March 01, 2013 : Stephen J Harley, executive director, Global Material Planning & Logistics, Ford Motor Co

Ford has been increasing its localisation levels in India, particularly for powertrain. Is the logistics requirement greater for this?
We don’t treat powertrain particularly differently; as a logistician, obviously ‘near is better’. We have to consider it as a total cost equation, so for logistics the simple denominators are distance and density. But our system is set up to recognise the realities that sometimes based on the platform, opportunities may result in imports and sometimes it may lead to development of the local supplier base. That is a great advantage. The flow of materials and availability of materials is better the nearer you can get. Our preference is to organise on an ex-works basis; that means we tend to collect the material and that is a change in this region as we are moving forward. As our volumes increase, our ability to support the supply base by organising collections rather than supply delivery is a much better solution.

How do you rate Ford India’s existing supply chain compared to the overseas one? What are the key highlights of an optimum supply chain?
In 2012, Gartner’s Top 25 rated Ford as the No. 1 automotive supply chain. In terms of India, compared to other places, clearly we have some work to do on infrastructure. The automotive industry is growing at such a rapid pace and India is growing at such a rapid pace that the purpose of my visit here is to spend time discussing with Indian authorities, government and ministries about the need to collaboratively work on our investments in new facilities. Our supply base is investing significantly to support the production at both Chennai and at Sanand in Gujarat and we need improved infrastructure, multimodal solutions, highway development, rail development, and potentially ocean and coastal shipping development. They have to happen and it is only a matter of the pace at which it happens. As the industry grows, the Indian authorities have to find a way to invest in and enable the infrastructure to keep pace, otherwise there will be a constraint on the economy. It is very aspirational to want to grow to a nine-million industry by the end of the decade. You can’t do that with the existing infrastructure and there are five-year plans of the government like the 12th and 13th plans but thankfully they are very mindful about the need to make these things happen. We have had conversations already with two of the authorities and are meeting up with more at the ministerial level.For the automotive manufacturer who is making such a significant investment in India (that forms part of our Asia growth plan), it is essential that the infrastructure steps up to support what we need to do.I like the local supply chain that is lean and capable, responsive, efficient, with some flexibility and operates with high frequency, reliability and affordability.

Which ministries are you seeking collaboration with?
Our particular interest is in shipping. We are an old company and have been around for over 100 years with Henry Ford himself having a vision of integrated logistics. We did not call it logistics in those days but he would give us a factory that was on water, with a rail connection to the side, with a highway or a road that could bring and take the goods and the finished vehicles and of course, it had to be surrounded by willing and capable workforce. We started with one of these objectives in India – a willing and available workforce – but we are struggling a bit on some of the others because the other parts are not available, whereas in most of our other locations we link with rail direct to the site. In the major ones like the UK, we are on the river Thames, in Germany we are on the Rhine, in Turkey and in Brazil we have our own private ports so we can bring vessels directly to load products. We would like to develop a solution here in India that includes coastal shipping that connects the north and the south. We are in advanced discussions with rail equipment providers for improving the density of cars per carriage, so that we can make an affordable solution for rail in the Indian network. These are things that we are trying to get support for and have been talking ever since we started here in 1995. We were a fairly small player in India then and have grown and grown and the Figo has given us the opportunity to significantly change our profile here. We are building on that and as our volumes increase we need multi-modal solutions. We have already talked to the rail and shipping ministry and have also met up with the development agency. In North America, 70 percent of our bulk volume of cars is moved by rail. If they are small cars, we load them on three decks because the rail guy is capable of taking tall wagons and since they are very long drives, we can get a high-volume shipment from the factory to various hubs around North America. In Europe, we tend to use what we call the highways at the sea, so we link our Turkish plant to our Spanish plant to our German plants by coastal vessels. We actually charter the vessels ourselves or work in conjunction with vessel owners that provides a very efficient movement – as water is the lowest in cost of freight, rail is the next and road is the most expensive. But you always need the road in the end as dealers do not have rail connections and in the same way when you bring in material you have to start the journey with the road. But the moment you move it to longer distances, you need rail. However, with the distances and the existing road infrastructure here in India, we feel there is an urgent need for someone like us to commit to the initiative of creating a water corridor and then linking that to rail and ultimately to road. At a time of growth, nobody loses, so this is a win-win-win solution as the people who invest in roads still have a job to do, people who are willing to invest in railways will still do very well and for both environmental and cost reasons, we will use coastal shipping. But there are some enablers that will need to get that done.

With Ford’s second plant coming up in Gujarat, will you use the Mundra Port to export cars and engines? If so, to which markets? What will be the synergies between the southern and Gujarat ports?
That is exactly the conversation we have been having – to see how we would use Mundra, though we have not yet taken a decision on whether it would be Mundra. It is a very attractive and modern port and handles quite a lot of container shipments and is very capable of handling vehicles. It also handles the export of vehicles for Maruti from New Delhi. We will definitely consider Mundra and would like to put our coastal bridge once we select our north-western port. The port will directly link from Chennai via Mumbai (because a lot of our customers are there) to the north-west. But so far we have not entered into a contract with Mundra. There are three ports in that region that we are considering – Mundra, Pipavav, or Kandla in the north-west. But Mundra is in a very good position because of the existing and capable rail connection that fortunately goes from Mundra via Sanand in Gujarat where our factory is, then on to New Delhi – as a west-east and east-west corridor and back-way traffic. So we will try to use a two-way traffic wherever we can, like importing Chennai products for New Delhi and then exporting Sanand products to foreign countries or shipping them down to the southern states. We will try to strike a balance for cars and powertrain. Export markets from Gujarat will not be very different to those from Chennai – these are to the Asia-Pacific region and will continue from Sanand. South Africa and Mexico are already good markets for the Indian production and will grow as products are introduced. As you get global platforms and global products, the ability to ship them around the world will depend on the cost of production and the cost of shipping but many of the products are already made in other locations as well. There is very little exclusivity for example, the EcoSport compact SUV that we are about to launch at Chennai, has been already launched in South America at Brazil. It tends to look after most of the South American demand and is ideally positioned with a very good domestic market and exports. The next launch is here but that is not the last launch. The EcoSport has other manufacturing locations, so we don’t need to worry about shipping the EcoSport but powertrains from India will definitely support other EcoSport production sites. India becomes a centre of excellence for low-displacement powertrains, both from the existing Chennai plant in which we have invested to make it even more flexible, and at Sanand that will have its own powertrain facilities. We will do a little bit of cross-shipping between the two plants to achieve a good balance of their production but from each of the powertrain plants we will have a high proportion of exports to support other low-displacement uses predominantly in the Asia Pacific.

The soon-to-be-launched EcoSport will be powered by the International Engine of the Year 2012: the 1-litre EcoBoost. Will this engine be manufactured at both the Chennai and the new Sanand plants?
Yes, versions of it will be produced at Chennai and Sanand. In small displacements we have got three engine families – DV4, DV5 and Sigma – being manufactured at Chennai. Then there is the three-cylinder and the four-cylinder engine. What we will do is to balance because of the flexibility at both sites that will enable us to flex. There will be some cross-shipment of machined components but the assembly of the three-cylinder final EcoBoost petrol engine is good at both sites. The EcoSport will be available in diesel also.

Does the rise in diesel prices impact Ford’s plans?
Yes, it does impact us on two fronts. When diesel prices go up, trucks that use diesel raise logistics costs and we have to find offsets to price increases in terms of our inbound freight rates. We will find a way to work on our productivity, density, efficiency and try to offset any impact because cost is something that ultimately flows through to either profit or price. It has to land somewhere, so we will continue to make our cost reduction targets. For consumers, fuel prices will drive their choice of powertrain combinations. We are fortunately in a position to respond to that as we have flexible manufacturing. But the supply base needs time to respond to demand because of their plans, so we will monitor demand and try to shape demand as best as we can by offering choice. But there is a necessary response time to adapt to it if demand moves too much.

To reduce costs, have you zeroed down on the suppliers for localising the EcoBoost engine?
Yes, we have got most of them down. The purchasing team is working hard on the capability and investment necessary for the Indian supplier base. So we have got choices as long as Indian suppliers can meet the exacting criteria on quality, cost competitiveness, reliability that they have been most successful in doing till now. In addition, we export quite a lot of suppliers’ material to other locations around the world. In fact, many started as Ford’s suppliers for exports and became Indian suppliers for domestic production as our volumes increased. We are heavily into exporting castings and a very wide range of components often to our Tier 1s.

How is Ford facilitating investments for the supply chain?
For the logistics department, we might invest in packaging, racks and containers but Ford’s investment is in the tooling. The supply chain puts up the manufacturing capacity and we support them with the cost of the tools that actually manufacture our parts.

What kind of personnel training goes into developing a top-notch workforce to handle logistics requirements?
Due to the presence of our global manufacturing and logistics group, we very often give the local talent the opportunity to work elsewhere, not only to gain experience but to share their experience. Many of our local managers have had previous assignments throughout the Asia-Pacific, often in Thailand and China and some other places. A few of them have also had the opportunity to work in Europe and we are now encouraging people to work in the United States and vice-versa. We send our talent to offer support and guidance for the development of local people. We have a recruiting policy under which we go to the best business schools and hire people and even within India, there are certain disciplines for which we work with certain schools to ensure that tomorrow’s talent is developed because as we grow, we will require more people. At Chennai, we have the Business Services Unit – in logistics, they handle our bills of material, development and engineering of logistics solutions. We work closely with them on capacity and constraints management, and that is a business skill rather than a technical skill. We offer a very wide range of career opportunities and from that base you can move up to international assignments and further development by offering people more challenging roles.

Which logistics service providers handle Ford’s India business?
TVS Logistics is our inbound material carrier. For outbound, we tend to have multiple contracts with various trucking companies like Chetak Transport and Om Logistics. We use Gefco around the world as a lead logistics provider besides DHL and others. We also ask them to operate and share their best practices with one another.

How do you view the impediments to improved materials managements and logistics operations in India? How can these issues be streamlined?
One, we have to move to multi-modal solutions and then the highways and roads. When you look at access to some of the small suppliers you simply could not put a 13-metre curtain-sided truck in and unload it to its full capacity. Many of the suppliers might wish to be able to do that but they are dependent on a 15-to-24 flat-bed truck that still uses many of the manual loading techniques like roller loading devices. But a lot of change is in the offing on the highways as the government has declared its initiative to invest in improving highways and as we do that, at least from hubs, we would expect to see an increased use from door to door, from hub to hub. That will make a big difference. Otherwise, the congestion at access points becomes too big a factor. We work on timelines that are very exact and when we plan the use of receiving docks we have a time window – plus or minus 15 minutes – everywhere around the world. The way congestions are solved in India are you leave early and probably most times arrive early. Then you cannot receive it and then you idle, running the engine, wasting the driver’s cost and fuel. The better way would be to have predictable collections, time for arrival, efficient use of truck driver and truck. But because of the unpredictability of the journey time on a good day, they get there early and on a bad day worse still they get in late and then we have to get into some alternative mode to manage the receiving and manage the inventory and protect production. In the logistics business, you have to put the right part in the hands of the operator as soon as it is required and we work backwards from that concept.

Ford India has 260 sales and service outlets across 138 cities in India and over 40 percent of the sales and service network in Tier 2 and Tier 3 cities. The plan is to take the total number of sales and service touch-points in India to 500 by mid-decade. How do you plan to go about this?
Part of our organisation is called Parts, Service and Logistics and we have a plan to grow the number of existing main hub depots. During this time period, we will be moving from three to nine that gives us better penetration and reach and each of the dealers will be entitled to design the level of service whether they are in Tier 2 or 1, and we will look to protect our next day delivery. Very often, there is a very predictable requirement of commodities and parts that we can just replenish. In addition, to avoid inventory, we hold a strategic stock of a mix of parts within that response time, so that the dealer can respond more adequately to the consumer.