Spare Parts Storage

Working with DHL/Danzas, GM holds 30,000-plus different parts in its Middle East distribution centre. Having the right amount of each keeps GM customers on the road and helps to ensure further sales growth.

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By  Neil Denslow Published  January 8, 2005

|~|peter_roest_m.jpg|~||~|More than 30,000 different types of vehicle spare parts can be found in General Motors’s Middle East distribution centre (MEDC) in Jebel Ali. The warehouse holds everything from hubcaps for Hummers to spark plugs for SAABs and clutches for Chevrolet; and it plays a vital role in ensuring that GM’s customers can get the parts they need to keep their vehicles on the road. GM opened the MEDC in August 2003 in order to better support its dealers in the region. Previously, these companies sourced parts directly from either GM facilities elsewhere in the world or the OEM suppliers, which was both expensive and slow. “The lead times from our various sources directly to our customers were very long,” notes Peter Roest, MEDC operations manager, GM Africa & Middle East. “On some occasions, it was 80-90 days.” “The logistics for some of our customers were also rather expensive,” he adds. “Naturally, full container loads are the preferred form of transportation, but smaller customers did not need the volume required for a full container.” Opening a centre also allowed GM to provide in-region support, which eased a lot of the problems dealers faced when working with suppliers in different time zones with different weekends. “Our sources are also in Australia on one side of the world and in the States on the other side, so previously we did not have a lot of overlap from a customer service perspective,” adds Roest. In line with its wider global strategy, GM decided to outsource the management of the MEDC, with the tender being won by DHL/Danzas. The 3PL now takes charge of large swathes of the supply chain on a day-to-day basis, going beyond warehouse management, and inbound and outbound logistics. “In this part of the world, we have applied the global strategy [of outsourcing]. However, we have gone a little further and also outsourced customer services and the materials management… which is the key to our business,” notes Roest. “A mistake there could mean that we that we end up with US $10 million more inventory than we need.” GM sells six main vehicle brands in the Middle East — Cadillac, Chevrolet, GMC, Hummer, Opel and Saab — and parts for all of them, as well as ACDelco and GM branded spares, are held in the MEDC. The wide range of products reflects the fact that GM has no manufacturing base within the region, which means that it has to source cars, and parts, from around the world. The main suppliers for GM Middle East are its sister companies in other parts of the world, which comprise Holden in Australia, GM America, GM Brazil, Opel in Germany, GM DAT in Korea, and Isuzu in Thailand and Japan. Often though, these seven companies, called allied suppliers in the GM world, are passing on goods they have received from an OEM supplier. To simplify this process, GM Middle East is therefore increasingly turning to directly sourcing parts from the original manufacturer. “We source from 400-odd suppliers directly,” says Roest. “Currently, that program only runs in North America, but we are going to roll it out to other countries as well, starting with Australia.” “We basically bypass the allied supplier and cut out some costs,” he explains. “It’s much leaner to do it that way than through the other facilities, as there are less logistics involved, less costs involved and less administration.”||**|||~||~||~|Whether a product is sourced from an allied supplier or from the OEM supplier depends on the volume needed in the Middle East. The Danzas-run materials management unit in Dubai is in charge of identifying which parts have passed the threshold to qualify for direct sourcing. This is assessed on a monthly basis, and when a part does, the unit alerts GM Middle East’s worldwide purchasing (WWP) unit in Canada. (It is there so that it is in the same time zone as the suppliers.) Once the unit receives an alert, it negotiates a contract with the relevant OEM supplier. The details are then passed through the system back to Danzas in Dubai, which then places the necessary purchase orders on a weekly basis for the duration of the agreement. “These people [materials management] work within the framework of the contract that we have agreed,” says Roest. “However, after a while, the demand will drop, as the product ages, and it will no longer qualify for direct delivery. At that point, we will go back to the allied supplier, but WWP is not involved in that transition. Instead, it is managed by DHL/Danzas, which looks after the lifecycle of the demand.” Once a part held at the MEDC becomes obsolete — which is yet to happen much at the year-old facility — it is deleted. This is line with GM’s selective stocking strategy, as retaining older parts would waste both space and money. Any remaining stock is either sold off, returned to the supplier or destroyed, and if in the future there is a need for it, a part is either found among dealers in the local market, using a recently implemented online parts locator, or flown in from overseas. “If an 1967 Cadillac Eldorado needs a part, we will not have that in stock here. We instead source it from an allied supplier, which normally has it, and then expedite it, normally by airfreight,” explains Roest. For parts regularly held in stock, DHL/Danzas organises shipment from the supplier to the Jebel Ali distribution centre. If they are coming from an allied supplier, the goods are shipped directly from that company’s facilities; however, for parts coming from OEM suppliers in the USA, DHL/Danzas runs a consolidation centre in Detroit, which cuts transportation costs. The DHL/Danzas-run supplier management unit based there also liases with the suppliers to make sure deliveries happen as promised. “The consolidation centre is not just a psychical location, but also a vital part of our supply chain process,” says Roest. “It is continuously chasing the suppliers to ensure that they adhere to the lead times they have agreed with us.” One person from the supplier management unit is also based in Dubai, who liases with suppliers outside of the Americas. “It’s not just the OEMs we need to follow up on,” adds Roest. “But, also Holden in Australia, Isuzu, Opel and all the other GM suppliers as well.” Altogether, around 100 people around the world are involved in the supply chain management process, of whom only 15 work for GM; the rest are DHL/Danzas employees. In the Jebel Ali warehouse, the ratio is even steeper: three GM employees work alongside 70 Danzas staff. With such a variety of activities outsourced to DHL/Danzas, managing this relationship and measuring the performance of the 3PL is one of the key challenges that GM faces. This process is formalised through monthly two-day long meetings between the two sides, where a list of 50-plus KPIs (key performance indicators) are reviewed. These detailed KPIs measure everything, including the performance of the consolidation centre in Detroit, the inbound supply chain and logistics, the materials management, the DC operations, outbound logistics and the customer services element. “We have quite an elaborate contract with DHL/Danzas, and as we have outsourced so much, each element of this contract has to be documented and measured,” says Roest. ||**|||~||~||~|If a KPI is missed, then at the monthly meeting, DHL/Danzas has to present an action plan showing how it will resolve the situation. The payment mechanism in the contract is also linked to these KPIs, so if DHL/Danzas misses a target then there is a financial penalty, which becomes exponentially heavier over the time. The information needed to measure these KPIs is largely drawn from the two companies’ IT systems. GM uses SAP as its ERP system worldwide, and staff from both the carmaker and DHL/Danzas use the local implementation of this to manage GM’s regional supply chain. “That system obviously provides us with a wealth of information,” notes Roest. Further data comes from DHL/Danzas’ two core systems, its warehouse management system, Prologs, and its global track & trace system. “They provide us with the reports and we also have access to their systems to audit whether those reports are correct or not,” explains Roest. The relationship has been a success so far, however, and it is set to grow. GM has unveiled plans to almost double the capacity of the MEDC to 24,000 m2, which will enable it to hold more inventory and increases its maximum number of SKUs to 36,000 from the current limit of 32,000. “The main driver [for the expansion] is vehicle sales in the region,” explains Roest. “We sold 60,000 vehicles in 2003 and we sold nearly 100,000 in 2004, and this growth is expected to continue. We therefore need to be prepared for that.” The impact of this growth in sales on the parts business will not be felt for a couple of years, as most new vehicles do not require any spares during that timeframe. However, a surge in demand is clearly on the way, and the company is moving ahead of the curve by expanding its facility now. “The lead time to build a warehouse like this is a year, so [even though we are starting now] this expansion is not going to be completed until the end of 2005,” says Roest. However, freed from the daily responsibility of running the warehousing, GM has the time needed to plan how it will deal with this surge in demand. Roest therefore sees this as one of the key benefits of having outsourced so much day-to-day activities to DHL/Danzas. “Outsourcing means that GM personnel are freed up to think strategically,” he comments. “Although my job title is operations manager, I don’t really get involved in day-to-day operations. I still walk the floor on a daily basis and speak to the people, but I have got a lot of time to look at the future and interpret how what is happening on the vehicles sales side of the business is going to effect us from a parts perspective,” he explains.||**||

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