International Supply Chain with xKD at Audi

To protect national industry and jobs, some countries impose extremely high import duties on finished products. Because of these high tariffs, companies send construction sets to the destination country for final assembly. Whole cars are shipped around the world in individual parts and assembled on site.

The prerequisite, however, is that the components arrive intact and complete before they are welded, bolted and glued together in the factory. Not an easy task, after all, an average passenger car today consists of up to 10,000 individual parts. Depending on the size and equipment of the vehicle, there can be even more.

If one part in a kit is missing , incorrectly declared or documented, damaged or incomplete, this can be really expensive as production in the assembly plant is delayed. Therefore, not only are the demands on shipping and packaging particularly high in the case of (CKD), but also the control effort is immense.

Automaker Audi builds cars at sites all over the world. In addition to main plants in Germany, it has production facilities in Hungary, Belgium, Spain, Slovakia, Russia, Brazil, Mexico, India and China. At all sites, production takes place with uniform, maximum quality standards worldwide. Responsible for the smooth CKD process at Audi is Peter Koltai, Head of Supply Chain International, who agreed to answer a few questions.

Peter Koltai, Head of Supply Chain International at Audi

Peter, some countries want to protect their automotive industry, jobs and generate know-how by imposing high import duties on finished products. Does that work?

It is true that protectionist measures such as import quotas, taxes and customs duties in certain countries prevent unlimited market access with finished vehicles, so-called Fully Built Units (FBUs).

By contrast, importing vehicles that are transported disassembled into their individual parts and components often imposes significantly lower import duties than for FBUs. For this reason, Audi implements different degrees of so-called xKD delivery for specific countries. Depending on the degree of decomposition, individual vehicle parts, components or assemblies are transported from the main plants in Europe and Mexico to the target countries, where they are gradually completed in xKD production to form a finished vehicle.

[The term xKD indicates that different degrees of knock-down delivery are applied for specific countries, according to their laws and import regulations]

CKD poses extraordinary demands on logistics, especially in terms of packaging and inspection effort. What problems can occur and how do you solve these problems?

When transporting vehicle components and parts worldwide by truck and rail as well as by sea or air, our focus is on the quality as well as process and cost-effective shipping. The planning, implementation, and control of all these activities is the responsibility of the Supply Chain International department, which I am head of.

Our colleagues in the Packaging Planning department analyze optimum batch sizes at parts level, test and define quality-assured packaging. These have to meet high requirements such as enormous temperature differences, high humidity, vertical and horizontal movements and high impact forces. They are repeatedly checked for plausibility and optimized during the process. Here, cooperation models with the logistics planning of the foreign production plants also prove to be target-oriented in order to jointly develop optimal packaging concepts. Taking the most diverse aspects into consideration, both pre-packaging by suppliers and the classical packaging by packaging service providers are considered.

Quality management plays a very important role at Audi. Systematic and consistent quality and process reviews are carried out in order to identify potential for optimization in operational processes and to prevent problems. An overarching system of key figures supports the maintenance of the high-quality standards. A partnership approach along the entire supply chain is a matter of course.

How does your CKD process differ from those of your competitors?

Legislation and economic conditions in the target countries have a significant influence on the CKD process. Every market participant tries to achieve the optimum for him or herself and partners.

Within the Volkswagen Group we use numerous synergies of the brands VW PKW [passenger cars], VW Nutzfahrzeuge [commercial vehicles], Audi, Skoda and Seat when implementing CKD projects, e.g. in the implementation of cross-brand projects, the management of multi-brand packaging plants, joint production sites and lines in the target countries as well as uniform processes and IT systems. The Volkswagen Group brands work closely together in this area.

What models do you transfer using CKD? Which countries do you ship to with CKD?

The complexity that is mapped within our network can be seen from the fact that we supply our international target plants with almost our entire product range. The few exceptions are, for example, the A1 or R8 models.

In terms of volume, China is our largest CKD market. Here, we produce within the FAW-Volkswagen joint venture. There are different constellations in the rest of the world. Audi models are assembled in both our own plants and Group plants.

Can you use the experience gained from the CKD process for other areas?

The xKD business is an integral part of the global supply chain strategy and our process landscape and therefore cannot be viewed in isolation. Both in the Audi brand and within the Volkswagen Group, experience and knowledge is regularly exchanged between specialist departments, process standards optimized and best practices implemented. With regard to the CKD business, the main focus here is on inbound, in-house and outbound logistics processes, service provider management, packaging and network planning, order processing and project management.

The high efficiency of the CKD process was ultimately the decisive factor in also handling the series supply from Europe for the plant in San José Chiapa/Mexico via the CKD logistics network. Here, a pure Audi plant in inbound operations benefits from the experience in the logistics process of the international supply chain.

Are you planning further improvements or adjustments to the CKD process?

The continuous optimization of our processes and our network according to profitability and quality requirements is part of our DNA. In doing so, we also follow global trends such as digitalization or sustainability. We are continuously working on future concepts to prepare our xKD supply chain for the challenges of tomorrow.

For example, we have already integrated new technologies and innovations relating to automation, digitization and virtual reality into our processes.

How does CKD affect the rest of your logistics?

On the part of CKD, we seek maximum synergies with the other logistics departments of Audi. In Mexico, for example, we have planned a joint packaging location with Original Parts Logistics and are operating it successfully together. Of course, we are also looking for meaningful models of cooperation with our colleagues from the plant logistics departments at the various sites. The biggest challenge here is that the plants are subject to a different timing than the CKD business – plants on a daily basis, CKD on a weekly basis. In addition, we work closely with the other brands of the Group at multi-brand packaging locations.

Thank you for the interview, Peter! measure that was actually intended exclusively to protect national markets has an enormous and often positive influence on the entire logistics of the car manufacturers around the world. You grow with your tasks – “man wächst mit seinen Aufgaben” – is a German saying. And this is very true, as you can see from the CKD logistics at Audi.

Inserted image: A170240_large: Audi stands for premium quality – thanks to a worldwide, flexible production network.