Supply Chain Transformation Moving from a local to global supply chain

1
(No Transcript)
2
Supply Chain TransformationMoving from a local
to global supply chain

• Matt Balazs
• Volvo Logistics Corporation
• June 2007

3
(No Transcript)
4
The Volvo Business Areas
5
Volvo Group Organization
RenaultTrucks
VolvoTrucks
VolvoBuses
VolvoCE
VolvoPenta
Volvo Aero
FinancialServices
Mack Trucks
BusinessAreas
Trucks
6
Volvo is 90 of our business
7
Where we operate in North America
8
Volvo Logistics coordinates and designs material
flow to our factories..and then delivers the
finished product
The Supply Chain to the Manufacturing plant
Supply Chain
9
Case Study Information
10
The Planned TransformationOverview

• The Way It Was
• Manufacturing facility produces powertrain
  components for the heavy truck industry.
• Vertically integrated
• Heat treat, final machining for most parts
• Full assembly built in house, manually.
• Almost 100 of supply base is in the US
• The New Way
• Plant will produce new generation of products for
  the EPA 07 emissions
• New products will be mostly assembly, very little
  machine work required.
• Some of the products will come ¾ assembled
• Large part of assembly will be automated
• 80 will be sourced from overseas suppliers

11
The Planned TransformationAffects to the Supply
Chain

• The Way It Was
• Materials stored in house
• Large of suppliers were 1-4 days transit time
• Most of shipments were truck based
• Few non US suppliers were responsible for
  maintaining local inventory
• Supplier had burden of customs, storage,
  transportation, and carrying cost
• The New Way
• Minimal inventory stored in house
• Offsite 3PL utilized to support inbound material
• Facility is responsible for all aspects of the
  supply chain
• Transport, customs, duties, inventory, material
  planning
• 80 of suppliers now 30 days or more in transit
  time
• Truck, ocean shipping, and air freight used.

12
Material Flows

• Local and International

13
The local supply chain.
Local Supplier package shipped to factory
14
The international supply chain is a bit more
complex
15
Consolidations Europe and Scandinavia
Gothenburg
Gent
16
West Bound Transport Flow Example
Gothenburg
Gent
Norfolk
17
Deconsolidation and Distribution USA
Hagerstown
VLNA Hub Radford, VA
Norfolk

• The Blue arrow represents ocean container
  shipments going from Norfolk to the VLNA Hub in
  Radford, VA
• The Red arrow represents LTL or TL shipments
  going to MD.

18
Engines/Engine parts from Sweden to
HagerstownToday Full Container Loads

• The Blue arrow represents ocean container
  shipments going from Baltimore, MD directly to
  Hagerstown, MD.

19
VLNA Northern Logistics Center Concept Mature
VolumesLogistics Center to Be Established,
Sept-Dec 2005
VLNA Northern Hub
PA
Hagerstown
Baltimore
VLNA Logistics Ctr Radford, VA
Norfolk
20
3PL Logistics Center

• Supports the Assembly Facility by
• Pre receiving all ocean container loads
• (25-60 per week)
• Storing Materials
• Kitting for assembly line
• Repacking

21
Lessons Learned

• Need to have good coordination between the
  materials group, purchasing, and logistics
  provider
• Shipping codes and packaging standards need to be
  set up in all systems before shipping materials
• Supplier Labelling standards must be communicated
  to the suppliers for the shipments to be routed
  properly
• Need to establish roles between logistics
  provider and manufacturing
• Bring the logistics provider in early to help set
  up the project.
• Include logistics in the sourcing of materials
• A close relationship between logistics provider
  and manufacturing facility is necessary to aid in
  an efficient process.

22
Pitfalls What can go wrong

• Planning and communication are essential.

23
Stick to doing the basics wellMaterials
Logistics

• Inventory Basics
• FIFO First In First Out
• LIFO Last In First Out
• FISH First In Still Here
• Are you following this one?

24
As you increase the use of International
suppliers, be sure to complete a landed cost
calculationdont be lured only by the piece
price reduction !!!!
25
Or you might miss the bigger picture..and pay
more for the delivered material

• TOTAL LANDED COST
• Material
• Packaging
• Other Logistics/Transportation
• Warehousing
• Sequencing Fees
• Transportation
• Inventory Carrying cost
• Labor
• Equipment
• Compliance Brokerage

26
Logistics Cost Calculation

• TAC Total Acquisition Cost
• LCC Landed Cost Calculation
• TCM Total Cost Model
• TLC Total Logistics Cost
• These are excellent ways to calculate cost the
  best one to remember is this complex algorithm
  developed by someone really smart.
• DISTANCE s

27
Did you know?

• Air freighting production material is 300x more
  expensive than shipping via sea?
• Capacity of sea containers on the North Atlantic
  (largest of our flows) is at an all time high
  and getting tighter?
• Avg. price per container has increased over 200
  in last 3 years
• Large publicly traded companies that reported a
  major supply chain disruption in one year, saw an
  average 86 decline in operating income and 35
  lower stock returns in the following 2 years
• There are things outside our control that can
  cause a supply chain delay
• Hurricanes, lochs break, ships sink, terrorist
  attack
• Suppliers just dont deliver, Ocean carriers lie

Source The Effect of Supply Chain Disruptions
on Long-term Shareholder Value, Profitability and
Share Price Volatility Vinod Singhal, Georgia
Institute of Technology June 2005
28
One last thing you need to prepare your
organization for.

• US Customs and Border Patrol

29
Import barriers are rising
USA
Import Requirements
30
The US Congress gave Customs Border Patrol (CBP)
a mandateImprove the security around our
borders
31
Customs-Trade Partnership Against Terrorism
(C-TPAT) Program

• Post 9/11 joint initiative between U.S. Customs
  and Border Protection (CBP) and U.S. importing
  community.
• Program objective is to strengthen the security
  of the entire supply chain
• 9,900 member companies today enjoy its benefits
• Some C-TPAT benefits
• Reduced incidence of, and time to complete cargo
  inspections
• Greater certainty in management and execution of
  supply chain activities

32
Hardening of the Physical Supply Chain

• Container Security
• Seals, inspections, storage
• Physical Security
• Fencing, lighting, parking, building structure,
  locking devices and key controls, alarm systems,
  video surveillance
• Physical Access Controls
• Employees, visitors, deliveries, challenging and
  removing unauthorized persons

Employee/Visitor restricted access
Sealing Devices on containers
Security around all container stuffing locations
33
Internal Management Practices

• Personnel Security
• Pre-employment verifications, background checks,
  personnel termination procedures
• Procedural Security
• Documentation processing, manifest procedures,
  shipping receiving, cargo discrepancies
• Information Technology Security
• password protection, accountability
• Security Training and Threat Awareness

Security Awareness Training
Procedural Processes for documentation of
imported goods
IT Security
34
Business Partner Requirements

• Security should address supply chain from point
  of stuffing to the point of arrival/Customs
  clearance.
• Written and verifiable processes for the
  selection of foreign business partners including
  Manufacturers, Product Suppliers and Vendors.
• Written guidelines/procedures substantiating that
  foreign business partners throughout their supply
  chain are meeting C-TPAT security criteria, or
  they meet the equivalent supply chain security
  program administered by a foreign Customs
  administration

Purchasings Vendor Selection Criteria must
include
35
So What does all this mean?

• If you are going to source or sell
  internationally
• You must plan and prepare your organization to
  handle the complexity to really manage a global
  solution.
• You will need to re-train your material planning
  group to deal with longer transit times and
  multiple modes of transport.
• Develop the competency in house or use a good
  logistics partner to support you.
• Going Global, can be a very beneficial decision
  if you are aware of the risks, and have
  contingency plans in place to reduce those risk
  factors.
• Work with customs so you don not get into
  trouble.

36
One last question

• What does Volvo mean?

37
Any Questions or Comments?
38
Thank You.

• Matt Balazs
• Volvo Logistics Corporation
• Matthew.Balazs_at_volvo.com
• 336-393-2547