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Automobile
Logistics
Import-Export Management
Prof. Guerra
Divya Chawhan 10444
Chuthamas Wannapravet 8820
Automobile Logistics- Import-Export Management

AUTOMOBILE INDUSTRY
The automotive industry is a wide range of companies and organizations involved in
the design, development, manufacturing, marketing, and selling of motor vehicles. It is
one of the world's most important economic sectors by revenue. The automotive
industry does not include industries dedicated to the maintenance of automobiles
following delivery to the end-user, such as automobile repair shops and motor fuel
filling stations.
The term automotive was created from Greek autos (self), and Latin motivus (of
motion) to represent any form of self-powered vehicle. This term was proposed by SAE
member Elmer Sperry

AUTOMOBILE INDUSTRY IN GERMANY

Germany has been considered to be the birthplace of the automobile 1870s. The
automotive industry in Germany is one of the largest employers in the country, with a
labor force of over 747,000 (2009) working in the industry.

Being home to the modern car, the German automobile industry is regarded as the most
competitive and innovative in the world, and has the third highest automobile
production in the world, and fourth highest total motor vehicle production. With an
annual output close to six million and a 35.6% share of the European Union (2008),
Germany is the absolute leader of auto production in Europe since the 1960s.

German-designed cars won in the European Car of the Year, the International Car of the
Year, the World Car of the Year annual awards the most times among all countries. The
Volkswagen Beetle and Porsche 911 took 4th and 5th places in the Car of the Century
award.

Currently, five German companies and seven marques dominate the automotive
industry in the country: Volkswagen AG (and subsidiaries Audi and Porsche), BMW
AG, Daimler AG, Adam Opel AG and Ford-Werke GmbH. Nearly six million vehicles
are produced in Germany each year, and approximately 5.5 million are produced
overseas by German brands. Alongside the United States, China and Japan, Germany is
one of the top 4 automobile manufacturers in the world. The Volkswagen Group is one
of the three biggest automotive companies of the world (along with Toyota and General
Motors).

The Chevrolet Volt and its GM Voltec powertrain Technology were invented and
developed first and foremost by the former German Opel engineer Frank Weber and
still todaysome of the most important parts of the development of GM's electric
vehicles are done in Germany.

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Automobile Logistics- Import-Export Management

EXPORTS OF AUTOMOBILE IN GERMANY

German passenger car and light commercial vehicle manufacturers recorded foreign
market generated revenue of more than EUR 251 billion in 2014 a seven percent plus
increase on 2013 results. The domestic market generated revenue of EUR 133 billion a
five percent increase compared to 2013. Around 77 percent of cars produced in
Germany in 2014 were ultimately destined for foreign shores a new record. Worldwide,
a German OEM makes one in five cars that rolls off the production line.

German automobile manufacturers produced almost 15 million vehicles in 2014

equivalent to more than 18 percent of total global production. Twenty-one of the
worlds 100 top automotive suppliers are German companies. Germany is the European
car production leader: some 5.6 million passenger cars and more than 303,500 trucks
and buses were manufactured in German plants in 2014.

Global demand for vehicles Made in Germany remains strong, with exports
accounting for three quarters of all domestic vehicle production (equivalent to almost
4.3 mil- lion vehicles and an annual increase of three percent). Germany was the most
significant exporter of passenger cars in 2014, ahead of Japan and South Korea.

Most German vehicles are exported to other European countries, with neighbor states
accounting for over 50 percent of total export levels. Be- yond Europe, the USA is the
largest importer of German-made vehicles followed by Asia. German OEMs occupied
almost three quarters of the global premium vehicle market, with a similar ratio of
premium segment vehicles manufactured for export purposes. Demand for premium
vehicles is particularly high in China and the USA. The largest and most exclusive
vehicles have a major pull in the Chinese market, so much so that China and India is
the most important market for a number of German vehicle series.

AUTOMOBILE IMPORTS OF UK

The United Kingdom mainly imports machinery and transport equipment (35 percent);
manufactured products (26 percent); mineral fuels, lubricants and related materials
(13.5 percent) and chemical products (11 percent). U.K. main import partners are:
Germany (13 percent), China (8 percent), United States (8 percent), Netherlands (7
percent) and France (5.5 percent). UK is major imports of cars from Germany. Cars like
BMW, Jaguar, Volkswagen etc. are imported. As UK is included in the EU, the trade
between UK and Germany is free of trade

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Automobile Logistics- Import-Export Management

CHALLENGES FACED BY AUTOMOTIVE INDUSTRY

Uneven Growth: The demand for cars is growing, stemming in large part from China,
India, and Eastern Europe. Established automotive markets in the United States,
Western Europe, and Japan, however, are flat to declining.

This uneven growth raises implications for the supply chain. For one, OEMs and their
tier-1 suppliers must establish a local presence to benefit from these new growth
opportunities in emerging economies. They must also tap into the local supply base to
take advantage of cost levels and to fulfill local content requirements. At the same time,
they must integrate local operations into their global supply chain management systems
and programs. For example, sourcing processes from local suppliers must be aligned
with global quality-assurance guidelines and procedures.

Fragmentation: The market of traditional cars such as sedans, vans, pick up tracks etc.
is niche. There is more demand on cars such as SUVs, sports vans. minivans, coupes
etc. The customer demands change continuously as per the personal specifications and
trends. This is causing manufactures with good product offerings. Even environmental
or green movement have encouraged shift in demand away from high fuel consuming
vehicles to more fuel efficient vehicles. This kind of demand has given growth to new
segments such as hybrid cars, clean diesels etc. Manufacturers try to control cost from
fragmentation by introducing various platforms, models and brands creating more
complexity. Thus supply chain needs to manage integrated capabilities and flexible
tools based on real time information available.

Accelerated Volatility: In past new product forecasting was easy. Today, new cars,
which sell more initially, lose the market easily in two years. Due to shift of customer
demand from product to product, brand to brand and from segment to segment are
moving fast. Now a days customer have more choices of products.

Importance of Aftermarket: The aftermarket business is often a somewhat neglected

area, even though it typically generates the largest share of OEM and dealer profits.
Managing this business depends on processes and IT systems that let manufacturers
track product in the following areas:

Saleswhich product is selling, and at which price?

Channelsthrough which channels is product being sold?

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Automobile Logistics- Import-Export Management

Replenishmentwhat are the products replenishment cycles?

Customerswhich kinds of customers are buying which kinds of product?

Creating transparency in the aftermarket business both in sales and in operations of the
business and value chain is an important way for automakers to defend this source of
revenue and profit against independent parts and service suppliers.

Differentiated Outsourcing: Outsourcing in the automotive industry will continue.

Differences in labor costs and disadvantages in scale and scope are influencing this
trend. Outsourcing will create opportunities for both automotive suppliers and supply
chain management providers (such as logistics companies and IT firms) to expand their
businesses into adjacent areasfor example, preassembly or management and quality
control. To benefit from continued outsourcing, supply chain management providers
must offer flexible, modular solutions because not every manufacturer will concentrate
on the same core capabilities and functions.

The high inbound and outbound logistics cost: The cost of inbound logistics can be
as high as 10 percent of the plant manufacturing costs. This is two fold. One is because
suppliers ship out many parts and components. The other is because assembly plants
always require smaller lots with much higher delivery frequency. The distribution cost
of vehicles is extremely high at 30 % of total cost, while the distribution cost of
commercial airlines is lower than 10%. The major cause of high outbound logistics cost
is that there is too many franchised dealers and each one wants to establish its own
individuality. This high cost comes from the redundancy of jobs and processes done by
many small dealers. The operating cost per vehicle of a small dealer is relatively higher
than that of a large dealer. At the same time, large dealers can keep significantly lower
levels of stock than many small dealers do to support the same customer service level.

Risk Management: Natural disasters, terrorism, workforce issues, and level of

dependence on partners and suppliers are just some areas that require strong capabilities
in risk management. Manufacturers and their suppliers must account for supply chain
alternatives in their overall supply chain strategy.

Transparency/Accountability: Business operations are becoming more complex and

global. Supply chains are turning into complex supply networks. As a consequence,
auto manufacturers and suppliers need transparency and accountability across the entire
supply network.

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Automobile Logistics- Import-Export Management

AUTOMOBILE SUPPLY CHAIN METHODS

The automobile industry follows two trends of supply chain

1. Build to Forecast Model

2. Build to Delivery Model

BUILD TO FORECAST MODEL

Sales Forecasting: It aggregates all dealers and national sales companies forecasts and
uses them as an input for production programming. The method is the bottom-up
approach.

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Automobile Logistics- Import-Export Management

Production programming: It is the process of consolidating forecast market demand

to available production capacity to get the framework that defines how many vehicles
will be built in each factory.

Order entry: is the stage in which orders are checked and entered into an order bank to
await production scheduling.

Production scheduling and sequencing: This step fit orders from the order banks into
production schedules. These orders are used to develop the sequence of cars to be built
on the scheduled date. Supplier scheduling is the process whereby suppliers receive
forecasts at various times, actual schedules, and daily call-offs.

Inbound logistics: This is the process of moving components and parts from supplier
to assembly plant.

Vehicle production: It is the process of welding, painting, and assembling the vehicle.

Vehicle distribution: It is the stage at which the finished vehicle is shipped to dealers.
Here the goods are transported via trucks to airport of ports

BUILD TO DELIVERY/ BUILD TO ORDER SYSTEM

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Automobile Logistics- Import-Export Management

Order entry: This begins when a salesperson enters a customer order into the system.
Then, the order is passed on from the dealer to the national sales/regional sales office
and subsequently to the manufacturers headquarters.

Allocation check: It is done at the national sales company to see if the desired vehicle
is available or not for the dealer.

Build-feasibility check: It is the process of checking whether the special options and
specifications are feasible for the production, follows to determine whether special
options and specifications are available for that vehicle in the market. If not, the system
rejects the order and the dealer must make the necessary order correction.

Bill Material Conversion: This is the process of converting the orders received from
the dealer to a bill of materials. This tells the manufacturers what kind of components
they need to build the vehicle.

The final stage in order entry is to transfer the order as a bill of material to the order
bank. The order will stay in the order bank until the system transfers it into the plants
production schedule.

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Automobile Logistics- Import-Export Management

INBOUND SUPPLY CHAIN NETWORK

In this process the first step is to do a supply procurement planning process which starts
with volume calculation corresponding to the production plan to the next period. Here
there is breakdown of parts and quantities required as well as the identification of
potential suppliers. Next step is to do the milk run pick up route where the supplier
information about the location and volume of material to be loaded is given to the
trucks This steps keeps on changing as per the volumes of material. Here the company
also negotiates with each supplier and also inform about the schedules of pickup. After
this master route step, then the company schedules the receiving dock activities to
avoid congestion and ensure high and uniform utilization of the facility. The costs of
inbound logistics for vehicle manufacturers estimate their inbound cost to be around
15% to 20% of the manufacturing costs (plant-based costs only) and 1-2% of the cost of
a finished vehicle

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Automobile Logistics- Import-Export Management

OUTBOUND LOGISTICS

Vehicle distribution or outbound logistics is the process of transporting vehicles from

the assembly plant to the dealership or final customer with large fleets. The outbound
distribution logistics is always done via train, truck, and ship. The above figure
illustrates the main volume routes - from the plant to market compounds or distribution
centers, and then to dealerships or customers. The routes from assembly plant to
regional distribution center and national compounds account for approximately 90 %,
while the vehicles being directly transferred to local dealership account for just 1 %.
Customers coming to pick-up the vehicle at the dealership account for 65%, while
distribution centers delivering the vehicle directly to end users accounts for 25%.

REVERSE LOGISTICS NETWORK

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Automobile Logistics- Import-Export Management

In recent years reverse logistics has become an important aspect of the supply chain and
firms are leveraging it to gain competitive advantage. Reverse logistics encompasses all
operations that relate to the reuse of finished goods as well those surplus materials used
in the forward chain. There are various points in the chain other than the used product
from the consumer from which materials can be reused. In order to design the reverse
logistics framework, firstly the driver needs to be identified. Most common drivers
include savings on raw material and energy, customer satisfaction, emission reduction.
However, reverse logistics can be an effective cost control mechanism.
The reverse logistics framework unlike many other automobile manufacturers where
reusable, re-manufacturable and recyclable automobile components are effectively
utilized. The production cycle itself, the firm uses a closed-loop mechanism where
any viable residual materials are used on the same machine. The company also has the
post-industry-loop mechanism where used materials such as sheet metal scraps, old
plastic containers etc. are recycled back into production. It uses high tech gadgetry and
methods to rapidly dismantle cars. It has also become the preferred choice for car
manufacturers such as Mercedes, BMW and Porsche. Product re-call or Call-backs
which are also part of the reverse logistics process. Manufacturer often have to re-call
vehicles either because it not giving the guaranteed performance, for safety reasons or
violation of certain government regulation. This causes a huge financial burden on
companies. There is a two faced these scenarios but companies use this as an
opportunity to increase brand image and customer satisfaction. The called back
products are inspected and evaluated before they can be sent to the refurbishing, re-
manufacturing processes or for waste disposal. For example, in 2014 BMW had a
massive re-call for over 1.6 million 3 series cars manufactured from 2000 to 2006 due
to a faulty air-bag system, which was a safety issue. There also cases when parts have
to be replaced. These replaced parts are repaired either sent to dealer as new spare parts
or used back in the production.

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Automobile Logistics- Import-Export Management

COST BENEFIT IN INBOUND LOGISTICS

1. Reduction in transportation costs due to consolidated transportation offsetting even
the use of small lot transport.

2. Improvement of the assembly manufacturers production line and greater accuracy of

JIT goods delivery due to synchronization. Milk-Run logistics can provide consolidated
collection of goods necessary to improve logistics procurement systems.

3. Improvement of the vehicle-loading rate, shorten the total distance traveled. It can
achieve various suppliers and manufacturers of coordination, improve agility supplies
and flexibility, but also improve the ability of the manufacturer's response and system
efficiency.

4. It reduces the risk of product quality if problems. Manufacturers can quickly discover
and inform the corresponding suppliers, to minimize the impact on sales.

5. It changes logistics strategies, using third-party logistics significantly reduce in-

process inventory, increased capital flows, reduce investment risks.

BUILD TO ORDER BENEFITS V/S BUILD TO FORECAST

"Build-to-order and mass customization represent a business model that offers an

unbeatable combination of responsiveness, cost and products that customers want when
they want them," says Anderson. Benefits include:

Immediate delivery and high order fulfillment rates without the inventory
dilemma. Too little inventory minimizes inventory carrying cost, but degrades
order fulfillment rates; too much inventory is expensive and vulnerable to
obsolescence. Build-to-order avoids the costs of carrying inventory.
On-demand delivery of a wide variety of standard or mass-customized products
results in better customer satisfaction, growth and profits.
Build-to-order companies can grow sales and profits by expanding sales of
standard products in addition to customized, derivative and niche market
products, while avoiding the commodity trap.
Build-to-order companies are the first to market with new technologies since
part supply and distribution pipelines do not have to be emptied first.
Through mass customization, manufacturers can quickly and efficiently customize
products for niche markets, countries, regions, industries, stores, test markets and
individual customers.

In build to forecast model the production planning is developed based on the sales

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Automobile Logistics- Import-Export Management

forecasts of the sales companies and the dealers. The forecast of the market demand is
consolidated in the production programming and this determines how many vehicles
each factory will build.

Orders are checked at the order entry and stored in the order bank until the time
when production is scheduled.
During the production scheduling the orders from the order bank are turned into
the production schedules.
Suppliers scheduling gives actual schedules to supplier s.
Components are moved around using inbound logistics.
Vehicle production takes place
The vehicles are distributed
CONCLUSION

As seen in this study the automobile industry is faced with huge challenges due to the
fluctuating market environment, changing demands of the well informed customer and
cut throat competition. All these factors have made it imperative for automobile chains
to be more responsive and flexible. Build to order is the best technique to be used. It is
the most cost benefitted in comparison to build to forecast. Many German companies
using build to order technique. In a highly competitive environment, an effective and
efficient global supply chain is a must for automotive manufacturers and their suppliers.
The industry landscape is exposed to a set of critical challenges and trends that are
leading, if not accelerating, the need to fine-tune supply chain strategies and operations
even further. The increasing requirement for real-time information and effective
communication across the supply network is critical for managing and optimizing the
supply chain on a flexible basis, while keeping costs under control.

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