When the German auto industry meets, manufacturers and suppliers worldwide listen very carefully. After all, German manufacturers that are used to success are often trendsetters for new products and process innovations.

At the Forum Automobillogistik 2014 in Frankfurt, however, it was an American woman who caused a stir.

“We build where we sell and buy where we sell!” emphasized Susanna Webber, Vice President Purchasing and Supply Chain of the GM subsidiary Opel, describing her company’s philosophy about the distribution of production and supplier networks.

“Is that really new?” asked a few automotive experts at the conference jointly hosted by Verband der Automobilindustrie (VDA) and der Bundesvereinigung Logistik (BVL), and supported by DELMIA Quintiq as a sponsor.

After all, all large car brands have built up production locations at their most important markets globally. The last two big globalization waves were the establishment of plants by Japanese and Korean OEMs in Eastern Europe, and the massive investments in plants on the Chinese market by the worldwide car industry – primarily by German groups. Every fifth car sold in China in 2012 came from a German automaker. And the overwhelming proportion of German cars sold in China was also built in China!

But back to Susanna Webber. The curiosity value of her statement lies in the second part of the sentence, in “buy where we sell”. Admittedly, there has long been talk of localising suppliers, but often this is more illusion than reality. Complete CKD components often still travel half way round the world in containers to be assembled into new cars in South America or Asia with less value creation – perhaps supplemented by a few tyres from domestic production.

It’s not a marathon

There are good reasons for this: building up local suppliers is not a marathon with inconsiderable risks for quality and process security. It can take several years before a halfway suitable supplier network is in place. Susanna Webber is making an ambitious demand on suppliers, her own organization and its supply chain management in particular.

For a vehicle like the new C-Class from Mercedes, which is built in four continents, this results in an unbelievably complex supply network, which can permanently change. There are four different supply chains for each part – at least. Transport costs due to suppliers being located near the plants have to be balanced against the economies of scale of centralised parts production by a single supplier. Because at end of the day, the local supplier must not create higher costs than the supplier at the other end of the world. After all, “buy where you sell”, is not an end in itself.

Read also: How to increase operational flexibility in automotive logistics.

In order to be able to master the enormous complexity of global production with regional supplier structures, two conditions have to be met:

1. Collaboration: According to expert opinion 70% or more of total costs are determined as early as in the development phase. For example, the design of a purchased item is decisive for its transport packaging. And the packaging in turn has a great influence on the amount of transport costs. In the first step, purchasers, production experts and logisticians join the table together with development engineers and sales. In the second step, however, strategic suppliers and logistics services providers have to be included. But this requires a different kind of partnership and collaboration between the OEM, suppliers and service providers.
2. Technology: The planning process has to be supported by efficient planning and optimization systems that can provide simulations and allow the total cost of ownership to be optimized. Previously, optimization was carried out in individual silos far too often. Purchasing primarily looked after parts costs, production after the plant and logistics after transport costs, and storage costs. Optimum solutions should no longer be a thing of the past.

The big picture

Localizing production and supply networks offers great opportunities on the costs and sales side, but increases network complexity and the requirements for risk management. This demands a revision of planning and development processes – and IT solutions that support this. What is needed is a holistic view of supply networks.

“Silo thinking doesn’t work,” said Dr Karl Nowak, President Corporate Sector Purchasing of Robert Bosch GmbH in Frankfurt, bringing this whole discussion to a point.

Contributed by Björn Helmke.

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