Sustainable Supply Chains Key to Automotive LogisticsMon, 09/01/2014 - 12:12
Over 21 years in the industry, Saúl Romero Blake, Director General of logistics consultancy Seeds Linking Group, has seen a complete change in the way multinational automotive companies approach the establishment of operations in Mexico. He has seen them “transition from being somewhat indifferent about logistics to identifying a real need to have their supply chains firmly in place upon their arrival to Mexican shores.” Long before the first brick is laid for an automotive plant, companies undergo an extensive process evaluating Mexico’s potential as an investment destination. “One of the most important deciding factors in that process is the sophistication of the country’s supply chain and logistics,” says Romero Blake. “Automotive companies are renewing efforts to optimize supply chains by paying attention to certain aspects, such as the need to pay import duties, access to free trade zones, and how to find the most convenient gateways into Mexico, from entering via the port of Veracruz to rolling goods across the border from Texas.” The role of logistics has evolved and companies like Seeds Linking Group specialize in analysing the processes in order to offer the best cost reduction options to their customers. For supply chains that have to be built from scratch, Seeds Linking Group factors in potential locations, transportation options ranging from rail, trucking, air and sea freight, and even the characteristics of each product. This latter point is particularly important. “For example, customs will be familiar with simple products like aluminium rims. But if customs has to deal with a complex product, then plans have to made about how taxes will be paid and how customs and borders will be cleared,” Romero Blake explains. With existing supply chains, the logic is simpler. “Only two steps can be taken: cost reduction and efficiency improvement. One way in which Seeds Linking Group helps reduce costs in existing chains is through a close SWOT analysis of production processes,” says Romero Blake. “A further important consideration is the presence of third manufacturing countries in existing supply chains. This could see a company with a plant in Mexico sourcing parts from Asia, first send those parts to Central America to be partly processed before being dispatched to Mexico.” Romero Blake explains that this additional step might seem like it adds a layer to the supply chain but actually can result in overall savings.
Improving the efficiency of a supply chain can be achieved in a number of ways. Seeds Linking Group specializes in the adoption of sustainable practices, and one manner in which it advises its clients to enhance sustainability is through the optimization of the reverse supply chain. For example, Romero Blake explains that packaging made for the automotive industry is made in the US with Mexican cardboard. This means that Mexican cardboard travels to the US to make the packaging and is then imported back into the country along with the auto parts. To convert this into a green process, the companies can recycle packaging or even send it back to the country of origin. Romero Blake says that: “Dealing with packaging might seem inconsequential but it represents a lot of waste, given the volumes of packaging involved in the automotive industry.” Seeds Linking Group shows companies that simple steps like recycling of packaging can save money and optimize the production processes. Another strategy that can help to green up the supply chain is switching modes of transportation. Some companies transfer a lot of freight by truck, which is less environmentally friendly and energy efficient than rail. By charting the precise distances goods have to travel on each leg of their journey along the supply chain, companies can figure out if they can use rail instead. Journeys of less than 804km along the railway line are seen as short-haul journeys and cannot be integrated into the railway network in a cost effective manner, but Romero Blake explains that a company can apply for rail use if the distance to be covered is over 804km. Seeds Linking Group uses this as part of its calculations about which companies should use rail or trucking. Automotive companies pose a particular challenge, however, as Romero Blake says they are sometimes reluctant to engage in sustainability actions due to a “culture of complacency and unwillingness to change logistics practices.” Thankfully, the globalized nature of the automotive industry means that many OEMs and top suppliers have green policies that can be applied to their Mexican supply chains. He calls upon the heads of Mexican operations to open a dialogue with their international headquarters on how to best apply these policies here. Seeds Linking Group has netted its clients in Mexico up to US$2 million in savings by greening up their supply chains, affirms Romero Blake. “Seeds Linking Group met this level of success in the automotive industry during a project with 11 Tier 1 companies in the Nuevo Leon automotive cluster, and we are now looking to replicate this success with the San Luis Potosi cluster.”
Seeds Linking Group has acted as a consultant for ports, inland ports, and intermodal terminals to enable them to better align their operations with the needs of the market. “In the past, companies did not prioritise logistics when settling into a country or a new market, but it is now essential,” Romero Blake comments, returning to his original point. “By ensuring that the clusters, the ports, the railway networks, and all other logistics requirements are firmly in place before automotive companies come to Mexico, the country will be able to add logistical efficiency to its cheap labor costs. Without logistics, there would be no expansion in the automotive industry,” Romero Blake concludes.