Logistics optimization: Project example of an international car manufacturer
How an international vehicle manufacturer optimised its transport costs and discovered hidden potential.
About the company
A global company in the automobile industry, with several standalone brands employing over 25,000 people worldwide, wanted to optimise its logistics and reduce its logistics costs. This amounted to more than 150 million euros at the beginning of the project.
The company sought to mobilise efficiency reserves in the logistics system and achieve additional reductions in freight costs as part of optimising the logistics process. The aim of the project was to reduce logistics costs for the company in the long term.
The logistics expertise of the Group was concentrated in its own central logistics service provider, which was responsible for incoming and outgoing shipments to European factories together with the local shipping departments. A preliminary investigation showed that the logistics processes (MRP, order picking and loading) were organised individually at each site with varying degrees of efficiency. The division of work between factory divisions and the central service provider also differed depending on the site.
Only in certain areas was freight procurement managed centrally for the group. Each brand had its own logistics process, handled in part by its own staff. Once goods were finalised at the factory, the central logistics service provider was supposed to transport the goods to the customer. This wasn’t always the case in practice, however. Interfaces between the factory and the in-house logistics service provider and external logistics companies were not clearly regulated. There were also no Group-wide standards with regard to the logistics software.
The project to optimise logistics began with extensive data collection. In addition to the sites in Germany, other countries in Europe were investigated. The optimisation of the logistics system took place in two waves: Wave one included Germany, Benelux and Spain, with the remaining companies following in wave two after a successful roll-out.
The tasks were broken down into two modules:
In the first module, procurement worked together with a cross-functional team to incorporate all logistics processes. From logistics procurement and route planning to the invoice process and picking, all steps of the value chain and the specifics such as IT systems used were analysed, taking into consideration each factory’s strengths and weaknesses.
All shipping processes were to be optimised by benchmarking, seeking to create a standardised best practice process. This was accompanied by implementing uniform Incoterms for incoming goods and transitioning from delivered duty paid (DDP) to ex-works in order to increase cargo volume.
As a second step, a uniform interface was to be set up between the factory’s shipping departments and the central logistics service provider. The modified, optimised shipping conditions would significantly increase the use of couriers’ transport capacity.
In the second module, the tender procedure and negotiations for incoming and outgoing shipments were reviewed. All contracts including service level agreements, prices and terms were reviewed. Over the course of three waves, all third-party logistics services were summarised in a tender schedule, divided into regional clusters, before being bundled and sequenced.
On the one hand, this was important for enabling efficient route planning and maximising the use of regional couriers and, on the other, for improving the company’s negotiating stance with couriers.
By optimising logistics as a result of centralising and standardising the logistics process, we managed to significantly reduce the complexity of incoming and outgoing logistics for this vehicle manufacturer and establish a modern and streamlined logistics process. Costs were reduced by rolling out more efficient processes in each factory’s transport management.
At the same time, processing times and error rates were reduced at the ramp control. Courier capacity also improved in the long term since routes were planned more efficiently and further in advance, and loading and waiting times were reduced.
By introducing a web-based supply management for incoming services, times for recording orders and the need for coordination between the supplier, inventory control and transport management were significantly reduced. Establishing a central web tool for outgoing services also optimised the information base for couriers. All logistics partners can now track the current location of the delivery at any time online.
Transport costs were reduced further as a result of higher volumes. This, in turn, reduced courier costs by changing the delivery term from delivered duty paid (DDP) to ex-works. Courier and customs charges, which were previously included in the total invoice price, became more transparent. Further analysis revealed that couriers’ own rates were usually significantly lower than the transportation charges of external DDP suppliers included in the invoice price. By taking these and other measures, the company will achieve savings in the double-digit million range over a period of three years.