Challenges for the Automobile Supply Chain

Kühne + Nagel and LOCOM Consulting speak at the ITA Convention in 2008

The ITA Convention on September 24 through 25, 2008 focused on "Supply Chain Excellence" in the automobile industry. Kühne + Nagel and LOCOM Consulting discussed the challenges presently facing this sector in terms of globalization and climate protection.

Harald Hemming (Kühne + Nagel) and Jürgen Schulz (LOCOM Consulting) discussed how climate protection and emissions reduction effect ever more complex global procurement and distribution networks, raising conflicts among objectives.

Transport, logistics, and shipping companies acknowledge the significance of the emissions issue. A Kühne + Nagel survey of contractors shows that 66% find emissions reduction important. 54% expect financial sanctions in the near future. Political measures are already in action, such as emission-calculated road tolls and heavy traffic fees (LSVA) and the new SOx charge for some East Sea shipping.

Emissions are an uncertain factor in operational planning

Until now, automobile supply chains were designed to meet market demands and curtail production costs. Effects of scale and price differences encouraged production relocation to low-wage regions, making value-creating chains longer. As the flow of goods increased and the relationships of exchange became more complex, the volumes transported also increased, raising, in turn, the emissions.

Both the government and society now demand that companies clearly do their share to reduce climate-threatening emissions. Besides reducing shipping in general and making better use of available capacities, one major issue is how to strategically organize logistics systems to comply with emission regulations.

That is no easy task, considering the present jumbled state of policies, as Hemming and Schulz explained. On the one hand, the fuel price development and additional transport-related charges (e.g. burdening shipment charges with external costs) is uncertain, while on the other, much needs to be done to generate reliable methodical principles for integrating the emissions factor into operational planning. In the Kühne + Nagel survey only 22% of the contractors said they presently measure, evaluate, and control emissions.

Optimization at the Cost and Emissions Level

Innovative solutions are in demand, say Hemming and Schulz, solutions that widen planning methods to include ecological data. Industries ask that logistics service providers work with certified measurement systems, detailed forwarder-specific information on capacity efficiency and CO2 emissions, and open calculation mechanisms that permit allotment of emissions.

The speakers reported on a project where Kühne + Nagel and LOCOM Consulting jointly evaluated not only the classical optimization of a specific customer’s distribution network, but also the changes in emissions brought about by operational optimization. Improved bundling and location configuration reduced costs by more than 8% and CO2 equivalents by approximately 11%. The reduction in costs and emissions resulted from fewer stops while simultaneously increasing the quantities transported and optimizing the exploitation of capacities for intermediate and long hauls. Another approach also optimized the number of necessary long hauls to low volume regions.

Overall, new solutions for optimized automobile supply chains and more ecological supply chains share some common aspects, say Hemming and Schulz. The perspectives jointly presented by Kühne + Nagel and LOCOM Consulting for simultaneously planning costs and emissions concentrate on intelligent transport management, an ecological and economical choice of carriers, and optimizing the entire network. Possible options include exploiting synergies of shipper integration by LLP, delivery time-dependent routing, and newly developed algorithms.