automotive logistcs 2006 gm cover story

AutomotiveLOGISTICS

www.automotivelogisticsmagazine.com

BREAKING DOWN BARRIERS IN THE AUTO INDUSTRY’S SUPPLY CHAINS

SEPTEMBER/OCTOBER 2006

an ULTIMAMEDIA publication

General MotorsThe view from the top

Inside: Robert Strain in Shanghai Mike Dickinson in Europe Tom McMillen in the US

EUROPEAN CONTAINER PORTS

Capacity counts

TOLL GROUPExpands in Asia Pacific

ITWarehouse

management systems

TOYOTAIn conversation with

Keith Lowther

TIER 1 – ZFCompeting through

logistics

SOUTH AFRICAExports and imports

increasing

Europe report

CONFERENCEAutomotive Logistics

Central Europe - Russia

9-4 AL Cover.indd 19-4 AL Cover.indd 1 11/8/06 16:46:2811/8/06 16:46:28

GM

Automotive LOGISTICS • September/October 2006 30

Reports of its troubles have been greatly exaggerated and thanks to some innovative logistics strategies General Motors is reasserting itself as the dominant global carmaker. Maxine Elkin talks to Robert Strain [pictured], Mike Dickinson and Tom McMillen about GM’s turnaround in Asia and Europe

9-4 AL GM lead.indd 19-4 AL GM lead.indd 1 11/8/06 15:45:3511/8/06 15:45:35

Automotive LOGISTICS • March/April 2006 31

GM

Times have been tough for GM recently. With the press full of reports about possible plant closuresand pressures of competition from Japaneserivals, you could be forgiven for thinking that thecarmaker is in real crisis. But it isn’t that simple.

GM’s joint-venture operations in China have seen a 49 percent increase in passenger car sales in the first half of this year, a dramatic jump by any measurement. At the same time, GM Europe looks set to break even this year, and a new plant is being built in St Petersburg, targeting the burgeoning Russianmarket. GM in Russia has seen a 41.7 per cent sales growth inthe first five months of this year.

The world’s biggest carmaker is fighting back, and logisticsis at the forefront of the battle. GM divides its global logisticsoperations into four areas, each with its own regionaldirectors in Asia Pacific, Europe, Latin America Africa andthe Middle East, and North America. These directors report to Tom McMillen, Director of Global Logistics. Robert Strain is Regional Manager Asia Pacific Logistics (GM AP) andhe is responsible for driving the implementation of GM’s global supply chain policies and procedures in that region.He is also responsible for the development of strategy forintercontinental material flow and vehicles. His counterpart in Europe is Mike Dickinson. I caught up with them both,along with Tom McMillen, to discuss GM’s operations inthese two key regions and how the global logistics operations are transforming logistics into a seamless order-to-delivery network.

THE ASIA PACIFIC GROUP – ROBERT STRAIN

In its joint ventures GM has counterparts to meet all itsoperating functions, including logistics and purchasing. “Thecounterparts work side-by side, day-in day-out, sharing, developing and implementing the strategies that our JVs follow, achieving the tremendous results that they have so far. We are aligned. We don’t directly influence or managethe JVs. We work in a true partnership environment.Solutions are jointly managed, and jointly developed,”Robert Strain explains.

The supplier network for the JV operations in China largely mirrors the network for the Asia Pacific region.Strain continues: “GM AP has several plants and all of themhave both domestic and international suppliers. Within China specifically, our supply base mirrors that of Asia Pacific, we have both domestic and international suppliersfor both of our JV operations in China [Shanghai GM andSGM-Wuling]. We have a truly mixed supply base for bothdomestic and international. There is no overall preferredsupplier location. Whether they are international 4

AutomotiveAutAut LomomOmomoGISTICSotiveotive LLOOGG • September/October ISTICSISTICS • March/April • March/April 200200200666

GM is fighting back against a negative image with logistics at the forefront of its campaign to give customers what they want, when they want it

“Logistics costs are an integral part inall our global sourcing decisions on a

landed cost price, which includes the total logistics supply chain costs, including

packaging costs” – Tom McMillen, GM


GM

or domestic, the choice of supplier is very much tied tothe actual product we are building. But within China wecurrently have material coming from Canada, Korea and Brazil.”

In line with GM’s global purchasing strategy, GM APsources for the best supplier in the world on a cost basis.

Lean supply is a fundamental component of GM’s leanmanufacturing strategy and the China JV plants have just-in-time delivery and sequenced material flows. Anotherpart of this strategy is the drive to reduce warehousing.According to Strain: “Part of GM’s lean strategy is to try tonot warehouse product. Warehouses do exist but they aregenerally operated by our suppliers with the GM and JVs calling off inventory from them as needed.”

Inbound packagingGM’s default inbound supply chain in China is FCA (free carrier), which means it is organised and delivered by a 3PL or LSP, under the supervision of the plant concerned and the logistics supply chain organisation. Packaging has becomean important component of GM’s global strategy to reduce inbound logistics costs: “GM AP has a very strong packaging team here in Shanghai. Packaging is fully integrated into the sourcing process and also what we call the‘value chain’, which is driving out waste andlowering our total costs,” says Strain. Hecontinues: “For both domestic and international, packaging is becominga key element. It is important for protecting the quality of the materialand lineside delivery, but now it isalso having a significant impact on our total logistics costs. We are usingreturnable packaging in China. The decision to use expendable versusreturnable packaging is evaluated business case by business case, plant by plant. Internationally we typically use expendable packaging, lookingto maximise container utilisation andlowering our logistics costs.”

Container utilisation is alsosomething that GM is currently working on. The imbalance in trade to and from China has made cubing out a critical cost-down initiative.McMillen believes that cube utilisationis one of the processes than can offsetthe transport costs of global sourcing of components.

To this end, GM has examined its ocean shipments to and from China and implemented the coupling of inboundand outbound material. Strain reveals:“Right now, there is a supply and demandimbalance that has strengthened the ex-Asia carriers, as well as improving their profits significantly. The coupling of the inbound


“Whether they are international or domestic,

the choice of supplier is very much tied to the actual product we are

building. But within China we currently have material

coming from Canada, Korea and Brazil”

– Robert Strain

4


China traffic by GM has allowed us to offset the strength of carriers, creating a healthier environment for all.”

On the outbound side, the finished vehicle supply chain in China uses a lead logistics provider as well as a 4PL tomanage the network. “The network is fairly complex andencompassed by the traditional modes of transportation. We also use several VDCs within China to ensure network optimisation and the highest service level and lowest transit time for customers. The primary focus of our JVs in China isto fulfil the expanding domestic market.”

GM EUROPE – MIKE DICKINSON

Mike Dickinson has been in his current role at GME sinceFebruary 2001, but he originally joined GM in 1993 as part of a task force to develop lean supply in GM. He says: “If I look back, GM’s inbound supply chain in Europe is a lot leaner than it used to be, but you can never be lean enough, there is always room to improve… it is becoming increasingly important because of inventory change. We are constantly optimising inventory.”

The logistics supply chain for inbound, outbound and theaftermarket is initially organised centrally and then the planis implemented by individual plants. Dickinson describes theresponsibilities of the plant and the central organisation asthe difference between strategic and tactical: “The strategicplan is centrally driven, but the tactical changes on a short-term basis are driven by the plant.” The inbound network ineach region for GM is not specific to a plant, but for all plantsin that region, and in fact material moving across regions:“You can’t plan that from one plant so we do it centrally,” he says.

On a wider level, the same applies to GM worldwide. Theregional directors talk to each other on a daily basis andhave regularly scheduled meetings. Dickinson says: “A lot of material will start, say, out of Asia that is going to Europe and


GM needs innovative, flexible logistics companies

Mike Dickinson: “LSPs need to becomemore innovative. Costs are increasing.Fuel is the obvious one, it has increaseddramatically in the last year or so, and forecasting shows it is not going to slow down any time soon. And if you lookat legislation in Europe, things like theworking time directive and hours of work, if you look at user-pays taxation and road rolls, and put it together with the fact that we want to reduce cost, we can’t continueto do what we do today and hope thatthe cost will go down. We have got to dosomething differently. One of the things Ikeep talking to our suppliers about is thatwe need to work more closely together. We need to be more innovative in the way wedo the business.”

“The second requirement for LSPswould be flexibility. Increasingly we haveto change and flex to customer demands.If you have got an LSP working with aninflexible rigid network then sometimesit breaks.”

“I don’t think it is an advantage to havea single logistics provider necessarily, butI do think it is an advantage to be ableto see as wide a piece of the chain asyou can. In Europe particularly we havemultiple modes of transportation. There isnot any one particular 3PL provider that can see the whole chain. You may have the best transportation costs across France but if you don’t link it into Spain and intoGermany, it doesn’t really work.”

Flexibility is the key for efficient logistics across Europe as multiple modes of transportationdemand effective integration with good visibility

GM

“GM’s inbound supply chain inEurope is a lot leaner than it used to

be, but you can never be lean enough, there is always room to improve”

– Mike Dickinson


also to North America, so we have to work together to makesure that we do not have contradictory strategies and that we have one global strategy.”

Global communicationThe overall strategy worldwide is to move material to the right place at the right time at the right cost. This principlealso applies to getting finished vehicles to the dealers. GM hasbeen working towards creating a global logistics organisation and the frequent interactions between the regional heads and

Tom McMillen are fundamental to that. McMillen confirms this: “We talk more than once a day and we travel to regions depending on the global activity that we have.”

GM’s order-to-delivery programme has been putting flexibility and customer responsiveness at the heart of manufacturing and supply processes. Dickinson says: “Wemust be able to produce a range of vehicles at any one time and deliver those vehicles on a short lead time to the customerorder.” GME is achieving this on the inbound side through order management: “We have seen a lot of good systems 4

GM


development in the field of order management, ensuring that we have a good, flexible inbound supply chain that can reactto what is in effect a variable schedule, because the scheduleis linked to what the customer wants.”

Designing in flexibilityBuilding flexibility into the supply chain starts at the pointof plant design. Dickinson reveals that the design and the location of the new St Petersburg facility took logisticsconsiderations into account. “We were an integral part of theproject team. There is a GM global central body that works across all the new plants that we build to ensure that we have the best practice and share ideas.”

Initially the St Petersburg plant assembles from semi-knocked down (SKD) kits coming from GM DAT in Korea.Later developments will see GM work on a plan with thesupplier base and assess how best to meet the local contentcriteria. The main challenges that Dickinson sees for supply to this plant are the port infrastructure and bureaucracy. Customers and transfer processes will need to improve to


GM to buy back Vector SCM

In an industry where most “news” isleaked before the official announcements,the decision by GM to exercise its right to buy back the stake in Vector SCM owned by Con-way came as a genuine surprise,not least to Con-way, which admitted thatit was not expecting the move from GM.

The relationship with Vector SCM hasbeen a hugely beneficial one for GM.Mike Dickinson says: “Vector is providing services in GME logistics on specificaction plans – one of the main ones isthe EUVV. They have developed andrun that system for us and manage theexception reporting. We also have Vectorworking as an integral part of the planningand engineering groups here. They are offering IT support, doing network designand commercial contracting activities. Itis a fairly seamless relationship; the teaminteracts on a daily basis.”

In the Asia Pacific region, RobertStrain also describes a positive workingrelationship: “Over the past six yearswe have been working with Vector in Asia Pacific, as well as here in China.Some of the areas that they have beendeployed in are benchmarking, network design and management, as well as some IT solutions. Within the region Vector has some day-to-day management responsibilities as well. It is a verysuccessful relationship.”

So why does GM want to buy Vectorback in house? Tom McMillen says: “Asyou know we exercised our call right [theright to purchase Vector]. We have begun negotiations for GM to purchase Vector.The reason we did this is it will give GM more direct control of the performance of

its logistics operations as part of our GMcorporate strategic initiative.”

Vector is a joint venture, so it will need to be integrated back into GM and how thiswill be done has not been revealed by GM.A transition team is being put in place toensure a smooth and uneventful change, but the mechanics of the changes are stillbeing worked out. Mike Dickinson says: “Weare working on a plan at this stage to find out exactly what this means to us. If youlook at Europe and the functionality thatVector performs for us, in some way wewould need to continue, but exactly whatthat will mean at this stage – quite honestlywe don’t know.”

Non-GM contracts that Vector has wonover the years will be taken over by Menlo, but the fate of the senior personnel is yet to be decided. Con-way, the other JV partner of Vector, would only say:“At this time a transition process andplan is being developed.” Greg Humes, formerly President and CEO of Vector, hasbecome President of National LogisticsManagement and Artisan Associates,where he will be leading the integration of five independently operated companiesinto a unified company providing supply-chain management services.

The move to buy Vector back signalsthat GM is attaching increased significanceto its logistics activities. Tom McMillen says: “We are recognising that logistics isa core competency and we want to havemore direct control.” If operations in AsiaPacific and Europe are an indication of intent, then GM’s logistics operations will be an increasingly important element of the turnaround plan.

“We have begun negotiations for GM to purchase Vector. The reason we did this is it

will give GM more direct control of its logistics

operations as partof our GM corporate strategic initiative”

– Tom McMillen, GM

GM

GM AP has several plants and all have both domestic and internationalsuppliers


be able to cope with the new throughput demands. Weatherconditions at the Port of St Petersburg are also a challenge.For three or four months of the year, the vessels need icebreakers to bring the containers in.

Getting involved early in the planning stages for projects seems to be a recurring theme at GM. There is a centralorganisation in GM Europe that links into the global GMcontainerisation organisation, and a member of the GME containerisation team is involved throughout the vehicle

development programme: “Quite often we find thatcontainerisation can affect the design of the part, we have thecontainerisation group working in the process early enough now that that can happen. If you look back 15 years, it wasn’t that important. You had a supplier maybe 15km from the plant and the impact of having two containers where you could have had one was relatively small. But if you think about the cost of that container and a supply chain that is 5,000km long, it is a lot more important to make sure that the container is correct.”

The EUVV programmeOne of the projects that GM Europe has recently rolled out is the European Vehicle Visibility programme (EUVV),which was designed and implemented by Vector SCM. The project enables GM Europe to track the movement of its 1.7 million cars from factory to dealer on a daily basis.Not only that, but it manages by exception, so rather thanhaving a flood of information to interpret, the system actually identifies the exceptions i.e. the cars that are not where they should be. Dickinson says: “With the previous system, if you interrogated it, it would tell you where that vehicle was, butunless you interrogated that individual vehicle you might not know until someone flagged it up as not being in the rightplace. The EUVV system interrogates on a live time basis. It knows where every vehicle should be at that point in

GM’s logistics strategy is creating an integrated and coordinated global supply chain organisation, driven from Detroit

4

GM



time and, importantly, it will pick out just the ones thatare not where they should be. So it enables us to proactively manage exceptions to the FV delivery chain.”

The system also gives GM Europe supplier performancemetrics. “We know which vehicles we are chasing and theperformance is measured against the route to plan. But if acarrier was supposed to move a number of vehicles between A and B within three days then we can tell if they have, and can measure their reliability against that.”

Many of the logistics providers can see their ownperformance through the supplier portal SupplyPower.Dickinson reveals that he is currently working on increasedaccess to the portal for the LSPs.

As transport costs around the world continue to rise, you could be forgiven for thinking that logistics only adds costsfor carmakers. Dickinson takes a different view: “Thereare two sides to it. The one you tend to look at first is how much it costs you to move parts and vehicles around, andover the years we have actually been reducing our transport costs, despite the fact that the supply chain has become more remote. You could argue that even to stand still on costs in this environment is remarkable, and we have been able to domore than that. On the size and scale of the overall business, frankly, that would not be sufficient to turn a company around. Where we have really contributed is on the vehicledelivery side – being able to get vehicles to support sales wherever they are required. That is one of the things we are most proud of – the way we deliver to our sales organisation.”

Based on the success of the EUVV project, McMillen confirms that there are plans to roll this project outworldwide: “GM AP is taking part in a larger programmeby GM to standardise the global vehicle visibility process.GM Europe is pioneering and developing this and we aredeveloping a roadmap to duplicate this across the world.”

Squeezing inventory out of the finished vehicle supply chain is producing cost efficiencies for GM. Combine this with GM’s lean approach to inbound material and robust sourcing processes and GM appears well placedto ensure supply meets demand in its core anddeveloping markets.

GM’s global manufacturing system

GM’s global manufacturing system, which has been in placefor some time now, is changing the nature of material supply.The key points are:

• The system is designed around the operator; material flow has the operator as the starting point, from which it then works back. The system encourages direct-to-the-line delivery of material, slashing inventory levels.

• Manufacturing performance is improved through the adoption of a set of principles: people involvement, standardisation, built-in quality, short lead time, and continuous improvement.

• Responsiveness – the system refocuses attention on

what the customer wants and demands a flexible manufacturing and supply chain to build fragmented, niche products quickly.

• Leanness – the lean principle is being built into the plants (i.e. point-of-use material delivery), the reduction of

inventory and better responsiveness from suppliers.

The EUVV programme allows GM Europe to track the movement of its 1.7 million cars from factory to dealer in real time

GM


automotive logistcs 2006 gm cover story

Documents

gm europe

global logistics operations

director of global logistics

al gm lead

europe tom mcmillen

joint ventures gm

logistics south africa

gms operations