Finding it ever tougher to squeeze cost savings out of suppliers, automakers are turning to the next big frontier - the logistics chain.
Long the domain of small 'Joe's Trucking' outfits hauling parts between plants, logistics is evolving into a global Tier 1 business that can manage a company's flow of raw materials through assembly to the sale of the completed vehicle.
Properly managed, industry executives say, that long chain can yield big savings for the auto industry.
'The logistics company can help both the assembler and the supplier cut costs,' said Miles Raper, senior vice president of Miami, Fla.-based Ryder Integrated Logistics Inc.
'We have learned that the way for automakers to make more money is not to raise the price of the vehicle, but to manufacture it more efficiently by better management of the processes and systems.'
Garel Rhys, director of the Center for Automotive Industry Research at Cardiff University in Wales, said automakers increasingly are looking at logistics management as another way of lowering breakeven points.
'For automakers, taking the cost out of the supply and distribution chain has become a very high-profile activity,' he said. 'It promises to be another way of gaining a competitive edge.'
Taking a larger role
To be sure, the concept of squeezing profit out of the logistics process is still in its infancy, and the field is occupied by only a handful of truly global players.
In Europe, according to estimates, logistics is a $130 billion-a-year industry dominated by small to mid-sized players ranging from traditional haulers and freight forwarders to logistics specialists and computer software houses.
But just as most Tier 1 components suppliers have become systems integrators, some logistics companies such as Ryder are taking an increasingly central role in vehicle production by managing the process itself - or even supplying workers to install parts on the assembly line.
In the United Kingdom, for example, TNT Automotive and Exel Automotive Logistics have been given make-or-break roles in BMW AG's $1.2 billion program to modernize Rover's plant in Oxford. The two companies will manage all components flows into the plant, perform some subassembly at an adjacent supplier park and ship completed vehicles to dealers.
Exel also performs subassembly for SEAT at the Spanish automaker's plant in Martorell, Spain, and for Volkswagen AG in Mexico.
In North America, Ryder manages parts flows for all 21 of Ford Motor Co.'s assembly plants.
A total service
Elsewhere, at least two major shipping groups aim to expand into such areas as reconfiguring vehicles for different markets and providing pre-delivery inspections on a contract basis for national distributors.
Sweden's Wallenius Lines, for example, is reorganizing to combine its ocean-shipping, port services and over-the-road system into a single complete package for automakers.
'We need to be able to supply a total and competitive logistics service leading to shorter lead times and more precision in delivery,' said Bengt Euren, senior vice president for marketing and traffic.
'We can take increasingly more responsibility, but not as one piece of a chain. We need to be able to coordinate and improve. If priorities need to be changed, it's easier to act as a single organization rather than with several other suppliers.'
International in scope
Jonathan Palmer, chief executive of Grand Cayman-based shipping line Ugland International Holdings, also has a vision of his company supplying added value beyond basic transportation.
'The aim is to handle the car from the moment it comes out of the factory until it reaches a dealership,' he said. 'That would allow us to quote on an overall basis.'
Ugland took its first significant step in the direction of becoming a one-stop expediter in February 1998, when it acquired U.S.-based AutoPort Group for $19.7 million. Based in Wilmington, Del., AutoPort specializes in formatting cars for the Middle East and Europe before shipment.
'A Chrysler or Ford or Chevrolet coming off the line is no different whether it is going to Europe or Alabama. It needs to be configured for the country of destination,' Palmer said.
'But you don't stop the line to fiddle with details. The plant is a profit center. They don't give a damn where it is ultimately going. That is our job. We are becoming an extension of the manufacturing process, taking care of bits of the process OEMs may not want to do.'
The electronic frontier
The potential for logistics management is expanding all the way to the consumer's front door as the pace of information technology accelerates, experts say.
By using the Internet, consumers can specify and order a vehicle at virtual showrooms. For the present, buyers must take physical delivery of those cars or trucks through a dealer.
But logistics experts say the day is near when a 'supply-line manager' will manage every facet of a purchase: ordering, production coordination, transportation, prepping and delivery to the customer's front door.
'The most critical area left to be redesigned in the quest to satisfy tomorrow's customers is the new car supply system,' said Malcolm Harbour of London-based Harbour Wade Brown.
'Our research shows that customers are prepared to wait . . . up to three weeks for a car to be built to their exact requirements and delivered. But the traditional dealer can't do that. He is forced to order and stock two to three months in advance, with no end customer. This results in high costs and high customer dissatisfaction.'