology to smooth the process. The company deploys IT systems such as warehouse management systems and transport management systems that can interface with customers’ ERP systems, such as SAP, to track the location of parts or availability of items worldwide, he explains.
Likewise, Goodyear sees much focus being given to supply chain visibility. This is helped by the roll-out of ‘control towers’ in charge of monitoring various activities and material flows. “In Latin America, Goodyear is undertaking a pilot of a global project which does that,” Schmitt says. The idea is to be able to anticipate and react faster to operational contingencies that may impact service levels, with alerts being generated in association with specific escalation rules that engage local and regional supply chain teams as appropriate. This helps Goodyear identify logistics bottlenecks and also to better understand the performance ranking of LSPs, he explains.
Elsewhere, DHL’s Lioi aims to take two new steps to add more value to aftermarket logistics. Firstly, Lioi explains that DHL is using Oracle Transportation Management, which is a platform for transport in Brazil integrating all activities and processes from order placement to final delivery. DHL is also offering Smart Truck, an intelligent express delivery via truck, allowing proactive communications to the customer and increased service levels, Lioi adds.
Goodyear’s Schmitt says a key trend in Latin America is the increase of risk management controls to cope with security issues in some countries. Relative to warehousing, a growing trend is the use of public warehouses by suppliers, which serve multiple customers from a single distribution point. That is leading to the creation of “logistics condos” from 3PLs, he says.
For transport, Schmitt explains that Goodyear has seen a trend in growing customer requirements for smaller load sizes and more frequent deliveries. This forces the need for better lane management optimisation to offset increasing transport costs and it allows customers to lower inventories, he says.
GM’s Costa agrees that new ways of saving costs are leading some companies to eye shared services. International real estate companies are increasingly offering shared services in Brazil, along with providing adequate security and infrastructure. “If you need 30,000 square metres [of warehousing space] you need to wait, maybe, a year... I have been receiving more and more brochures over the last ten months [on this subject],” he adds.
Costa adds that shared services are becoming increasingly common in the main cities in the southeast and even smaller cities such as in the northeast. “This is due to the shortage of [warehouse] facilities in general,” he says. “Although the big OEMs need larger spaces, smaller operators and LSPs can benefit from synergies,” he adds.
Schmitt explains that with Brazilian unemployment relatively low, getting the right talent is becoming very competitive. “We see competition for talent acquisition at all levels of the organisation. There is a lack of workers in the areas of truck drivers and warehouse clerks, many of whom have gone to work in the real estate and construction sectors,” he says.
Schmitt says that specialised logistics training only became available over the last decade and there is still not enough to meet the demand, which means that some professionals, from fork-lift operators to managers, lack proper qualifications.
GM’s Costa finds it difficult to get the right people into the right positions. Also, delivering a full range of logistics services and high standards is still tough, he warns. GM often sees service levels rising and then suddenly dropping.
“We seldom see a real one-stop-shop and even if we see some specialisation, there are few [companies] that can really offer all of the capabilities. Even big companies struggle on performance,” he says.
While this is partly a consequence of rapid expansion, Costa urges that ever more robust processes are needed since, although Brazil is growing quickly and faces many benefits, there are also many challenges ahead for the aftermarket.