As you know from my previous blog posts, I have seen my fair share of waiting, idle trucks in logistics processes. All too often, I have also observed and heard stories about ships waiting for hours in front of a port to be unloaded. With all of today’s advanced technology and knowledge surrounding logistics management, I am surprised at how far we sometimes still are from having smooth and efficient processes in place. However, this is unfortunately the reality in automotive logistics.
Vessels, for example, have to stay in front of vehicle yards and wait to be unloaded because there is no space available for the new cars arriving at the port. Especially at the end of the month or year, vehicle yards tend to be at maximum capacity. On one hand, the waiting vessels result in higher costs due to penalties that have to be paid. On the other hand, the expansion of space would also create additional costs. Nevertheless, the problem remains in automotive logistics and it is important to discuss how some quick wins can be achieved, and how the number of waiting ships due to overloaded yards can be reduced.
Origin of the problem
First, we should look at the origin of the problem in detail. In my opinion, it could be the result of being too optimistic about sales expectations and the slow adjustment of production volumes to actual sales figures. Forecasting and good sales as well as production planning are an art as well, and not everyone is quick enough with adjusting the volumes to real demand. In the meantime, the ports act as a buffer and are quickly filled.
In March 2017, record inventory levels were reached, resulting in the highest automobile inventory level since 2004. This is because automakers produce more cars than are being purchased. Car dealers typically want to see a healthy level of inventory between 60 and 65 days. However, currently, it lies somewhere around 85 days (in worst cases it can extend up to 90 days). One reason is that just small amounts of new vehicles sold in the U.S. are produced directly for customer orders.
The capacity problem at ports is therefore not from a lack of ability to process the vehicles, but rather more from them being used as storage facilities. With this in mind, some steps can be taken to optimize the available space as well as quickly process the vehicles so they can leave the facility as soon as possible.
Solution approaches
The following includes some approaches that can be pursued to help reduce stress and the number of waiting vessels at ports:
Improve the forecasting system to stop over production
The gap between sales forecasts and real sales should be closed by more realistic forecasts based on historical data. Unfortunately, this is the issue that probably won´t be addressed unless there is an enormous shift in the entire automotive industry. In practice, cars are marked as being “sold (or allocated) to a country or dealer” as soon as they leave the factory or board a vessel, but they are not actually sold to an end customer. Statistically, that means for the car manufacturer that, for example, 200,000 vehicles were “sold to a country or dealer” because that is how many left the facility. In fact, the manufacturer sold 130,000 vehicles to a dealer or customer, and the remaining 70,000 vehicles are stored in various ports or inland facilities. Typically, this unbalance between demand and supply should be solved via a proper sales and operations planning process, but there are still some areas for improvement.
In conclusion, for several car producers, yard operators still have difficulties to effectively plan capacity and yard movements. With better forecasting and communication along the downstream supply chain, this problem can be addressed.
Prioritize sold cars and differentiate between fast movers and slow movers
Although not all cars are being produced directly for customer orders, there are some. To shorten the path to the customer, the sold cars could move straight to the pre-delivery inspection (PDI), consequently shortening the customer´s waiting time and making room for other cars. So-called fast movers, cars that will leave the yard within two to six days, should be parked close to the PDI as well and slow movers (more than two weeks on the terminal) can be parked further away. Extensive data analysis can help find the best parking positions.
Introduce Just-in-Time thinking in the car terminal
Today, there are parking buffers planned for the vehicles´ PDI and transport. Sometimes these buffers contain cars for more than four hours, and in some cases, even for two days. Identifying methods to get these buffers minimized to one to two hours can save a lot of space. Ideas to consider here are to start planning not just on a day, but also on hour/minute basis. This would get close to how Just-in-Time works in the factory environment of auto producers. For transport lanes, ports can think about just parking the cars when it is confirmed that trucks will pick them up in the next four hours. Today, yard management systems can support ports to move from daily processes to hourly processes.
Improve coordination between ships and car terminals
As a next step in optimizing the entire automotive supply chain, the planning should also involve the ship carriers to avoid waiting and penalties on waiting vessels. A proactive planning and coordination based on (real time) data of the car terminals and ship carriers would help to organize more smooth logistical processes at the ports.
Closing Thoughts
Waiting vessels in front of overloaded ports are common in automotive logistics as the sales forecasts do not usually correspond to the reality. Automotive ports are increasingly being used as storage facilities. Better forecasting, improved information flow as well as the coordination between all participating parties and optimized planning based on real time data can all help solve the problem. This way, Just–in-Time planning and smart, prioritized movements can be realized to prevent the overloaded car ports from blocking incoming ships.
Where do you see the most potential for improvement along the automotive supply chain?
