The economic downturn has heightened challenges for shippers of aftermarket parts in terms of reduced or uneven shipment frequency, the need to reduce inventory, and the need to maintain customer service levels. In North America, vehicle manufacturers have focused on different areas to optimize their aftermarket supply chains.
Mercedes-Benz USA has improved its logistics efficiency by focusing on parts availability and productivity in warehouse management for inbound and outbound shipments.
Nissan Mexico has focused on transportation efficiency by improving its equipment utilization. What they and other shippers have in common is the need to balance customer service levels with logistics costs.
Achieving and maintaining an efficient aftermarket logistics network is an evolving process — particularly during an uncertain economic climate. Vehicle manufacturers are focusing on revaluating their networks and creating leaner supply chains for future growth.
Lean transport routes
Nissan Mexico uses trucks to transport all of its service parts within the country. Daniel Saenzpardo, logistics director, says that the company’s main challenge is to improve dealer service efficiency while sustaining the trucks’ fill rate and maintaining the same level of logistics costs.
The company’s outbound network distributes aftermarket parts to 250 Nissan-Renault dealers in Mexico, primarily from its warehouse in Toluca, which is located about 40 miles from Mexico City. In addition, Nissan uses three cross-dock facilities that are located near major markets in Monterrey, Guadalajara and Villahermosa.
To optimize its major routes, Nissan Mexico ships from the Toluca warehouse to the cross-docks in 53-foot trucks, which reduces the cost per cubic meter. From the cross-docks to the dealer, it uses 10-ton trucks, which serve a radius of 100 kilometers.
“We have increased our load factor by around 5 percent to achieve 95 percent this year,” Saenzpardo says.
Nissan Mexico has also reduced the transit time between dealers in more than 50 percent of cases by redesigning its routes. Saenzpardo says that this has enabled the company to lower its logistics costs by 15 percent on long-distance routes.
“In the past, we would deliver to dealers all along the route. Now we are allocating to dealers that are near the final destination. Thus, dealers are closer to each other and we can reduce the transit time between them,” he says. Long distance routes run at almost full capacity to the final destination, such as to Chihuahua, Baja California, Chiapas, Yucatan and Campeche.
Nissan Mexico has also reduced its transport mileage. It simplifies the delivery process to some of its dealers by shipping parts directly from the suppliers and bypassing the Toluca warehouse.
“We are also optimizing the return of trucks that become empty once they deliver to the dealers by collecting parts to supply our Toluca warehouse. This means that our inbound logistics for domestic suppliers is nearly at a zero cost level,” Saenzpardo says.
In addition to using domestic suppliers, Nissan Mexico also imports parts from the United States, Japan, the Netherlands and Brazil using entry points Nuevo Laredo and the ports of Manzanillo, Lazaro Cardenas and Veracruz. Imports total approximately 260 truckloads annually from the United States and 1,000 40-foot equivalent units (FEUs) from overseas.
On the outbound side, Nissan Mexico exports approximately 670 truckloads per year from Toluca to Nissan North America. It also ships 750 FEUs to more than 21 Nissan Service Centers in Latin America, which serve the final customer directly, similar to dealers.
For its exports, Nissan Mexico has reduced the transport mileage for stamped parts such as bumpers and engine parts that it produces in-house by shipping directly from its manufacturing plant in Aguascalientes to the port.
Increased service levels
Among Nissan Mexico’s primary goals is to increase customer satisfaction by improving delivery frequency and shipment visibility.
“We want to provide all domestic dealers with regular shipments at least once daily for the Nissan and Renault brands,” Saenzpardo says.
Currently it uses two delivery channels that offer one-day lead time. The first is deemed “urgent delivery,” mainly for premium shipments, and a freight forwarder supplies all parts for dealers through next-day service. The other channel, “normal delivery,” comes on a daily basis and is in place for 50 percent of Nissan Mexico’s dealers. It expects to reach 80 percent by the end of 2010.
Prior to 2009, Nissan Mexico provided regular delivery service as often as three times per week to dealers with high-volume demand and with no more than four stops per trip. As of mid-2009, Nissan Mexico improved its service level by increasing delivery frequency from three times per week to daily deliveries. However, it needed to increase the number of dealer stops to eight per trip in order to maintain the trucks’ fill-rate, according to Saenzpardo.
“We expect to begin a new wave of increased service levels in the fiscal year 2011, which would guarantee at least two deliveries per day in the major cities throughout Mexico,” he notes.
Saenzpardo says that Nissan Mexico needs to commit to its service levels while maintaining the quality of the parts from origin to dealer. In order to avoid damage, it replaced some packaging materials. It is also doing an internal benchmark study within Nissan globally in order to select the best packaging designs for its parts. To that end, Nissan Mexico has established cross-functional task force teams that approach these challenges from a quality, delivery, and cost perspective.
Warehousing improvements
In addition to transportation, warehousing is also an integral component of an effective logistics system. At Mercedes Benz USA, a recent location change is improving its aftermarket logistics efficiency.
Since its U.S. network, consists of 90 percent imported parts, primarily from Germany, the connectivity of Mercedes Benz’s warehouse and port facilities is vital. Dianna du Preez, general manager, parts logistics at Mercedes-Benz USA, explains that the company recently moved one of its warehouses from Orlando, Fla., to Jacksonville within the past few months. It is using Savannah, Ga., as the entry port.
“The Orlando facility belonged to Chrysler; Mercedes-Benz was sharing it. Once our previous three-year contract was underway in 2007, we began the network redesign. Since we also have a Quality Evaluation Center in Jacksonville, which handles warranty parts returns, the relocation provides opportunities for transportation consolidation,” she says.
In addition to Jacksonville, Mercedes-Benz’s warehouses are located in Trenton, New Jersey, using Port Elizabeth, Ontario; California, using Los Angeles or Long Beach, and Fort Worth, Ind., using Houston. For its Chicago warehouse, it trucks either from Port Elizabeth, or for hazardous material, trucks from Montreal.
Du Preez says that the economic downturn led Mercedes-Benz to focus more on cost and efficiency issues. She points out, “we focused on efficiency improvement, but not at the expense of the customer.”
Inventory reduction
Mercedes-Benz also regards customer satisfaction as its top priority. That means when the dealer orders, it wants the parts to be available in the country. The company’s parts availability was 99 percent, which refers to the percentage of orders filled at first pick. It also needs to optimize costs.
For Mercedes-Benz, warehouse cost reduction involves increasing productivity by understanding the benchmarks, reducing overtime and standardizing packaging.
“We increased parts availability, and also reduced inventory. Although our inventory reduction began before the downturn, we placed more effort since the downturn. Inventory declined by 30 percent in a 2.5 year period from 2008 to 2010,” says du Preez.
Mercedes-Benz achieved this by breaking down inventory into different segments. Du Preez says that it optimized the suppliers’ lead time. It focused on the fastest-moving inventory and made it available at the correct level, as well as on slower-moving inventory and on obsolescence. It used life-cycle management to optimize new production introductions and automation to improve its forecasts.
“The focus is on planning and forecasting, which is important, especially since the lead time for parts from Germany is 60 days. The idea was to find ways to take decisions out of the inventory planners’ hands so that they would deal with fewer exceptions,” du Preez says.
Vicissitudes
As the economy continues its slow and uncertain rebound, one of Mercedes-Benz’s logistics challenges has been its vendors’ ability to react to changing demand; i.e. the inability of the vendor to provide material at a higher rate.
“For us, it is about being able to deliver at the same rate, in the same condition, and not taking shortcuts on picking and packing,” says du Preez.
The recession forced a lot of the focus. Through its efforts to improve efficiency, Mercedes-Benz achieved a 15-percent cost reduction that stemmed from three areas: improved labor productivity and reduced overtime, more automation in administration and packaging changes.
In the packaging area, Mercedes-Benz improved packaging methods, reduced damage and reduced packaging costs. “Last year we introduced reusable totes at our Chicago warehouse and we have begun to roll them out to the other four warehouses,” du Preez says.
The challenge has been tracking the totes. Thus far, Mercedes-Benz has achieved a 10-percent reduction in packaging, including a reduction in cardboard. It plans to complete the last of four facilities within the next weeks, according to du Preez.