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l n c e utom otive supply chains require just theright mix of lean and agile in an increasinglycomplex and global arenaB y J u l i a K u z e l j e v i c h

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utomotive is an industry vertical that is beginning toramp up following a period of dampened demand andsupply issues.Cost containment and lean distribution, the hall-

marks of efficient automotive operations, continue to be the mainfocus of supply chain players operating in this arena. But as supplychains get m ore co mp lex and lead times longer, tha t very efficiencydepends on greater visibility and transparency.

According to an Ernst and Young study on w orking capital in theautom otive industry, worldw ide, the automotiv e industry is in aperiod of profound change.

Consolidation, competition, fast-evolving technologies, a shifftoward greater energy efficiency, the globalization of supply chainsand the promise of emerging markets are just a few of the chal-lenges facing industry participants, the study suggested.

Auto sales are now resurging following a significant decline afferthe 2008 recession. But in terms of auto parts exports, a recentScotia Economics report suggests that Can ada has now fallen ou t ofthe list of top 10 exporters in the sector.

In a Global Auto Report published earlier this year by Scotia-bank, senior economist Carlos Gomes noted the Canadian autoparts sector has been losing global ma rket share, with the indus trystill searching for a strategy geared to benefit from the rapidgrowth occurring outside of the mature auto markets of NorthAmerica and Europe.

Conc erns abo ut supp ly issues also remain on th e forefront, suchas those resulting from natural disasters. The March 2011 Japaneseearthquake, tsunami and later incidents of flooding in Thailandwere the most prominent recent examples, but disruptions in oneform or anoth er are a daily occurrence, said Bindiya Vakil, presidentand founder of Resilinc, a provider of m ulti-tier supply chain resil-iency solutions.

What we're seeing is that there are continuotis events happen-ing every day globally to cause compan ies to react becau se of lackof information, she said.

In order to be able to deal with that kind of commotion, youneed to have the capability to have visibility into every part of thesystem, said Dick Jennings, vice-president of automotiv e supplychain solutions for Ryder, recently named a GM Supplier of theYear for the seventh time.

You're going to see, on the part of the OEMs, more alternativesolutions, more attention being paid to alternate sourcing of partsthat come from far distances. There are a lot of challenges. Every-one does business a little bit differently. W e just have to m ake surewe have solid partnerships and construct an agreement that is suit-able to everyone in the process, he said.

I think that all of the OEMs and all of our service providers aregoing to be grappling with economic recovery. Most people areseeing healthy signs of recovery, and good consistent growth.Hopefully, we will see efforts to expand capacity after a period ofconsolidation and shrinkage. I think now everyone is trying to de-termin e to what d egree they will invest, and how to manage that,said Mike Steck, vice-president of supply chain management at

Nissan North America.On the manufacturing side, he noted, there have been more

efforts in localization as opposed to offshoring, because of cur-rency volatility. The Yen exchange rate has been quite harmful to us over thepast year or so, he said, noting that Nissan North A merica is nowramping up its plants closer to full capacity while avoiding investingin facilities.There were some significant disruptions following the Japaneseearthquake and Thailand flooding in 20 11 . This impacted some ofour own facilities and our supply base had some challenges, whichwere all consistent with the other OEMs who share some of thesame supplybase.Eliminating ambiguity and getting good informa-tion right away in thos e situations is key prioritizing decision-mak-ing. For example, is there a part that may be shared across all our

vehicle platforms? We had a good handle on which of our productswere in tighter supply than others and this helped us to navigateearlier on, said Steck. If you look at trends in automotive over the last several years,before, OEMs would buy components, now they buy completesubassemblies. The complexity, with electronics components, hasincreased compared to 15 years ago. Then you add the amount ofcomplexity at the tier one level where a lot of the control of thedesign of the product has been passed on. Also with the use of sub-contract manufacturing overseas, now you have a very stretchedsupply chain, but the culture, and the amount of information-shar-ing betw een the tiers, is stul where it was 15 years ago, said Vakil.This has led to the need for increased communication and col-laboration as a risk mitigation strategy. With suppliers, we probably want more specifics in terms ofcapacity, any volume changes we're anticipating, and we sharethese more frequently. We have thought about various contingencyplans a little more frequently. Som e of the risk mitigation strategieshelped us. In a situation like a port strike, you have to ask if you'retoo dependent on one particular port; should you spread risk acrossvarious points of entry, or carrier? [i.e. parts provider or car haule r).If there were to be a financial crisis or strike, you are vulnerable tothat. D o we have experience with alternate operators? C ould we setup inland transport relatively quickly? said Steck. I think, in principle, we're not going to do something to stock-

pile.I think managing with lean principles is the right way to man-age the business. The better you can engage with your sales organi-zation and forecast ahead, with upward and downward scenarios,and building contingency plans around potential bottlenecks andhow to get out of them, then at least you can do a little bit of thehomework behind some of the potential investments and capacityissues, he said.Resilinc's Web-based cloud solution, focused on the auto in-dustry vertical, enables com panies to be proactive and addresssingle points of failure. Where are the critical exposures? Whereare they mo st vulnerable? W e collect information about their su p-ply chain needs, what alternate sites are available to them. Theycan query the information, look at a map and see suppliers' ag-

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gregated hot spots, Vakil said. We help customers bund out the mapping, to show them w hatthe supply chain actuallyis.We store and manage that for them anddeliver it as a service. Then, once you have that, you can do someinteresting things around events. W e generate tracked global events,and notifications, and also the impact oftheevent. This oifers visi-bility soyou can plan more proactively aroundrisks, said Jon Bovit,chief marketing officer for Resilinc.Automotive manufacturers are attempting to get product tocus-tomersalot m ore quickly, according to Jennings. There is more at-tention given to new launches earlier in the process than in the past. It allows for communication to occuralot more quickly than ithad. There's also more investigation around what has to happen sixmon ths to 18 mon ths out to have steady supply, he says, addingthat 3PLs that are well integrated in the automotive industry em-ploy lean strategies where th e focus is on rigorous execution.It's amazing how buying patterns change very quickly depend-ing on gas prices, and that involves dialling down production ofcertain vehicles. We 've learned to employ lean techniques and liter-ally produce a plan for every part that goes into an automobile,collect the data, purify it, and make sure that the packaging is cor-rect. We put together a complicated and detailed transportationsystem managing the material from point of supply to point ofuse.It allows usto deal with all of the complexities withinasupplyline,said Jennings.Damageandquality control are other areas where there is now

a lot ofemphasiswhen it comes to cost containment in automotsupply chains. 3PLs like us are responsible for building more economiesscale into th e process, trying to b und more efficiency into shippiand packing, and providing more value added like pre-packing. Eeryoneisconscious of the cost ofdisposingof waste m aterial. Thisatrend - wherever you can - to reuse tote boxes, skids,etc., sSteve Terry, site manager at BMW sWhitby, Ont. distribution ctre,which has been handled by Schenker of Canada since 2006.There's also the issue of what is the better way to packageproduct so it's better protected, for example with windshields, abody packaging. Most of the m anufacturers are going to asfew vdors as possible for their packaging materials so they can develprotocols. There's m ore detail analysis of what types of damageoccurring, to rectify quality control w ith th e vendors overseas.A new warehouse management system, consistent with manufacturer's systems around the world, now offers more consten t flow and visibility. While this trend is not new, m ore manufacturers are going tway. There's more top-down distribution as a result without waing for orders, said Terry, who also noted that, in many casOEMs are moving to get more product closer to the retailers.They are looking at getting smaller DCs in some ofthe difent areas in Canada called 'DM DC s,'asmaller distribution cefor some of the places where there is no distribution centre lithis, he said

Will Michigan ballot amendment kill new Detroit Windsor crossing?The proposed New International Trade Crossing (NITC)connecting Windsor and Detroit is critical to automotivelogistics. Yet, it could be in danger - again.The Nov. 6 US election ballot will ask Michigan residentsto vote on an amendment that would prevent the state fromspending any money or resources on new internationalbridges or tunn els for motor vehicles unless approved by thevoters.The move comes after Michigan Governor Rick Snyderalong with the Canadian government this summer saved yearsofplansfor th e new six-lane bridge with special lanes for pre -approved freight and carriers from being laid waste by politi-cal wrangling and lobbyitig. They did so by signing an interlo-cal agreement that w ould allow the crossing to go ahead.Since the state had no authority to pay for the bridge, Canadaagreed to finance Michigan's $550M portion of the project.Canada plans to make back its investment through tolls.Manuel Maroun, the owner of the four-lane, 83-year-oldAmbassador Bridge, however, continues to doggedly fight anyplans that would allow the construction of the new publicbridge and cu t into his toll revenues. He has spent m illions ona campaign against the new bridge, proposing that he private-ly build a new bridge alongside his existing one instead. Andhe has now managed to force the question on to the state bal-lot. The measure was put on the ballot through the efforts ofa group called The People Should Decide, which was createdand funded by Maroun and his family.Eor his part, Gov. Snyder says it was within his constitu-

tional authority to sign the deal with Canada and that the newbridge will go ahead regardless of the election outcome sincethe agreement has already been signed.The complex automotive supply chains see some car com-ponents crossing the border up to seven times. Windsor's twolargest employers are Chrysler and Eord. The latter estimatesit has as many as 600 trucks a day crossing the border on thecurrent bridge. It's estimated that 1.3 million trucks trips aremade annually over the Ambassador Bridge and one studyfound that about one-third of our exports to the US are com-posed of goods previously imported from the US. The bridgeis by far the busiest commercial crossing in North Americaand congestion when the economy was booming left bothshippers and carriers complaining.So it's no surprise that the automotive industry is con-cerned about being soreliant on aging infrastructure in privathands and that the industry is solidly behind proposals for thenew bridge.Constructing the new bridge, will not only better secureaccess for Canada to its primary market, but is also expectedto create considerable growth for Michigan. The new bridgewill create6,800permanent jobs and contribute $630M eacyear to Michigan's gross state product, according to a recenstudy by the Centre for Automotive Research. The state'sthree largest employers' organizations have also lined up insupport of the project.It remains to be seen if this wave of support will be en oughto get bridge construction started.

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The pressure to have the supply ready and available faster con-tinues to grow. We do several deliveries a day to major centres. Thedealerships in the major centres are starting to have major problemswith space. They are landlocked as properties around th em get butup,so it's more of a trend to multiple daily deliveries and overnightdeliveries, of stock as well as emerge ncy prod uct, he said.OE M service parts pricing is an area that often falls short on vis-ibility and that can negatively impact revenue and gross profit.We do a lot of metrics around getting competitive parts pricing.When we go in and analyze specifics, we see a lot of spreadsheetsand prices tha t just don 't make any sense, said Jon Utterback, vice-president of service parts pricing for Servigistics, an SLM (ServiceLifecycle Management] software company which provides post-sales service automation solutions for 12 of the top 15 automotiveoriginal equipm ent manufacturers. OEMs want to run and maintain inventories in a lean fashionand try to manage inventory stocking levels as closely as possible,and also to pu t pressure o n service parts groups to m anage visibility.There are companies out there today trying to manage millions ofparts using some very basic cost-plus types of pricing. There are somany parts and challenges of what belongs where. It ends up beinga default of wh at's our cost and let's pu t a margin on top oft hat, andtha t will be our pricing, he said.Servigistics offers a ble nde d software s olution allowingOEMs to manage pr ice elast ici ty curves, and to offer competi-t ive pr ice research.

We're able to take a list of parts from an OEM, understandingthe form, fit and function of these parts, and to look at comparableand competitive prices in the marketplace. Based on this form-fit-function, w e go ou t and try to find aftermarket suppliers that w l fitthe parts and gather those prices as well. By taking ma rket averages,it gives the pricing analyst tremendous power in terms of determin-ing and pricing adjustment strategy for the O EM , he said.Wh ile the Ernst and Young study suggests the a utomotive indus-try is struggling to strike a bette r balance betwe en o perational ef-ficiency with flexibility and responsiveness, Jennings said there 's agrowing interest in collaboration amongst automotive players. We're calling it a strategic initiative. Intuitively, we believethere are opportunities for people to collaborate on transportationroutes, to comingle and allow for different customers to share thesame vehicle conveyance. Diesel prices are impacting this. Whatyou wan t to do is attemp t to move m aterial witho ut driving as manymiles as you have in the past, he said. The secret to this stuff is to be able to have th e data aligned withthe OEM and tier one and to execute at 100% proficiency. Therehas to be a great deal of faith placed in the supply line - that's thebasic tenet, no ma tter wh at else is going on, he said. cmFeatures editor Julia Kuzeljeinch has been writing about transportation issues for more than a decade. Her meticulouslyresearched articles have garnered several transportation andCanadian Business Press uniting a wards.

OD DOM ES n C OD EXP EDITED HELPING THE WORLD KEEP PROMISES.arks of Old Dominion F reight Line Inc.

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