GM shifts global logistics strategy

The automotive giant will outsource management of its logistics operations to a newly formed joint-venture company.

By -- Logistics Management, 1/1/2001

General Motors, the world's largest automotive manufacturer, will shift management of most of its logistics operations over the next three years to a newly formed company, Vector SCM.

Vector SCM is a joint venture between GM and CNF Inc., a $6 billion management company whose operating businesses include Con-Way Transportation Services, Emery Worldwide, and Menlo Logistics. CNF owns a majority stake in the company, but GM retains what CNF President and CEO Gregory L. Quesnel calls a "supermajority" on key strategic issues.

GM and CNF refer to Vector SCM as a "fourth-party logistics company" that will provide the automaker with integrated, end-to-end visibility of all material and finished vehicles moving within its worldwide supply chain. The joint venture will become GM's lead logistics provider, initially taking on logistics management responsibilities in North America for inbound production material, vehicle distribution, premium transportation, and import/export operations. To make that possible, the two companies will share a common information technology system. GM will use Web-based software developed by CNF, including a supply chain visibility and compliance system called Vector Vision, which will enable the manufacturer to manage all materials and finished vehicles in its pipeline.

Vector SCM faces an enormous management task. "We handle over 180 million pounds of freight daily," said Harold R. Kutner, group vice president, GM worldwide purchasing and production control and logistics, during a press conference announcing the deal. "We have 12,000 suppliers [that] produce and ship to over 70 final assembly plants, and we ship about 35,000 vehicles a day. It is a tremendous job to manage this in a systematic way."

And Vector SCM's responsibilities only stand to increase; the long-range plan calls for it to manage GM's operations in other regions of the globe. "It should be clear," said Kutner, "that this company will have total responsibility for General Motors logistics around the world."

GM's Global Logistics operation, meanwhile, will retain strategic and benchmarking responsibility. GM has a logistics staff of about 300 in North America and 800 worldwide. John Gough, GM's executive director of global logistics, says that he sees no need for layoffs but projects that the staff will shrink through normal attrition.

Great expectations

The task facing Vector SCM is enormous, and the expectations are high. It takes on this supply chain challenge as General Motors enters a period of extraordinary change. Once the dominant automaker in the world, GM has steadily lost market share. The company is focusing on cutting costs and moving products to customers quickly in order to become more competitive. Toward that end, GM has decided to eliminate its Oldsmobile line, one of the oldest brand names in the industry. It also has announced that it will lay off 15,000 employees and will shut down 15 percent of its manufacturing capacity in Europe.

A clear mandate for Vector SCM, therefore, is to help GM move much more quickly, both to improve customer service and to reduce inventory. The automotive giant has to reduce inventory by at least 50 percent, Kutner says.

Dominic D. Martilotti, an auto-industry analyst for New York-based Bear, Stearns & Co., agrees that reducing inventories represents a critical focus for GM. "The amount of capital sitting out there is mind boggling," he says.

Faster, more reliable logistics processes will also be crucial to General Motors' efforts to provide built-to-order vehicles for consumers. Martilotti believes that the issue of reliability will therefore be more important than pure speed. "The goal is to have an order placed on the Internet delivered at a predictable time," he says, noting that this is not possible right now.

But that's not to say that speed isn't important. GM has launched an order-to-delivery (OTD) project, the goal of which is to provide accurate and reliable delivery and to slash GM's order-cycle time to 15 to 20 days from its current level of more than 60 days. As part of that program, the manufacturer wants Vector SCM over the next two or three years to take at least four to five days out of the current 11-day delivery time for finished vehicles. Similar concerns led Ford Motor Co. to outsource its finished-vehicle distribution to UPS Worldwide Logistics earlier last year.

Vector SCM will take over GM's logistics step by step. CNF and GM managers currently are in the process of developing "business cases" for various parts of the logistics operation. As GM approves each case, Vector will take on management of that piece of the business. So far, says Gary D. Kowalski, CEO of Vector SCM, the focus has been twofold. "Our role is to ensure that any OTD design changes that [affect] supply chain management are properly supported by the logistics processes. Secondly, we're working in lockstep with GM to study and make improvements to the current materials-flow process to make it more efficient."

Neither CNF nor GM would disclose the financial details underlying the creation of Vector, but it's estimated that GM spends about $5 billion a year on logistics operations. One analyst, Edward W. Wolfe of Bear, Stearns & Co., estimates that the deal could generate revenues for CNF in the range of $1 billion by the end of the first year.