After-sales, analytics and data-driven decision making: How 4PL is driving global automotive supply chains

Describe your experience in the automotive sector.

Achim Glass: My main responsibility is to execute the growth strategy for our automotive customers via our global key account organisation. We design bottom-up and top-down, three- to five-year growth plans for our automotive customers. We support them by improving their supply chain performance in order to take their products to new markets, or by helping them tackle the industry’s transformation from internal combustion engine (ICE) towards drive electrification.

My team takes care of the associated supply chain challenges, such as lack of capacity, unreliable production data, and quick ramp-ups and design customised solutions accordingly.

Matthias Hodel: I work in Integrated Logistics, the global 4PL business field of Kuehne + Nagel. As Head of Commercial, I am responsible for business development and our go-to market approach. We determine how we position our 4PL solution for customers and highlight its key benefits across all key verticals, including automotive.

What are some of the primary challenges facing your automotive customers?

Achim Glass: There are two evergreen challenges: constant cost increases – dealers don’t want to pay more, understandably – and an unreliable availability of service parts. Automotive service parts are sourced around in the world. For a flagship dealer of a German premium carmaker in Germany, we might deliver service parts four times a day, but for their respective dealer in Vietnam, we only deliver three times per week. However, regardless of whether it’s for a premium vehicle or one with a lower value, both customers are equally demanding.

Currently, though, some spare parts aren’t available. We’re facing unreliability in product availability, for example because of the parts manufacturer was closed due to Covid 19, or many blank sailings [where a port will not have a vessel to discharge or load cargo].

How have those supply chain challenges been exacerbated by Covid-19?

Achim Glass: Covid-19 didn’t accelerate anything, it just demonstrated how vulnerable just-in-time (JIT) supply chains are. JIT deliveries are well-oiled, but in a time of high volatility in global supply chain, they are at significant risk. However, the really negative impact of Covid-19 is, if one of the workforce in a warehouse or at a port gets infected, all labourers all have to be sent home. The consequences are production delays or delays in port operations, delaying the vessel departure by days and weeks. At the end of the chain is a dealership’s end-customer who is waiting for their car to get repaired.

How can 4PL Integrated Logistics address these challenges specifically?

Achim Glass: 4PL offers a world of benefits to the automotive market: better planning accuracy as to when spare parts will be available at the dealer, parts visibility from the moment an order has been placed with the OEM giving information about product availability and, an often underestimated task, namely trade compliance. Perhaps, in the past, we focused too much on the final mile element of getting spare parts delivered to the customer from the Regional or National Distribution Center to the dealer/customer. Our 4PL division can look at the entire process – from forecasting how many consumers there will be next month with their 20.000 km inspection requiring most likely a specific set of spare parts and, to where products are sourced from. Integrated Logistics gives a holistic overview of the entire process, not just the final mile process, and can therefore identify supply chain risks and formulate risk mitigation strategies to improve dealer satisfaction. 4PL also sees inefficiencies and creates synergies.

Matthias Hodel: End-customers these days have very high expectations towards supply chains: they’re used to receiving goods they have ordered online the next day. This also translates into the automotive aftermarket, resulting in a B2B supply chain being influenced by B2C expectations. Having a cutting-edge supply chain provides you with a competitive advantage. We tell customers: “It’s not just the problems we have to solve, it’s about seeing the opportunity in order to differentiate yourself.” Having a clear view of a planning cycle and sales forecasts that inform a corresponding supply chain ultimately segues into a competitive advantage companies can profit from.

How is the market evolving, and is technology changing the game?

Achim Glass: Original equipment manufacturers (OEMs) traditionally generate higher earnings in the after sales segment compared to the initial sale of the vehicle. To maximise revenue Automotive manufacturers are also selling car accessories to customers at the point of sale, namely at the dealership when sending in their car for a repair. Such items include new rims or a new pipe exhaust or winter tires but also lifestyle articles, such as OEM branded sunglasses, umbrellas, children toy cars or even bicycles.

Conversely, a new start-up is able to take more of an advantage of additional revenue streams than traditional carmakers. Teslas for example, are typically repaired at a customer’s home, not a dealership. So, their entire aftermarket service model is different. That will also see us adapt our model. Today, we’re delivering to, say, 500 dealerships in a particular country. Maybe in the future we’ll deliver to 300 dealerships, but to an additional 400 individual households. Not to mention the fact that new EV carmakers have generated a completely new revenue stream by the monetisation of data.

Matthias Hodel: As a 4PL, we are committed to replacing gut decisions with data driven decisions. The amount of data that is generated by each supply chain transactions is increasing by the day. For both transactional and master data, the key factors are timeliness, completeness and correctness of information. 4PL focuses on working with the data upstream – the moment where data is injected into the system – to ensure timeliness, completeness and correctness of information are up to a level that allows for automated decision-making. This, of course, is heavily supported by technology. Collection and consolidation of information used to be a resource intensive task. Today, we have strong tools supporting data integration and data analytics, which enables us to focus on value adding activities such as performance management.

Why is 4PL a good fit for this sector?

Matthias Hodel: From a supply-chain perspective, automotive is historically very advanced. It was the industry to push the JIT and just-in-sequence (JIS) concepts to new heights – and it keeps pushing their limits. This generated a huge number of advantages – from inventory management and overall cost perspective – but it also exposed the industry supply chains to substantial disruptions. Consequently, 4PL concepts are being increasingly considered to drive visibility, resilience and sustainability.

Similar to other industry verticals, automotive customers actively seek to optimise their inventories – no one likes large inventories. Having an aftermarket network with a clear view of the inventory – where critical stock levels are considered in a dynamic way, and we can forecast sales and consumption – allows customers to have an optimised inventory level. It ensures we meet the end-customer requirements and expectations in time. This is where a 4PL, with a data-driven approach to supply chain management, can add value.

How do automotive customers’ supply chains differ around the world?

Achim Glass: We have significant regional differences regarding the requirements for spare parts distribution. The market in China is different from the market in Korea or Japan. That is predominantly because of the different is size of the country and the respective longer distances in China and higher congestion in Japan. And, of course, there are differences. Some spare parts will always be available at the dealer such as windscreen wipers and other smaller items, such as oil filters. However, the dealership wants to use every available square metre to show and sell his cars and not use space on parts storage. In particular, larger and more expensive items will be ordered from a distribution centre. The aftermarket for commercial trucks is different, too, because it requires big parts and many components. That means more volume and heavier freight, which also impacts picking time. Can I pick by hand or do I need a forklift to handle the item? But from a manpower perspective – and worldwide we employ several hundred people in automotive aftermarket logistics – the administration time is the same for a small or a large package.

Matthias Hodel: Companies need to ask themselves: “What does good supply chain management look like?” because it’s not always the same. It deviates substantially between markets. Here, 4PL can add value. We can guide companies on what service-level agreements are standard in certain markets and provide a competitive total cost for serving a customer in one market versus another. You can extend the same logic to sustainability aspects, such as calculating CO2 footprint.

We can also cross-leverage customer relationships and insights from other industries. From the high-tech sector, we learn about security; from pharma, we learn about quality and regulatory compliance.

How is automated equipment proving to be a gamechanger?

Matthias Hodel: As a 4PL, automation happens in a digital context for us. Repetitive tasks that we previously needed people to carry out are now automated via robotic process automation (RPA). Recurring customer requests are answered via automated email bots, for example. Or data quality checks are automated via customer specific algorithms. These are just a few examples of applications of automation and AI that we deploy in the 4PL context.