Auto pilot

DaimlerChrysler and Ford Motor Co. are fierce competitors, but that didn't stand in the way when they launched a pilot program to improve the distribution of aftermarket parts.

By -- Logistics Management, 7/1/2000

For nine months in 1998, several Ford dealers in northern Michigan took delivery of their aftermarket parts from trucks that were part of a fleet dedicated to one of Ford's major competitors, DaimlerChrysler. The same trucks delivered Chrysler's Mopar aftermarket parts to its own dealers in the area. Surprisingly, that odd arrangement between fierce competitors pleased managers for both automakers.

Those deliveries were part of an unusual experiment-one that brought together the two competitors and a third party, Exel Logistics, in an effort to improve the efficiency of parts distribution. Now, the success of that experiment has been recognized by the American Society of Transportation & Logistics (AST & L), which has presented its annual Partnership Award to Ford Motor Co.'s Customer-Service Division, DaimlerChrysler's Mopar Division, and Exel Logistics. That award, says AST & L, "is given jointly to two or more organizations that have worked together to improve service, productivity, and logistics in a unique manner." The award is co-sponsored by Logistics Management & Distribution Report.

Prime Movers

The pilot program was launched to determine whether competitors, along with a neutral third-party logistics provider, could actually develop a shared-services program that would reduce costs and improve service. Northern Michigan lent itself to the test because the dealers were spread across a wide area, requiring a large number of delivery vehicles. That resulted in unused space in the vehicles of each parts-distribution operation. Under the arrangement, Ford paid a fee to place its parts on the dedicated fleet operated by Exel for the distribution of parts for Mopar. The test reached a total of 11 dealers in northern Michigan.

Jerry Campbell, manager of North American logistics and customs for Ford's Customer-Service Division, and Harry Annan, manager of logistics for Mopar, were the prime movers behind the project. Campbell, who was previously traffic manager for the Ford parts distribution center in Detroit, says that experience made him aware of the large number of miles traveled to serve dealers in the seven states covered by the center.

As for the shared-services concept itself, it wasn't really such a stretch, the managers say. "We share services on airplanes, on freighters, and on LTL carriers," Campbell says. "There was no reason why it wouldn't work with dedicated freight transportation."

It did work. Annan calls the test a "positive experience," and today, the company has several other shared-service agreements in place with other automakers-in Michigan, in the Minneapolis area, and in Canada. Annan adds that he expects DaimlerChrysler will participate in more far-reaching shared-services agreements in the future, although he was not at liberty to discuss them in detail. Ford's Customer-Service Division is also looking into establishing shared-services projects with other auto companies.

"One of the big things to come from [the pilot program] is that we have a template and a footprint on how to do this," Annan says. One thing the companies discovered, for example, was the importance of using a third-party provider to implement the agreement. Exel, he notes, had resources that the automakers lacked, including time and personnel as well as technology. In addition, he notes, the creation of detailed protocols was essential.

Campbell says that the shared-services idea is one way of meeting constant pressure on costs. "I believe that in competing regionally and globally, we need to leverage our buys of transportation every day," he explains. Regarding shared services, he says, "Optimally, we should do it within our own company, then extend it to other customers and providers." In fact, Ford's Customer-Service Division already has shared services with Volvo, which Ford Motor Co. owns, and with Mazda, in which it has a major equity stake.

Ford and DaimlerChrysler are considering a second phase of the test that could include 50 to 100 dealerships.

Heading South

After the test in Michigan, DaimlerChrysler and Ford ran a similar test in Mexico. Like Michigan, Mexico lent itself to the shared-service concept. The routes there were relatively long and the freight density relatively low, creating available cube. In the case of Mexico, the auto dealers outside Mexico City bought less than 50 percent of the parts sold in the country, but distribution to them accounted for 90 percent of the miles. Additionally, each of the partners stood to realize some significant benefits. DaimlerChrysler would realize savings from current rates, Ford would increase service levels to its dealers, and Exel would gain added revenue from the route.

The test ran from July until December last year. Shipments to dealers for both automakers were combined in Guadalajara, then moved north to dealers along the West Coast of Mexico. Although Ford decided to step back from the operation in December while the company evaluated its overall inbound and outbound strategies, the parties agree that the pilot met its goals. It ran within projected costs and it reduced distribution-center costs. "It validated that internationally we had a significant opportunity," Campbell says.

Both Ford and DaimlerChrysler officials believe the shared-services idea might also work with inbound freight. The two companies have about 60 percent of their suppliers in common, although that in itself doesn't guarantee success. "Doing something on the production side is a more difficult battle," says Tim Flucht, Exel's account manager for the Ford/DaimlerChrysler projects.

Keys to Success

What makes a shared-services project successful? Flucht answers, "The basic paradigm you have to get past is competition. People have in their minds that certain parts of the supply chain are a competitive advantage. That may or may not be true. If it is true, you have to consider it very carefully. It is less of an issue when it is only a perceived advantage."

In this case, he says, the managers for both Ford and DaimlerChrysler agreed that the consumer had already made a choice about what car to buy. "Now it was a matter of sharing costs or continuing to pay the full amount," Flucht says.

Another crucial element, he adds, is a large degree of trust between the participants. "Our meetings were very open," he says. "As long as it continues to be that way, these programs can grow and be successful."

It is also important for potential partners in shared services to keep an open mind about how to implement the program. "The lowest-cost solution may not be the servicing carrier," Campbell says. But he does expect the idea to spread. In 10 years' time, he says, "shared services won't be a story. I believe they will be a way of doing business."

Editor's note: For the original story on the pilot project, visit our Web site at www.logisticsmgmt.com, or see Logistics Management & Distribution Report, March 1999, Page 44.