The car's the star
The engine of the auto industry is new vehicle launches, which can take three years and cost more than $500 million. In an increasingly global business, the resulting supply chains and promotional efforts often stretch around the world.
The fresh-from-the-factory 2014 Mercedes S-Class model was picked up from the automaker's Stuttgart plant and flown to an Airbus factory near Hamburg.
In May, a Mercedes S-Class went on a secret flight. The car, a fresh-from-the-factory 2014 model, was picked up from the automaker's Stuttgart plant and flown to an Airbus factory near Hamburg. Before, during, and after the trip, the flight crew and security guards made sure no one could take photographs of the vehicle or even catch a glimpse of it.
While that might seem like an unusual amount of security for one car, the S-Class is key to the future of Mercedes-Benz - some of its new design elements and technical features are also intended for the upcoming C-Class. It was one of the very first finished cars in the company's revamped S-Class line, then still a month away from production, and it was introduced to a select audience of about 700 global customers, retailers, and journalists. The event also included a performance by Alicia Keys and the Hamburg Symphony, followed by a firework display.
Not every car gets serenaded by a pop star. But as the automotive industry grows more competitive, vehicle launches are becoming more important than ever. Even as the business continues to grow - industry analysts HIS Automotive estimate worldwide vehicle sales will rise from more than 80 million last year to more than 100 million by 2018 - global competition is forcing carmakers to deliver innovative engineering, compelling design, and increasing reliability at the lowest possible price.
By the time new models like the 2014 Mercedes S-Class make their debut, they have reached the end of a process that usually takes several years and between $300 million and $500 million - and in some rare cases up to a billion dollars. Simply put, launches determine the future of car companies. And the difference between success and disappointment often depends greatly on supply chain logistics.
The launch process usually begins about three years before the start of production, with design and engineering work that lasts for two and a half years. Carmakers start by creating a concept and doing a feasibility study that brings together engineers and finance executives. If an idea looks promising, the company then builds "mules" for testing. All this must be done in secret, both to prevent competitors from finding out about products and to stoke curiosity for media and customer events.
Part of the process also involves shipping different versions of new components around the world in the kind of small amounts car companies rarely deal with. To complicate things, these components need to reach factories in the right sequence and at the right time to allow for a smooth production process.
An expanding auto market worldwide is being driven by rapid growth in emerging markets.
As engineers develop a new product, carmakers choose their partners and the companies that will eventually supply components. This process is more complicated than ever, since some cars have as many as 20,000 individual components, sourced, made, or assembled by suppliers all over the world. The new Mercedes S-Class, for example, has no fewer than 60 computers. Also, for the first time in generations, not every mass-production car is based on an internal-combustion engine or even the same kind of alternative fuel. "With electric vehicles, there's an entirely new supply chain to organize," says Fathi Tlatli, President Global Sector Automotive, DHL Global Customer Solutions & Innovation. This includes the transport of batteries that are both heavy and sensitive to temperature variations during shipping. At some point, he says, electric-car supply chains will need to account for battery recycling as well.
Six months before launch, companies start preparing for production, finalizing details and supplier deals. Here, too, logistics matters; a delay of just six months can reduce the profitability of a product by 30% over its lifespan. Logistics issues account for about a third of those delays, so creating a reliable supply chain is crucial. Some decisions involve choosing between "relocalization" - having foreign suppliers move near a production site - and using "stretched" supply lines that can increase component delivery time. At this point, cars are so complicated that almost any significant disruption in global trade is felt on the factory floor. Tlatli points out that the Japanese tsunami in 2011 temporarily cut off Detroit's supply of certain car-paint pigments, causing automakers to scramble in search of a replacement and inform customers that they could not take in orders for certain colors.
At the same time, these events and processes rarely take place in a vacuum. Most modern cars are now built on platforms with standard design and engineering specifications shared among a number of models. The idea is that companies can save money by standardizing some parts, plus create greater flexibility by sharing tooling among assembly lines for different models.
But sharing platforms is not a new concept: General Motors has shared chassis and engines among different models for decades, and in the 1980s, Chrysler cut enough costs to save itself from insolvency by building different models on its K-car platform. Until relatively recently, however, cars built on the same platform often seemed too much alike, alienating consumers. Now carefully planned logistics makes it easier to share a chassis and engine but add enough different parts to make each model unique. Platforms are increasingly popular. According to industry experts, the top 20 platforms will account for more than 45% of worldwide car launches by 2015. But regional differences in taste mean that they must be flexible enough to produce a variety of models for different customers. Americans favor powerful engines, for example, while Chinese luxury car buyers, many of whom employ drivers, prefer models with a stretched wheelbase and a larger backseat.
The engine of the auto industry is new vehicle launches, which can take three years and cost more than $500 million.
In theory, companies can save money by building most of several models on the same assembly lines, then finishing them for different markets as needed. But this requires planning production in a way that makes this possible, plus organizing supply chains to ensure an entire operation cannot be stalled by the delay of a few parts. "You can have a global strategy with adaptations for important markets that happen very late in the process," Tlatli says. "In the supply chain, you can bring some components in late in the process in order to be closer to a just-in-time process." For component makers, this makes flexibility very important in responding to challenges or shifts in production. "It's important for us to have people who understand these changes and are able to articulate the proper solutions," says Tlatli.
This gets even more complex when platforms are shared among companies. In September 2012, Renault and Nissan announced they would jointly develop platforms for new vehicles in order to cut costs - a project later joined by Mercedes. The benefits are obvious. All three carmakers will be able to cut prices by driving down the costs of at least some of their parts. But each also needs to make sure that the models they make on those platforms are different enough from the others that consumers see their value.
Something Fiat, Alfa Romeo, Saab, and Renault did back in the 1980s when they all worked together on a sedan. And it will become a more popular strategy as carmakers continue to cut costs.
To help carmakers and component companies manage the ever-increasing complexity of launches, a product launch solution was recently introduced by DHL that integrates the entire launch process, from prototype transportation right down to the delivery of press kits and invitations to the launch event. In addition to arranging "inbound to manufacturing" and aftermarket logistics, supply chains can be built to operate with low cost, low risk, and high efficiency.
Three modules are being offered - Research, Production, and Launch - and customers can either opt for the full solution or go for one of the modules. The Research option includes packing, shipping, security, and customs clearance for prototypes. Production organizes the supply chain logistics that the new model will depend on. Finally, when the product is ready to meet its public - either at an international industry event such as the Frankfurt Motor Show or a special one-off presentation like the Mercedes launch - DHL arranges preview events, press demonstrations, and more.
Sometimes, all of this sophisticated logistics expertise overlaps with old-fashioned delivery service, as it did when a DHL freighter was specially dispatched amid great secrecy to deliver the new Mercedes S-Class to its world premiere. Although the company makes thousands of deliveries daily, this one was special.
"We mostly move components," Tlatli says. "When we move vehicles it's because they're luxury cars or racing vehicles - or because it's a special occasion. For something as important as a car launch, we'll pull out all the stops."