Weathering the economic storm

It was neither a secret nor a surprise to hear during the 9th annual Automotive Logistics Global conference that the North American industry is facing a tough year. With sales at their lowest point in decades and costs dramatically high, more than 250 industry leaders from carmakers, Tier suppliers and logistics service providers met in Dearborn, Detroit to reflect on these challenges and the impact they are having on logistics.

While 'collaboration' has long been an over-used word at conferences, and an under-used idea in the marketplace, Ford's Frederiek Toney and Chrysler's Peter Weiss emphasised that this is a market environment that demands innovation and partnership to drive waste out of the supply chain.

"In a time when cash flow is a problem, we can no longer afford to carry 70 days of supply of vehicles, for example," said Toney. "The current market has spurred interest in collaboration as never before."

Weiss pointed out that with the US market predicted to fall as much as 20 per cent this year, to 12 or 13 million new car sales, logistics has become a pure expense that needs to be eliminated as much as possible, since these costs cannot be passed on to the final customer. "Barriers need to be broken down internally in companies, as well as externally," he said.

A co-loading lane operated by rail companies Union Pacific and Norfolk Southern that has moved Chrysler and Ford products from Detroit to Los Angeles since April was the first concrete project that has emerged since discussions at the 2007 conference, when collaborative logistics between the Detroit carmakers and certain transplants was initially mooted.

UP's Julie Krehbiel said that the project's success surprised her as it runs along one of the busiest corridors in the country (not a niche lane) and these efforts had increased transit time by 20 per cent as the two carmakers were able to fill up trains faster to reduce dwell time.

But not everyone believes the railways or road providers were collaborating as closely together as possible. Ford's Walter Lowe pointed out that for the carmaker, the empty return rate for rail is 28 per cent, while for road, it is 38 per cent. Several carmakers expressed an interest in seeing more shared tracks and facilities between the railways in particular. Representatives of the rail companies at the conference said that private ownership and the investment structure of the rail sector makes this particularly difficult.

Delegates debated whether it was easy or not being 'green'. Honda of America Manufacturing's Dana McBrien demonstrated how Honda is working to integrate its inbound network and to design cross-docks to find more opportunities to combine its supplier loads, thus taking kilometres out of its supply chain.

In 2007, the carmaker shed three million truck 'miles' - or 480,000 gallons of fuel and 4,900 tonnes of CO2. While this proves the economic value that can result from greener logistics, the overwhelming consensus from delegates was that 'green' would be the way forward only when it was cheaper.

The spike in fuel costs has led some manufacturers, particularly Tier ones, to rethink the "cost of distance," as Visteon's Patrick Bauer noted, and in some cases bring manufacturing closer to home. Bauer and John Begg from Key Safety Systems said that some projects planned for destinations in Asia, for example, were now being pulled back to the US or Mexico.

Ford's Toney emphasised that the difficult market today is eliminating waste that would not return when sales improve, and that carmakers and LSPs must work tirelessly together to find win-win scenarios. "These tough times will make us stronger," he said.