Up to the marque

Global car giants depend on minnow contractors - and highly complex logistics.

Major car manufacturers have long relied upon third-party contractors to produce their top brands for them. Carrying the Porsche or Mercedes badge on your vehicle no longer guarantees that it was assembled by the brand owner.

A range of global car makers, such as Volkswagen, Mercedes, Ford and Chrysler, use little-known contractors to produce low-volume and specialised models for them. These contractors have become dubbed '0.5-tier' suppliers because they sit between the car companies (the original equipment manufacturers, or OEMs) and 'tier-one' suppliers of components and systems to the OEMs.

In order for these 0.5 suppliers to be able to produce cars cost-effectively for the OEMs, they need to keep a tight rein on both production and supply chain costs. One of the leading 0.5s, Karmann of Germany, says its method of keeping supply chain costs down is to have an identical supply chain to that of its OEM customers.

To date, more than three million vehicles have been manufactured by Karmann, including such notable models as the Volkswagen Beetle convertible, the Karmann Ghia, BMW coupes, the Porsche 914, the Volkswagen Scirocco and all Volkswagen Golf convertibles.

The company's current portfolio includes the Audi A4 convertible, the Chrysler Crossfire Coupe, the Chrysler Crossfire Roadster and the Mercedes-Benz CLK convertible. In addition to these final-assembled vehicles, Karmann also supplies modules for the Jaguar XK8 convertible, the Renault Mégane convertible and the Mercedes-Benz SLK.

"We think of ourselves as a tier 0.5 supplier so that we have the same contracts and logistics programmes as an OEM," says Karmann's Dr Christian Eick. "On deliveries we have our own transport system so that we are the same as an OEM. Everything is the same as an OEM. The same systems and programmes as an OEM.

"We do the usual programme planning, we undertake the volume planning, the transport planning. It is the same as Chrysler, BMW, Ford and everything else."

Rail solution

Valmet Automotive of Finland has turned to rail freight as part of its logistics solution. For example, it receives engine deliveries from Porsche by rail, rather than the traditional road transportation. Rail operator Railion and Porsche have developed container wagons with suitable mega-trailers in cooperation with Valmet and the Finnish transport service provider Nybrok Oy. A mega-trailer is loaded by crane onto a rail wagon, which is transported to Rostock port and shipped from there to Uusikaupunki harbour, before covering the final five kilometres of its journey to Valmet by road.

Another 0.5 supplier that takes pride in its logistics innovations is Bertone of Italy, which has designed vehicles for companies including Alfa Romeo and Fiat. Carrozzeria Bertone is the production centre for the Bertone group,whose plant in Turin can produce 70,000 vehicles a year.

One such innovation is the 'pick-up sheet' (PUS) procedure that is used for transport management. This enables the automatic entry of incoming materials and is directly linked to another of its initiatives that it calls 'supply in-line sequence', whereby suppliers deliver the product in sequence to the production line or stores near production lines. This 'just-in-sequence' process, while becoming fairly common in traditional OEMs, is unusual in such a low-volume operation. In addition, the in-house management of materials stored in its warehouses is facilitated by radio-frequency technology, while in and out data transmission is delivered through the electronic data interchange system.

"Bertone [also] manages the buffer stock in real time with an online internal IT solution and rules the inventory turnover with an interactive software," says Dr Michele Blandhino, Carrozzeria Bertone managing director. "Logistics is one of the most important divisions to define the added value of a company."

Winning ways

One metric that OEMs often use to benchmark their supply chain performance is inventory buffers, although that can often be too simplistic a measure to offer a true performance guide. "The average of the safety buffer present in the plant is 3.75 days, but this of course varies depending on whether it is a high- or low-volume part," Mauro Charriere, material management and logistics manager at Carrozzeria Bertone, says. "For items such as screws we will have about seven days of buffer stock, but larger low-volume items such as seats can be as low as two hours."

Continuous improvement is a key target at the Turin facility. "The reduction of the logistical costs is a daily must," Charriere adds. "Even if it becomes more and more difficult for many reasons such as the increase in the cost of fuel and motorway costs, our goal is to find solutions that enable us to reduce the internal and external logistic costs. I think that Bertone is well on the way."

The largest, and perhaps best-known, 0.5 auto supplier is Magna Steyr of Austria. A recent accolade for the company's Graz plant was receiving the prestigious JD Power Gold Award for quality, making it the top European plant that manufactures for the US market.

Logistics is crucial to the company's success, says director of global supply chain management Michael Druml. "We have a very complex supply base due to the various OEMs that we are producing vehicles for. Ours is a global supply base, where the majority of the parts come from Europe, North America and Asia. We are not a high-volume plant and therefore the combination of freight and efficient inbound logistics is one of the key factors for our success.

"But you can only handle very efficient inbound logistics if it is in one pair of hands and if you have very good systems for it. This high complexity is one of the reasons we have created a highly sophisticated transport management module. The reason we did it by ourselves and not through a service provider was the fact that we could not find an existing system in the logistics market."

This is a sentiment echoed by Alfons Dach-Wiesinger, senior manager for transport and logistics at Magna Steyr. "We are proud of having implemented an integrated transport management process that has been recognised by several awards," he says.

"Integrated transport management means that the entire process of transport planning, execution and freight payment is supported by integrated/linked systems and is controlled by feedback loops. This gives our planners almost on-time feedback to further improve transport planning. But also in the execution modules, our people are supported by optimisation algorithms that take away manual standard tasks."

Complex demands

Druml adds that, as well as the complexity, it was the special requirements of the automotive sector that made a bespoke system a necessity. "We all know that automotive is different. You are very takt driven, you have multiple changes; you also have high volume on certain parts so it depends on the nature of the parts which kind of system you use. It is different if I am talking about screws, bolts and nuts or if I am talking about an entire module. All this requires different delivery systems and the transport system has to support these requirements."

One of Magna Steyr's key supply chain tools is 'line back planning', which involves putting the requirements of the assembly line at the core of the process: the company looks at what is required at the production line and from there it looks back into the supply chain and designs the most efficient way to manage the inbound logistics.

"But we go even further because we also have an engineering department here in Graz, and so we have the chance of integrating the supply chain into the engineering design phase," Druml says. "So here at Graz we can really practice design-to-logistics much more than some other automotive manufacturers. We can put it into reality - and that means we are involved in the very early stages of the product development process.

 "In my opinion what is very important is that when you are about to implement just-in-sequence shipments, we have to extend the chain which means that the supplier has to produce according to a sequence. It is not good enough that he has his storage and he is shipping to the sequence. You really have to extend the supply chain throughout your tier-one and even tier-two suppliers.

"The tier-one supplier is being asked to ship to a certain sequence to how the vehicles are being built and he is shipping in this order. He should not produce 500 reds and then 500 blues and then see what he is required to ship, and then go in his warehouse and take the parts and ship them. He has to make sure that he keeps his inventory as low as possible and only produce what is required.

"This is why it all comes together with transparency and necessity of good planning data. That is the key. With this you will be able to expand the real supply chain even further."

Bespoke software

Central to the company's ability to effectively deliver this strategy is its IT logistics system that not only feeds into the enterprise resource planning system, but also the finance and forecasting systems. It is the challenge of managing this supply chain complexity that has prompted Magna Steyr to look for bespoke software planning options - which has delivered a system that can
cost-effectively produce in low volumes.

Reverse loading is a simple tactic that Magna Steyr uses on inbound logistics - simple but effective when working on a combined supply chain. "There is not only a routing plan, but also a loading plan, because this avoids double handling of the material," Druml says. "I do not have to cross-pick it anymore. I can unload it to a preset plan."

Owing to the high volume of trucks entering the plant - over 1,200 a day - these are managed with an RFID (radio-frequency identification) system that enables the workers at the delivery dock pulling in the trucks with the system to ensure that the correct sequence is maintained.

Attention to detail is also key. However carefully a supply chain is constructed, it only takes a small problem to bring it all crashing down, even something as mundane as a lack of available racking.

"In our transportation system we manage the empty racks," Druml says. "Empty racks are something that in my opinion people do not pay enough attention to compared to shipments. At the end of the day a shortage of racks can shut your system down. If you cannot load your engines you will shut your plant down. It is amazing that throughout the world empty racks are being flown by airfreight.

"It is very simple: you could be the best in terms of quality and most cost-effective manufacturer. But if you do not have the parts at the line when you need them and at an acceptable cost level - logistics is always too expensive - you will not be successful in the future."

For Magna Steyr and its band of fellow tier 0.5s the future of greater model choices for customers is likely to provide the opportunities for growth, if the price is right.

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