In Transit?

Posted on 24 Oct 2008 by The Manufacturer

With Ford looking to its European enterprise for design and technology to reverse its sliding US market share, the company’s European material planning and logistics director, Stephen Harley, talks to Gay Sutton about Ford Europe, and the changing face of global logistics

East London born and bred, Ford’s director of material planning and logistics for Europe, Stephen Harley, has worked around the globe for Ford, beginning his career in logistics, spending some time as manager of the old Ford assembly plant at Dagenham, and then returning to his primary interest – logistics. In recent years he has overseen the transfer of Ford Transit production from Genk in Belgium to the company’s new facilities at Kocaeli in Turkey, and before that he spent three years at Valencia, Spain. Now, as material planning and logistics director for Ford Europe with responsibility for all European operations – and manufacturing taking place in nine countries from the UK to Spain, and Turkey to Russia – I wondered whether he retained the identity of being British, or thought of himself as European.

“I work in a totally European environment. I’ve lived in Germany, Spain and Britain. It might be in the DNA, but I was brought up here in east London and that lasts. But your attitude is impacted by all the experiences that come afterwards. I cannot differentiate any longer within this business, between Britishness, Germanness, Spanishness. We’re universally European. In fact I’ve spent five years in North America (at the global HQ, Dearborn), and in Ford we have a culture which is global.”

The structure of Ford does, in fact, give the European operations a fair degree of autonomy, he explained. While there is a global vice president for manufacturing, based in the US with worldwide responsibility for manufacturing, “there are what we call the business groups which have an appropriate autonomy. This has created a very good balance. The business units have regional responsibility with regional budgets. So the manufacturing budget for Europe is European. The fact that Joe Hinrichs is the group VP ensures there is a common best practice and investment efficiency. He drives the policies, but the execution is local.”

Ford in the US has suffered considerably from the changing habits of American car buyers, away from the huge gas guzzling SUVs and towards smaller more cost
effective vehicles. And to make matters worse, many global automotive industry experts have predicted that this autumn will be dire as a result of the credit crunch. However, the SMMT (Society of Motor Manufacturers and Traders) has made a more modest downward revision of the overall UK car market this year, from almost two and a half million to 2.2 million. Harley resisted the temptation to give any crystal ball predictions for Ford, and commented: “I’m in the manufacturing side and I will react to demand. But I can tell you that we’ve consistently been running at a very healthy capacity utilisation. Our cars are all very young which may mean that we are less prone [to this downturn].”

Harley believes that Ford Europe’s new models, with their fuel efficiency and low carbon rating, have so far offset the effects of the credit squeeze. And the strength of these European models has also attracted the attention of the US side of the business, which is struggling to adapt to the rapidly changing requirements of its home market. Ford is to convert three US truck and SUV plants for small car production, and six small European vehicles are to be manufactured in North America to feed the growing market for fuel and cost efficient cars.

“The question will be,” he continued, “how quickly can they convert current facilities to start assembling our current generation and slightly into next generation of vehicles. It’s an urgent conversion going on now.” The world of international logistics has been, and is, changing rapidly, and Harley is reacting quickly to the need for low carbon operations. “People are recognising the impact that transportation is having on the environment, and transport companies are now working on their carbon footprint. The interesting thing is that it’s now also driven by costs.” The soaring cost of oil is making everyone rethink their strategies, and I was curious to see if he could see where the prices would go over the next year or so. He laughed, and replied: “If I could, I’d probably be a speculator instead of a user. What we can see is there’s a new awareness of fuel costs. The impact has been significant for our own carriers.”

He explained that for a truck operator, around a third of the cost is for fuel, a third for the driver, and a third for everything else: vehicles, maintenance and overheads. If fuel doubles in price, as it has done, that increases the total cost by 15 per cent. “Frankly what they’d like us to do is pay them a cost increase. But we couldn’t absorb that and our customers wouldn’t want us to pass it on to them – it’s a competitive market out there.” Harley’s answer is to work closely with his carriers to help them offset the cost increases through improvements in efficiency. “We can’t do it completely, but most of the fuel cost increases, so far, have been offset by method improvements.”

He described how he works with DHL Exel, his lead logistics provider. DHL uses a sophisticated model to calculate material flow across Ford Europe. “They design that into a network which we then place with road carriers, rail transport or our shipping company. That enables us to retain control.” If the logistics provider perceives a change in demand at Ford, or any other client, “then we hear about it and can adjust our routes to optimise transport utilisation and reduce costs, so it’s really collaborative between the carrier, the logistics provider and ourselves.”

He optimises the flow of materials within the Ford supply chain as efficiently as possible, but, “the natural flow of goods isn’t always that perfect. Sometimes material moves in one direction and we don’t have any counterbalance, so the carriers would provide that.”

One important facet of maintaining a well optimised and effective logistics network is: “we don’t frequently change carriers – we don’t go shopping for carriers. We’d much rather be in a relationship where we understand and can help with cost. You can’t do that if you just go out and buy transport.”

Ford is in the enviable position of being completely multi modal, which gives Harley the capacity to use road, rail and sea transport to their most cost effective, and Ford Dagenham lies at the heart of the UK logistics web. Transport radiates from here to all ends of Europe. “When Henry Ford chose the location for the Dagenham plant, some 80 years ago, he chose an ideal logistics location,” Harley told me. “He didn’t do it knowingly, but the fact that we’re on the river, with a rail link, and right next to the motorway network, makes this an almost perfect place to blend all these modes of transport.”

The Dagenham site sits on the Thames with its own busy port facilities, handling three ships a day to and from Vlissingen in the Netherlands. The motorway road link feeds into the M25 and the site has railway siding directly linked to the national rail network for transporting loads to the north of England and through the channel tunnel to Europe, a service Harley has been using for years. “In fact, we were the first contracted users of the channel tunnel,” he told me. But to put the icing on the cake, the new high speed channel tunnel rail link passes directly alongside the plant, and he has negotiated for direct access to it, considerably speeding up the journey times for the daily trains to Valencia, Spain.

Meanwhile, Ford and Dagenham are deeply embedded in the British national psyche – the American car company has always had a special relationship with English car buyers, and therefore the closure of the Dagenham assembly plant in 2002 was a painful event. And for Harley, it was a particularly poignant occasion, as he had spent six years as the plant manager.

Today, six years after the closure and following considerable investment by Ford, Dagenham produces all the diesel engines for Ford Europe, and is a global centre of excellence for diesel engine design and manufacture. The old car assembly plant is nothing more than memory – a concrete slab in the ground. The walls have been demolished and the land now belongs to the London Development Agency. By contrast, the engine plants, one old and one new, are powered by two wind turbines from Ecotricity, with a third due to be commissioned next year to ensure the expanding manufacturing plants continue to be 100 per cent powered by renewable energy.

Looking to the future, I asked Harley where he saw the next round of supply chain changes. “With money being so expensive, we have to make sure the whole pipeline is lean and we have as little cash as possible tied up in inventory between the supplier and the point of use. We pick up on the hour now,” he said, and he believed the current challenge was to get the timings right – pick up too frequently and the extra freight costs don’t offset the inventory savings.

“Another big change is in the global supply base. Suppliers are moving progressively to China and eastern Europe where they can exploit emerging markets. The Chinese automotive industry, for example, is growing at a much faster rate than the European one. Suppliers can then offer us very attractive ex works prices, but the challenge for us is to convert this to landed cost price.” In other words, ensure the cost remains low after the cost of transport around the globe has been added.

This links in very closely with Harley’s last point – energy price rises. “The ocean container is suddenly becoming more expensive, and this is causing people to reconsider sourcing and see if there’s a more optimal footprint – maybe over shorter distances – or perhaps there will be commodities for which long distance makes sense, but others where it doesn’t, and it’s going to be too expensive to transport it.”

With this in mind, I wondered if Harley foresaw that we would return to the situation where it was financially and environmentally more sensible for suppliers to be located in satellite formation around the assembly plant.

“I’m not sure they’ll get that close,” he replied, “because eastern Europe still has significant opportunities.” As an example, he explained that Ford has recently acquired the old Romanian Daewoo plant in Craiova, to provide extra capacity to meet the increasing demand for vehicles in Europe. “The acquisition also offers us the opportunity to check the capability of the local supplier base feeding the plant, to test the water and see whether those suppliers will subsequently have the wherewithal to become the suppliers to other plants in Europe.” Production in Romania is due to start next year with a small service vehicle currently in production in Turkey – the Transit Connect.

And this will be followed in 2010 with a small car. In the UK, the Southampton Transit factory hit the headlines recently when the media got wind of the beginning of the cyclical negotiations for the manufacture of the next Transit model, which is due to come into production in 2011.

“Plants compete, that’s the thing,” Harley said. “At the moment we build Transits in Kocaeli in Turkey and in Southampton, and both plants are required for the volume. But they both want to get the lion’s share of production. “Ultimately, however, the decision will come down to economics – and both plants will have to demonstrate how much they can increase their productivity and efficiency. “So, at this round we ask the plants what they think is ‘in the art of the possible’ in terms of their own contribution to their competitiveness.”

Many other factors in the equation, such as the price of steel, are global commodities, and affect both plants equally. “So it comes down to the workforce, and now’s the time for them to give it their best shot and tell us what is their best offer.”

And no sooner is one product launched than the plants begin working on improvements to help them in the bid for the next model. “This is done collectively between the plant management, the teams, the unions, everybody starts working on what could we do.”

Harley is already working on the logistics for the next model. “I engineer the system to presume things stay the same, but with the flexibility that if things change there’s the consequential plan. If you take Southampton, the engine comes from Dagenham which is four hours away from Southampton and four days from Turkey. This all go into the sums.”

And so the merry-go-round of constantly changing supply chain and logistics continues to evolve, and in a world becoming increasingly conscious of its carbon footprint, squeezed by the credit crunch and oil and materials costs, the calculations are becoming increasingly complex and increasingly important.