Alfredo Leggero is responsible for the manufacturing, supply chain and logistics operations for Fiat in Latin America, which this year could surpass Europe to become the brand’s largest manufacturing and sales region, second in the overall Fiat-Chrysler group only to North America.
Leggero commands a network that currently includes Fiat’s massive factory in Betim, Minas Gerais state, about 450km from Rio de Janeiro. This plant alone has the capacity to produce 800,000 vehicles and 700,000 engines per year. Add to that another engine plant in Brazil, a small plant in Venezuela, and Fiat’s Cordoba plant in Argentina, which can produce 220,000 vehicles, and the production capacity of Leggero’s realm moves upward of 1m units per year.
Brazil is the regional powerhouse, where sales of passenger cars and light commercial vehicles reached 3.6m in 2012; Fiat expects the market to grow to between 3.7m-3.8m units in 2013. The carmaker sold 838,219 units in Brazil last year for a 23.1% market share and the eleventh year of leadership.
The complexity and scale of Fiat’s logistics in the region are enormous. In Betim alone, Fiat handles around 1,500 trucks inbound and more than 300 trucks outbound, transporting cars to some 600 destinations across Brazil. During 2011 the company transported 792,236 cars in Brazil and last year moved another 900,000 cars.
Latin America is set to gain even more importance as the carmaker’s operation in Brazil moves ahead with a BRL 4 billion ($2.02 billion) new plant in Pernambuco state, in the northeast of the country. The plant, scheduled to come online in 2015 with an estimated production capacity of 250,000 vehicles and 150,000 engines, will follow the carmaker’s best practices, using Fiat’s World Class Manufacturing (WCM) and World Class Logistics (WCL) principles – integrated systems that encompass all plant processes, from safety to the environment and from maintenance to logistics. According to Leggero, the plant will also house the largest supplier park in Fiat’s global production network.
At the same time, Fiat is working to modernise the logistics processes at its existing plant at Betim and elsewhere in Latin America. The company has, in a significant example, insourced its material handling and line-feeding operations and also expanded its parking patios.
The question of growth
Tony Danby: Although Brazil’s GDP growth has slowed, does Fiat still anticipate that the Brazilian market will grow at the rate it had previously thought?
Alfredo Leggero: Brazil meets various conditions that should allow the country’s automotive market to continue growing. The Fifa World Cup that will be held in 2014 across Brazil and the Olympic Games, in Rio de Janeiro, in 2016, will both require investment in urban infrastructure and equipment
Brazil’s social policy has, according to the current government, lifted around 30m people from poverty in recent years, many of whom have become active consumers of all kinds of products and services, including cars. Plus, in Brazil there is still only one car for every six people. If we were to achieve the same rate as neighbouring Argentina, for instance, where there is one car per every four inhabitants, Brazil would have a potential new market of 15m vehicles.
If we consider the need to annually replace part of the current 35m-vehicle fleet, the Brazilian market outlook is excellent.
Leggero: Firstly, we should consider our existing Brazilian plant in Betim, Minas Gerais state. We produced 811,000 cars at the plant in 2012 – an average of 3,200 cars a day. We produce 16 models via four assembly lines. We also have in operation 1,500 trucks per day to transport parts; 310 trucks per day to transport vehicles; 800 buses transporting employees; as well as one warehouse to feed the assembly line. Fiat also has a consolidation centre in São Paulo and a warehouse used as an export centre for CKD [complete knockdown kits].
At Betim, we have production capacity for 800,000 cars and light commercial vehicles, as well as to produce 700,000 engines and transmissions. We also have a plant in Campo Largo, in the country’s southern state of Paraná, with a production capacity of 330,000 engines.
In the rest of Latin America, Fiat has a plant in Cordoba in neighbouring Argentina, with a production capacity of 220,000 cars. We also have a plant in Valencia in Venezuela, with a capacity of 25,000 vehicles.
Insourcing, outsourcing, expansion
Danby: From the perspective of logistics, what are you doing to manage this expansion?
Leggero: We have been developing many different projects to handle the expansion in vehicles sales. For instance, Fiat has been implementing a new vehicle yard in order to import and distribute vehicles via Extrema, a town located 150km from Santos port on São Paulo’s coast. Maybe we will expand this solution in the future to other cities, closer to ports.
Another important project is a new parking compound at the Betim plant, with capacity for 4,300 cars, that started its operation in February. Other solutions will probably be developed in the years to come.
Fiat is also improving its Brazilian supply chain, following WCL principles that cover all areas, from production systems to environmental safety, both for internal matters such as insourcing of handling activities and re-engineering of internal flows, as well as external logistics such as milkruns or the creation of logistics hubs in strategic areas.
Danby: How do you handle imported material?
Leggero: Regarding imported materials from Europe, the US and Asia, our operation is in the Rio de Janeiro and Santos ports. The entire amounts of materials are then transported to Fiat’s plant where we open the containers, sequence the material and feed the assembly line. Material imported from Argentina is transported by truck directly to the Fiat plant.
Moreover, Fiat also has a crossdock in São Paulo where we receive parts, which are later transferred to Betim. The main imported materials, such as bumpers, cockpits, lights and door panels, are always received just-in-time and just-in sequence.
Danby: Could you explain the way that logistics is managed? For example, what is outsourced to 3PLs and what is kept in-house?
Leggero: Internal handling at the Betim plant was completely insourced in mid-2012. The exception is CKD activity such as exports to Argentina or imports from countries such as Turkey or other parts of Europe, which are managed by Villanova Logistica [Argol Villanova Group, see p60 for more]. Sada also undertakes Fiat’s outbound finished vehicle activities.
From Rio de Janeiro and Santos ports, globally sourced material is transported to Betim where it is opened, sequenced and fed to the line
Danby: How are you preparing your logistics for the new plant currently under construction?
Leggero: Between 2011 and 2014, Fiat is investing in all of its operations in Brazil. We expect to open a new plant in Goiana, in northern Pernambuco state, in 2015. We have also decided to build a strategic supplier park inside the plant area that will house some 14 tier one suppliers.
The supplier park will help to achieve logistics efficiency and create an optimal supplier base as an alternative to the ones already in the São Paulo and Betim areas.
Currently, we are also optimising the logistics flows in Betim, making them WCM and WCL compliant, and later we’ll spread Betim’s best practices all across Latin America, including to the new plant. In particular, the supplier park at the new plant will be Fiat’s biggest worldwide. We are also currently evaluating a new external logistics infrastructure. The Pernambuco plant will have the best logistics concept in the Fiat/Chrysler group.
Danby: In what areas are you investing to strengthen your logistics operation in Brazil and Latin America, and how do you plan to improve such activities?
Leggero: The insourcing of material handling and line-feeding activities was one of the most important projects that we have implemented in terms of Fiat’s logistics recently. The final results were exactly what we expected: more quality, fewer costs, more efficiency in the process and an improved level of people commitment.
Danby: What benchmark practices are you implementing or have you recently implemented in Brazil and Latin America?
Leggero: We can take best practices from anywhere in the world and implement them in countries that have suitable conditions. A good example of a best practice in the area of logistics is, again, the insourcing of handling activities in Betim that we implemented last June. By doing that, we managed to get an increase in operational efficiency via a reduction in damages and fewer production losses and stoppages. This also simultaneously led to a reduction of internal costs.
Danby: What are the major challenges that you face in terms of inbound logistics and how do you overcome these?
Leggero: One major challenge is the management of the supply chain, which is not made easy by the typically poor Brazilian infrastructure in terms of roads, ports, etc. Through the so-called ‘Mineirização’ process [the localisation of suppliers in Minas Gerais state] at the Betim plant, we have attracted suppliers to locate near to our factory in Minas Gerais, and this favours, for instance, just-in-time and just-in-sequence systems. And as I mentioned, in the case of our new factory in Pernambuco state, we are creating a supplier park inside the plant.
Danby: Can you describe the process of sending finished cars from the factory through to the dealers?
Leggero: As soon as the finished cars are ready, the logistics team takes the responsibility of parking, managing the yards and transporting the vehicles to the dealers, ports, etc. Nowadays, we have to load about 300 trucks per day and we deliver to more than 600 different points in the country.
Sada is our logistics operator for vehicles. We have to develop and create opportunities every day to improve quality, add more value in our operation and reduce costs. Sada has participated and implemented all the new projects and ideas to achieve these targets.
Danby: What are the major challenges that you face for getting finished vehicles to dealers or their final destination?
Leggero: In a general way, the challenges of carrying out logistics in Brazil and the rest of Latin America are similar. We need to tackle issues regarding the infrastructure, including roads, ports, rail, airports, as well as bureaucracy, changes in customs rules and the lack of integration among these countries, along with a typical lack of standards in processes.
In Brazil, another important challenge is the restriction placed on driving through some cities such as São Paulo during the day. Our distribution is carried out entirely by truck because in Brazil, rail and cabotage [short-sea shipping] are not available to transport vehicles. To and from Argentina, for example, the logistics of parts and vehicles should be multimodal, especially by truck and vessel.
Danby: How does the strong Brazilian real and the high cost of Brazil (the custo Brasil) impact your logistics business?
Leggero: The exchange rate really impacts our economic activities, including logistics, but it also obliges us to be creative in the management of new logistics solutions. The foreign exchange rate also has the positive impact of forcing us to be innovative.
Danby: What opportunities do you see for the improvement of Fiat’s logistics in Latin America?
Leggero: For the coming years, although it is too early to give details, we have in mind many projects to implement in order to became more competitive and improve quality.