For the automotive industry, 2010 couldn’t come soon enough; 2009 was one of the most turbulent years in the industry’s history. With the economy inching toward normalcy, the New Year brings much needed optimism to the entire industry.

In late 2009, the global automotive industry began to see some signs of recovery. General Motors, for instance, doubled its sales in China in October 2009, compared to October 2008. That same month, Ford Motor Company’s sales in Europe rose 13 percent year-over-year.

Despite these positive indicators, automotive insiders must approach 2010 with caution and continue to seek operational efficiencies that keep costs at bay. Within the automotive industry, logistics managers can make a substantial impact on their business’ operating costs by carefully evaluating new supply chain practices. And, with automotive supply chains spreading farther apart, logistics managers must take a more global view as they examine ways to make their supply chains more efficient.

There are three best practices automotive supply chain managers can employ in 2010 to help manage their operational costs: reduce standing inventory, implement formal returns processes, and evaluate new transportation approaches that streamline global supply chains. The following outlines how and why.

Keeping inventory on the move

With parts suppliers based in all corners of the globe, inventory footprints are becoming more costly each year. That’s why automotive logistics managers should strongly consider a direct-to-store supply chain model in 2010.

Modern supply chain management has reduced the amount of inventory companies need to stock. Using a direct-to-store business model allows inventory to remain in motion-across borders and around the world. With the help of a global third-party logistics provider, companies can better synchronize their production and distribution with customer demand.

Shrinking this order-to-cash cycle is more lucrative for companies that have products of high value, such as automotive parts and components. The higher the value of goods, the more important fulfillment becomes. Also, the direct-to-store model can provide invaluable time savings when items are out of stock and must be replenished directly from the factory.

In addition to reducing the number of shipments, this model reduces shipment touch points, resulting in lower administrative and handling costs. The reduction eases the strain on a company’s budget, allowing the use of faster transportation options such as air delivery. Faster fulfillment speeds up time-in-transit by as much as two weeks by eliminating distribution center deliveries and the subsequent receiving and sorting processes that follow. Most notably, faster delivery means faster payment by the customer, which is always a good thing.

Reducing warehoused inventory does carry some risk, such as not having enough inventory if a customer runs out of product or wants to make an exchange. Fortunately, the direct-to-store model can be tailored to a company’s needs, with only a certain percentage of products going directly to stores if need be. Companies also can upgrade to air service to ensure products are replenished quickly.

The rewards for a continuously moving inventory far outweigh the risks. Companies that reduce their standing inventory lower their need for capital investments because the need for new warehouses and expansions shrinks. This model also improves network efficiency, giving a company the ability to respond to seasonal peaks without building distribution capacity that becomes idle during the off-season. And, direct-to-store networks enjoy reduced warehousing and carrying costs, which can be nearly four percent of sales according to Denali Consulting.

Formalizing returns processes brings hidden profits

A returns process in the automotive industry is traditionally complex and costly. There’s only one step to ship a part to a dealership or customer; however, there are many steps to reverse it. The lack of clarity can create fissures in your supply chain, with products returned by inefficient modes to incorrect locations. This results in improperly processed returns, which can cost your business two-to-three times what the part sold for originally. That’s a serious breakdown-but it can be fixed.

In 2010, companies should talk with their third-party logistics providers about automating their returns process. The provider can make it possible for a percentage of returns to go directly from the customer back to the warranty center or recycler instead of the distribution center. Fewer touch points means faster transit times, fewer chances for errors and more rapid turnaround of replacement and credit processing.

Working with UPS, auto parts giant Mopar was able to simplify its international parts returns process for radios and cores. With one simple scan, the shipment information, including the mode and destination, is populated without any manual entry needed, thanks to a Smart Label. Mopar’s returns now spend less time in transit, and locations as far away as Botswana and Croatia have a seven-day transit time. Most of Mopar’s international returns-including returns from China, New Zealand and Romania-have a three- to four-day return time.  

Previously, Mopar’s manual returns process had limited inbound visibility, which made it difficult to keep customers informed of a shipment’s status. Today, Mopar-served dealerships can track their returned parts throughout the returns process, so dealers can better plan for repairs and ultimately improve customer satisfaction.

Most importantly, greater inbound visibility ensures that a part never gets lost in the system. The tracking tools give reverse supply chains the same end-to-end visibility as outbound operations. Complete returns visibility eliminates inventory redundancy and reduces customer calls for status updates. It also helps companies allocate staff based on inbound volumes and automate the receiving and credit processes.

In short, the returns process should be a benefit, not a burden. An automated system records every shipment. Each record can be populated with valuable information that, when looked at cumulatively, can help companies identify design flaws and quality control issues with various products.

An effective reverse supply chain will do more than make internal operations easier-customers will reap the benefits as well. Automating processes like generating returns labels and providing customer tracking for return shipments will reduce credit delays and increase customer satisfaction.

Carving new paths for the supply chain

As we begin 2010, automotive logistics managers should continue to evaluate new, streamlined supply chain methodologies. Historically, most automotive original equipment manufacturers (OEMs) and suppliers that needed to ship products across the globe relied on one of two options: ocean freight or airfreight. Ocean freight proved to be the most cost-effective option-especially considering the sheer volume of goods that a freight vessel can carry. The downside was goods could spend weeks in transit. Conversely, shipping goods via airfreight yielded significant time savings, but it was also more expensive.

At UPS, we have developed a hybrid service that combines both air and ocean freight. The combination of services provides faster transit times than a pure ocean service, but consumes substantially less fuel than a pure air service.

Dubai is proving to be a very attractive hub for a combined ocean/airfreight service. The city’s highly developed port can accommodate ocean vessels carrying automotive parts from China. Then, shipments can be transferred to Dubai’s airport and sent via airfreight to most European cities within hours.

This ocean/air combination can be customized. For instance, if an OEM has a distribution center located near an airport, then the air leg of the combination could be first. Plus, considering the number of sophisticated ports-such as Dubai, Shanghai, Vancouver, and Long Beach, California-the ocean/air route can be tailored to leverage the most strategic port. This service has the potential to be a boon for the automotive industry because it keeps products on the move while reducing transportation and fuel costs.

The New Year and beyond

Automotive logistics managers must be empowered to offer realistic ways to streamline their supply chains, while balancing speed and cost. Bold recommendations-like reducing standing inventory, building formal returns processes, and employing new transportation models-can save as much as 20 percent. Even as the industry rebounds, continuing to build innovative supply chain practices will only benefit your company’s bottom line.  wt



George Post is the Supply Chain Solutions Global Marketing Director for UPS.