Executive Briefings

Lean on Automation, Mazda's Spare Parts Center Covers Europe

The Japanese car maker, which once held almost eight months' worth of aftermarket parts at its Belgian logistics center, is well on its way to keeping only a little more than two months' of spares on hand. In doing so, it has relied on surprisingly little in the way of information technology.

The Mazda Motors parts center in Willebroek, Belgium, halfway between Antwerp and Brussels, is a squat, unassuming structure surrounded by fields. Pigs and chickens wander about next door, and local traffic is light. But inside the building, Mazda has achieved what many companies can only dream of: the centralized distribution of spare parts for all of Europe.

Mazda was the first Japanese automaker to grasp the importance of keeping local dealers stocked with aftermarket parts. It opened its first European parts center in 1968. The facility has changed locations three times since then, settling on Willebroek in February 1995.
The current site spreads over 230,000 square meters, including a 40,000-square-meter warehouse. Total investment in the facility, including land acquisition cost, is around $40m, according to Steve Hawlena, general manager of parts and accessory logistics for Mazda Motors Logistics Europe N.V.

While Mazda uses barcoding in its operation, it is not overly reliant on information technology to control every detail of picking and putaway.

Inside is an orderly, almost antiseptic operation that supplies European dealers and distributors with 115,000 different parts, most dispatched within a day or two. It services 32 distributors through 29 depots scattered around Europe, along with a number of Mazda dealerships directly. Ninety-five percent of outbound shipments move to their destinations by truck.

Organization is the key to efficiency at Willebroek. Storage racks are carefully laid out according to the nature of each part. One section, a triple-decked mezzanine, is devoted exclusively to parts smaller than 60 centimeters. They are assigned slots by a computer program that takes into account order frequency, part size and volume. Nearby, a series of high racks handles items of up to one meter, 80 centimeters in length.

Up to now, the largest and slowest-moving parts have been kept 10 kilometers away, at a rented warehouse covering 17,000 square meters. Measuring up to three meters long, those items will move over to Willebroek in April, cutting down on Mazda's inventory expense while advancing the centralization of aftermarket parts within Europe.

Willebroek recently assumed even greater responsibility for serving Mazda's European customers. It has managed to convince distributors and dealers no longer to stock slow-moving items, which account for 75 percent of all aftermarket parts. (In the small-parts department, only about 400 items have daily demand, Hawlena said.) That has freed up a substantial amount of space at dealerships, while giving Willebroek greater control over parts flow.

Although the warehouse is taking on additional line items, it has actually seen a reduction in stock. In 1993, Mazda's European parts center was storing 7.8 months' worth of parts, said Hawlena. As of late 1998, the figure was at 4.1 months and falling. By the end of this year, Mazda expects to have just 3.3 months' of stock on hand, with an eventual goal of 2.5 months'.

All of this has been made possible by more efficient handling and transportation, along with tighter relationships with European consignees. Approximately 4 percent of the parts received by dealers comes directly from Willebroek. For the moment, those dealers are mostly in Belgium, although 44 dealers in Spain also receive parts in the same manner. Mazda expects to undertake more direct shipments as it reduces the number of depots within Europe, Hawlena said. For outbound shipments to dealers and distributors, Willebroek relies on five trucking companies: NYK, Frans Maas, Nedlloyd, Huigen and Parts Express. Currently, there is no single company that can provide uniform service throughout Europe, Hawlena said. In any case, he added, Mazda prefers not to place all of its business in the hands of one vendor.

Pure Logistics in Belgium
A recent corporate reshuffling has clarified and strengthened the role of Willebroek in Mazda's European supply chain. Vehicle sales and promotion have been transferred to Germany, leaving Belgium as a pure logistics operation for parts and accessories.
The change has helped Willebroek to clear the way for a fresh influx of parts, in connection
with Mazda's new joint venture with Ford Motor Co. for the production of pickup trucks in Thailand. The Belgian warehouse will handle centralized distribution of truck parts for Europe, with Ford calling off orders from Daventry, England. The new deal will mean another 900 containers a year bound for Willebroek, which received an average of just over 132 containers a month in 1998.

Willebroek employs barcoding throughout its operation. "We can identify at any moment where a part is in the warehouse," said Hawlena. Incoming orders are processed in batches at night, creating labels and detailed picking instructions for workers the next morning.

In others aspects of the operation, Mazda prefers a manual approach. It does not use automated machines for internal transport. Nor is it overly reliant on information technology to control every detail of picking and putaway, despite the use of barcodes.

Each barcoded label allows for manual backup in the event of a computer crash, which has already happened twice at Willebroek. In such cases, workers can simply peel off a section of the picking label and continue physical operations without interruption. They can even pack and ship without the need for invoices, which in any case aren't required for shipment within the European Union.

By retaining human operators, Mazda ensures greater flexibility of handling, Hawlena said. He points to the automaker's warehouses in Germany, which are fully automated. "That's a tremendous handicap," he said. "If you want to change the layout, it's extremely cumbersome."

Mazda nevertheless has seen a steady rise in productivity at Willebroek, with export volumes comparable to those of the German warehouses. In the last half of 1998, the Belgian facility chalked up a performance record of 84 line items per day per person. That compares with 53 line items in 1992, when the warehouse was handling only monthly orders. The current target is 90 line items.

Operational performance is measured at Willebroek in sometimes agonizing detail. Hawlena can produce charts for every conceivable task in the warehouse. They show the facility as receiving a monthly average of 37,200 line items in 1998 by sea, air and road.

Shipping lines delivering parts from Japan are ranked monthly on the basis of accurate and timely order arrivals, proper documentation, and contingency plans for the inevitable times when things go wrong.

Workers inside the warehouse walls are similarly scrutinized. Mazda has set a target of 1.15 days for the complete putaway of an incoming container's contents. As of late 1998, the facility was shelving parts within that margin 85 percent of the time, against a target of better than 90 percent. It was meeting the goal for same-day release of priority orders - which are not shelved and move directly to the export area for packing - 92.9 percent of the time.

Those numbers are only the beginning. Mazda tracks shelving efficiency both by month and the number of days it takes to empty a container. So in January of 1998, Willebroek received 136 containers with 39,422 items. Forty-one percent of the contents were shelved on the day of arrival and 79.5 percent within another day, for a total "achievement ratio" of 88.4 percent. That final number hovered in the high eighties or low nineties for most of last year, plummeting in the fall only because Willebroek was taking on inventory from another Belgian warehouse.

Sales Promotions, Emergencies
Outbound activities receive the same level of attention. Last October, for example, Willebroek was picking 97.9 percent of all orders by the end of the same day they were received. The average packing ratio within that same time frame was 95.6 percent. Yet the month's achievement ratio, showing how many daily orders were processed according to standards, was only 74.6 percent. That number is so low because the warehouse was handling a number of critical shipments at the same time, tied to sales promotions and other emergencies.

One of Willebroek's most important measures is first-allocation ratio, or the number of orders that are filled by stock on hand. That number is calculated for each day of the year, so that Oct. 29, 1988 found the warehouse with a high for the month of 95.2 percent, and a low of 94.7 percent on Oct. 6. What's left, said Hawlena, is usually coming in on the next truck, eliminating the need for Mazda to rush parts from overseas suppliers most of the time.

Every function within the warehouse is measured down to the smallest detail by zone, function and worker. The system has created some friction with labor unions, Hawlena said, but workers like objective evaluations of individual performance and the bonuses that stem from them. Annual bonuses for the most productive employees might range from 50 percent to 150 percent of monthly salary. "That's very motivating," he said. Hawlena admitted to an "overkill" of statistical information about daily operations at Willebroek. But managers are working hard to ferret out the most important data and discard the rest. Three years ago, an internal study identified 112 reports that didn't need to be done. They were promptly discarded.

Next year, Hawlena said, Mazda's statistical library will be made available via a common computer drive over a local area network. That should further help the facility to eliminate redundant and unnecessary reporting.

Efficient though it may be, the Willebroek operation isn't without its problems. Mazda is unhappy with the high racks that store medium-sized parts, Hawlena said. It has only 16 order-picking machines with sufficient reach, and the battery efficiency of those units is extremely low. In addition, the automaker is struggling with tough new European requirements for the recycling of shipping and packaging materials. The galvanized, collapsible cages seen around the facility are expensive to buy and maintain, but the failure to use them may result in stiff fines in Austria, Germany, Switzerland and elsewhere.

Mazda faces a further challenge in the form of new information technology. Despite its use of sophisticated barcoding, the company depends largely on batched data processing. Rewriting all of that software to allow for real-time operations will be a huge task, Hawlena said.

Still, he said, Willebroek is by far the most efficient of Mazda's four worldwide parts centers, two of which are in Japan and one in the United States. Only the Belgian warehouse can process a constant flow of daily orders, using warehouse management software of its own devising. Now it is gearing up to handle even greater volumes in the next couple of years.

European Sales Growing
And not a minute too soon. Mazda appears to be on the verge of an explosion in European sales. Estimates called for the Czech Republic to take 300 cars last year; the actual number was closer to 6,000. In Italy, annual sales are expected to rise from last year's 4,400 units to 15,000 by the year 2000. Those and other increases will be fueled by removal of the EU's last remaining internal trade barriers on Dec. 31, 1998, Hawlena said.

Mazda has plenty of room to grow at the Willebroek site, but Hawlena sees no need to expand the actual warehouse for the next few years. The facility recently went to two full shifts and could add a third, allowing for round-the-clock operations, within four to five years.

Mazda appears to be on the verge of an explosion in European car sales, but its
goal is to continue reducing the number of parts it keeps on hand.

The company's goal is to continue reducing, not expanding, the number of parts it keeps on hand at Willebroek. At the same time, it plans a significant decrease in those 29 European shipping destinations, although Hawlena declined to say by how much. Expect more direct deliveries and less interim handling, he said, adding that the system of maintaining at least one warehouse for each national distributor is "archaic." The whole strategy is geared toward the smooth flow of parts to dealers and distributors, with a minimum number of shipments coming to rest before final delivery.

Mazda's main focus in years to come will be on meeting local customers' requirements, Hawlena said. Keenly aware that the availability of repair parts can make or break a car owner's sense of product loyalty, Mazda has been talking with dealers about the possibility of nighttime deliveries and repairs. In theory, the customer would be able to drop off a car at night and pick it up in the morning.

How to make that feasible from a transportation standpoint is another matter altogether. Mazda must take care not to disturb crowded European neighborhoods with noisy trucks and receiving docks. But there are other ways to speed up lead times in the aftermarket parts supply chain while minimizing stock levels. This year, Mazda will begin receiving parts from Japan at a barge terminal two kilometers from Willebroek. It figures to save a full day on import processing.

Mazda seems determined to prove that centralized distribution and customer responsiveness are not opposing strategies. In the end, however, it's the end user who will dictate the best approach. "We believe that the next five years to come will be [dominated by] service-related issues," Hawlena said.

Manufacturers complain of a lack of logistics
providers with real pan-European reach
The pieces all appear to be in place. Most of the European Union finally has come together under a common currency with virtual borders allowing for the free flow of product across the continent. Why, then, are there so few logistics providers who can cover the entire region?

Some even say there are none. Kraft Schumann, executive director of Siemens IT Service, has encountered nothing but frustration in his efforts to hire a single logistics vendor who can provide service in every European country.

Siemens IT is a division of electronics giant Siemens AG, created to handle the service and spare parts business of its German parent. It services a full range of products, including personal and mainframe computers, automated teller machines and point-of- sale systems for retailers. Alone, Siemens IT generates around DM3bn ($1.8bn) in revenues; revenues for Siemens AG totaled DM110bn ($65.2bn) in fiscal year 1996-97.

Schumann has enough problems running his business internally. He is torn by the conflicting needs of the manufacturer, its sales force, field engineers and support centers. They are frequently at odds over such issues as optimal product life cycle, inventory levels, customer service, cost control measures and material flow.

Siemens IT sits smack in the midst of that sprawling organization, supporting Siemens products across Europe with 800 service bases, 31 customer help desks, five support centers and 17 systems management centers. With so wide a dispersal of assets, the company relies heavily on top-quality logistics to hold it all together. In some areas, said Schumann, nearly 40 percent of the processes stemming from a service call are logistics-related.

Since 1997, Siemens has moved parts from a central warehouse to a European distribution center, both in Germany, then to depots which were formerly country warehouses. In 12 countries, Siemens IT ships parts directly to the trunks of field engineers' cars. Where that is not possible, the company will arrange for delivery at prearranged dropoff points.

Information technology is a key arrow in Schumann's quiver. As of January 1999, he was able to track the flow of parts from ordering and dispatch to return and availability - a cycle that is designed to take no more than 72 hours. At the same time, Siemens IT has been working hard to reduce inventory levels throughout the supply chain by 50 percent.

All of which places the onus on logistics providers to perform with maximum efficiency. But Schumann was shocked to discover that there was no single provider that could tie together the company's European network of depots. Potential vendors either didn't serve every delivery point, or refused to pick up seven days a week.

Granted, the Siemens logistics network is a complex one. It involves some 20 million shipments a year, 80 percent of which weigh less than 30 kilograms. Trucks handle 60 percent of the traffic, intermodal 20 percent, ocean carriers 10 percent, air-cargo providers 5 percent, and barges 5 percent.

Moreover, logistics vendors of Siemens IT are expected to offer a menu of value-added services, fit squarely into Siemens' own logistics model, and meet air-emission standards for environmentally conscious Europe.

Instead, said Schumann, most logistics providers expected Siemens IT to fit into their service portfolios, which vary from country to country. He likened his search for vendors with a truly global approach to "a fight against the windmill."

The biggest vendors haven't capitalized on the opportunity to use Siemens' requirements as a starting point for better service to all their customers, Schumann said. And no one seems capable of slashing through the thicket of differing customs regulations in non-EU countries, such as Switzerland and Turkey, and in much of Eastern Europe.

Sometimes a company's inability to centralize European distribution through a single provider arises from the nature of the product itself. Otis, the leading maker of elevators, escalators and moving walkways, has designated Charles de Gaulle International Airport outside Paris as its center of service-parts distribution for Europe. The goal is next-day delivery of parts throughout the region.

Otis must cope with diverse regulations governing its products, even within the EU, said European Service Director Pierre Amar. Elevators are considered to be public transit in most countries and are regulated accordingly. That makes standardization of product impossible.

Otis has nevertheless been able to streamline its European logistics network, closing many country warehouses and regional parts centers. But the higher level of service required from logistics providers - seven days a week, 98 percent on time - hasn't been easy to achieve. In early pilot programs, the company learned that no one operator could satisfy its requirements. While Europe's logistics network is growing in size and sophistication, obtaining service on weekends and holidays continues to be a problem, Amar said.

Many companies find themselves turning to a select number of providers with expertise in particular countries. The situation is likely to grow more complex in 2003, when additional countries, including Slovenia, Hungary, Poland, the Czech Republic and Estonia, are slated to join the EU, said Marcel Stuve, vice president of corporate strategies and logistics with Buck Consultants Ltd. in the Netherlands. Logistics providers will be faced with an even greater mix of languages, cultures, tax codes and physical infrastuctures.

Pan-European Providers?
Stuve had expected to see a substantial number of pan-European logistics providers emerging in line with European unification. "They didn't step up to the plate," he said. "Very few can do it."

He sees some hope in the recent rash of mergers, acquisitions and alliances among global providers - Schenker International and Bilspedition, P&O Containers and Nedlloyd Line, Royal Dutch PTT's purchase of TNT, and the German postal service's recent bid for Danzas Corp. The result could be a "seamless solution" among companies with expertise in individual countries, he said.

The EU used to be known as the Common Market, "and one of the things that was 'common' was an agreement to disagree," said Gary Smith, principal consultant for Internet Global Commerce with Syntra Ltd. in Dallas. With its 15 countries and 11 languages, the EU can't be easily compared with the U.S., vast though the latter's territory may be. Securing a single logistics provider in the U.S. is far easier than in Europe, Smith said, especially when shippers venture into countries that lack the most modern infrastructure.

The promotional claims of logistics providers notwithstanding, "to say that one can adequately cope [with all of Europe] is a very broad statement that needs a lot of investigation," he said.

It won't always be that way, in the view of William Villalon, vice president of global marketing for APL Limited. Speaking at a recent conference in Rotterdam, he said new alliances among shipping lines, inland carriers, freight forwarders and others will soon provide the kind of all-inclusive service that global shippers crave.

"European firms are among the leaders in making the transition from basic transportation to value-added supply-chain logistics," Villalon said.

Rolf Noetzli, vice president of logistics with Danzas Corp. in Seattle, said new advances in information technology, along with the debut of the euro as the EU's single currency, will allow logistics providers to cross borders with ease. They are moving quickly in the direction of handling everything from a single envelope to millions of tons of product at a time, he said. Add to that a slew of value-added services, including trade financing, foreign sales management, and pick and pack operations.

But the European logistics community isn't there yet. Service-intensive companies, such as Siemens IT, are still waiting for vendors to make good on their predictions. "What I really miss," said Schumann, "is a provider telling me, 'I bring you the European solution.'"

- By Robert J. Bowman


Part two of this series on automotive parts distribution in Europe will appear in the next issue.

The Mazda Motors parts center in Willebroek, Belgium, halfway between Antwerp and Brussels, is a squat, unassuming structure surrounded by fields. Pigs and chickens wander about next door, and local traffic is light. But inside the building, Mazda has achieved what many companies can only dream of: the centralized distribution of spare parts for all of Europe.

Mazda was the first Japanese automaker to grasp the importance of keeping local dealers stocked with aftermarket parts. It opened its first European parts center in 1968. The facility has changed locations three times since then, settling on Willebroek in February 1995.
The current site spreads over 230,000 square meters, including a 40,000-square-meter warehouse. Total investment in the facility, including land acquisition cost, is around $40m, according to Steve Hawlena, general manager of parts and accessory logistics for Mazda Motors Logistics Europe N.V.

While Mazda uses barcoding in its operation, it is not overly reliant on information technology to control every detail of picking and putaway.

Inside is an orderly, almost antiseptic operation that supplies European dealers and distributors with 115,000 different parts, most dispatched within a day or two. It services 32 distributors through 29 depots scattered around Europe, along with a number of Mazda dealerships directly. Ninety-five percent of outbound shipments move to their destinations by truck.

Organization is the key to efficiency at Willebroek. Storage racks are carefully laid out according to the nature of each part. One section, a triple-decked mezzanine, is devoted exclusively to parts smaller than 60 centimeters. They are assigned slots by a computer program that takes into account order frequency, part size and volume. Nearby, a series of high racks handles items of up to one meter, 80 centimeters in length.

Up to now, the largest and slowest-moving parts have been kept 10 kilometers away, at a rented warehouse covering 17,000 square meters. Measuring up to three meters long, those items will move over to Willebroek in April, cutting down on Mazda's inventory expense while advancing the centralization of aftermarket parts within Europe.

Willebroek recently assumed even greater responsibility for serving Mazda's European customers. It has managed to convince distributors and dealers no longer to stock slow-moving items, which account for 75 percent of all aftermarket parts. (In the small-parts department, only about 400 items have daily demand, Hawlena said.) That has freed up a substantial amount of space at dealerships, while giving Willebroek greater control over parts flow.

Although the warehouse is taking on additional line items, it has actually seen a reduction in stock. In 1993, Mazda's European parts center was storing 7.8 months' worth of parts, said Hawlena. As of late 1998, the figure was at 4.1 months and falling. By the end of this year, Mazda expects to have just 3.3 months' of stock on hand, with an eventual goal of 2.5 months'.

All of this has been made possible by more efficient handling and transportation, along with tighter relationships with European consignees. Approximately 4 percent of the parts received by dealers comes directly from Willebroek. For the moment, those dealers are mostly in Belgium, although 44 dealers in Spain also receive parts in the same manner. Mazda expects to undertake more direct shipments as it reduces the number of depots within Europe, Hawlena said. For outbound shipments to dealers and distributors, Willebroek relies on five trucking companies: NYK, Frans Maas, Nedlloyd, Huigen and Parts Express. Currently, there is no single company that can provide uniform service throughout Europe, Hawlena said. In any case, he added, Mazda prefers not to place all of its business in the hands of one vendor.

Pure Logistics in Belgium
A recent corporate reshuffling has clarified and strengthened the role of Willebroek in Mazda's European supply chain. Vehicle sales and promotion have been transferred to Germany, leaving Belgium as a pure logistics operation for parts and accessories.
The change has helped Willebroek to clear the way for a fresh influx of parts, in connection
with Mazda's new joint venture with Ford Motor Co. for the production of pickup trucks in Thailand. The Belgian warehouse will handle centralized distribution of truck parts for Europe, with Ford calling off orders from Daventry, England. The new deal will mean another 900 containers a year bound for Willebroek, which received an average of just over 132 containers a month in 1998.

Willebroek employs barcoding throughout its operation. "We can identify at any moment where a part is in the warehouse," said Hawlena. Incoming orders are processed in batches at night, creating labels and detailed picking instructions for workers the next morning.

In others aspects of the operation, Mazda prefers a manual approach. It does not use automated machines for internal transport. Nor is it overly reliant on information technology to control every detail of picking and putaway, despite the use of barcodes.

Each barcoded label allows for manual backup in the event of a computer crash, which has already happened twice at Willebroek. In such cases, workers can simply peel off a section of the picking label and continue physical operations without interruption. They can even pack and ship without the need for invoices, which in any case aren't required for shipment within the European Union.

By retaining human operators, Mazda ensures greater flexibility of handling, Hawlena said. He points to the automaker's warehouses in Germany, which are fully automated. "That's a tremendous handicap," he said. "If you want to change the layout, it's extremely cumbersome."

Mazda nevertheless has seen a steady rise in productivity at Willebroek, with export volumes comparable to those of the German warehouses. In the last half of 1998, the Belgian facility chalked up a performance record of 84 line items per day per person. That compares with 53 line items in 1992, when the warehouse was handling only monthly orders. The current target is 90 line items.

Operational performance is measured at Willebroek in sometimes agonizing detail. Hawlena can produce charts for every conceivable task in the warehouse. They show the facility as receiving a monthly average of 37,200 line items in 1998 by sea, air and road.

Shipping lines delivering parts from Japan are ranked monthly on the basis of accurate and timely order arrivals, proper documentation, and contingency plans for the inevitable times when things go wrong.

Workers inside the warehouse walls are similarly scrutinized. Mazda has set a target of 1.15 days for the complete putaway of an incoming container's contents. As of late 1998, the facility was shelving parts within that margin 85 percent of the time, against a target of better than 90 percent. It was meeting the goal for same-day release of priority orders - which are not shelved and move directly to the export area for packing - 92.9 percent of the time.

Those numbers are only the beginning. Mazda tracks shelving efficiency both by month and the number of days it takes to empty a container. So in January of 1998, Willebroek received 136 containers with 39,422 items. Forty-one percent of the contents were shelved on the day of arrival and 79.5 percent within another day, for a total "achievement ratio" of 88.4 percent. That final number hovered in the high eighties or low nineties for most of last year, plummeting in the fall only because Willebroek was taking on inventory from another Belgian warehouse.

Sales Promotions, Emergencies
Outbound activities receive the same level of attention. Last October, for example, Willebroek was picking 97.9 percent of all orders by the end of the same day they were received. The average packing ratio within that same time frame was 95.6 percent. Yet the month's achievement ratio, showing how many daily orders were processed according to standards, was only 74.6 percent. That number is so low because the warehouse was handling a number of critical shipments at the same time, tied to sales promotions and other emergencies.

One of Willebroek's most important measures is first-allocation ratio, or the number of orders that are filled by stock on hand. That number is calculated for each day of the year, so that Oct. 29, 1988 found the warehouse with a high for the month of 95.2 percent, and a low of 94.7 percent on Oct. 6. What's left, said Hawlena, is usually coming in on the next truck, eliminating the need for Mazda to rush parts from overseas suppliers most of the time.

Every function within the warehouse is measured down to the smallest detail by zone, function and worker. The system has created some friction with labor unions, Hawlena said, but workers like objective evaluations of individual performance and the bonuses that stem from them. Annual bonuses for the most productive employees might range from 50 percent to 150 percent of monthly salary. "That's very motivating," he said. Hawlena admitted to an "overkill" of statistical information about daily operations at Willebroek. But managers are working hard to ferret out the most important data and discard the rest. Three years ago, an internal study identified 112 reports that didn't need to be done. They were promptly discarded.

Next year, Hawlena said, Mazda's statistical library will be made available via a common computer drive over a local area network. That should further help the facility to eliminate redundant and unnecessary reporting.

Efficient though it may be, the Willebroek operation isn't without its problems. Mazda is unhappy with the high racks that store medium-sized parts, Hawlena said. It has only 16 order-picking machines with sufficient reach, and the battery efficiency of those units is extremely low. In addition, the automaker is struggling with tough new European requirements for the recycling of shipping and packaging materials. The galvanized, collapsible cages seen around the facility are expensive to buy and maintain, but the failure to use them may result in stiff fines in Austria, Germany, Switzerland and elsewhere.

Mazda faces a further challenge in the form of new information technology. Despite its use of sophisticated barcoding, the company depends largely on batched data processing. Rewriting all of that software to allow for real-time operations will be a huge task, Hawlena said.

Still, he said, Willebroek is by far the most efficient of Mazda's four worldwide parts centers, two of which are in Japan and one in the United States. Only the Belgian warehouse can process a constant flow of daily orders, using warehouse management software of its own devising. Now it is gearing up to handle even greater volumes in the next couple of years.

European Sales Growing
And not a minute too soon. Mazda appears to be on the verge of an explosion in European sales. Estimates called for the Czech Republic to take 300 cars last year; the actual number was closer to 6,000. In Italy, annual sales are expected to rise from last year's 4,400 units to 15,000 by the year 2000. Those and other increases will be fueled by removal of the EU's last remaining internal trade barriers on Dec. 31, 1998, Hawlena said.

Mazda has plenty of room to grow at the Willebroek site, but Hawlena sees no need to expand the actual warehouse for the next few years. The facility recently went to two full shifts and could add a third, allowing for round-the-clock operations, within four to five years.

Mazda appears to be on the verge of an explosion in European car sales, but its
goal is to continue reducing the number of parts it keeps on hand.

The company's goal is to continue reducing, not expanding, the number of parts it keeps on hand at Willebroek. At the same time, it plans a significant decrease in those 29 European shipping destinations, although Hawlena declined to say by how much. Expect more direct deliveries and less interim handling, he said, adding that the system of maintaining at least one warehouse for each national distributor is "archaic." The whole strategy is geared toward the smooth flow of parts to dealers and distributors, with a minimum number of shipments coming to rest before final delivery.

Mazda's main focus in years to come will be on meeting local customers' requirements, Hawlena said. Keenly aware that the availability of repair parts can make or break a car owner's sense of product loyalty, Mazda has been talking with dealers about the possibility of nighttime deliveries and repairs. In theory, the customer would be able to drop off a car at night and pick it up in the morning.

How to make that feasible from a transportation standpoint is another matter altogether. Mazda must take care not to disturb crowded European neighborhoods with noisy trucks and receiving docks. But there are other ways to speed up lead times in the aftermarket parts supply chain while minimizing stock levels. This year, Mazda will begin receiving parts from Japan at a barge terminal two kilometers from Willebroek. It figures to save a full day on import processing.

Mazda seems determined to prove that centralized distribution and customer responsiveness are not opposing strategies. In the end, however, it's the end user who will dictate the best approach. "We believe that the next five years to come will be [dominated by] service-related issues," Hawlena said.

Manufacturers complain of a lack of logistics
providers with real pan-European reach
The pieces all appear to be in place. Most of the European Union finally has come together under a common currency with virtual borders allowing for the free flow of product across the continent. Why, then, are there so few logistics providers who can cover the entire region?

Some even say there are none. Kraft Schumann, executive director of Siemens IT Service, has encountered nothing but frustration in his efforts to hire a single logistics vendor who can provide service in every European country.

Siemens IT is a division of electronics giant Siemens AG, created to handle the service and spare parts business of its German parent. It services a full range of products, including personal and mainframe computers, automated teller machines and point-of- sale systems for retailers. Alone, Siemens IT generates around DM3bn ($1.8bn) in revenues; revenues for Siemens AG totaled DM110bn ($65.2bn) in fiscal year 1996-97.

Schumann has enough problems running his business internally. He is torn by the conflicting needs of the manufacturer, its sales force, field engineers and support centers. They are frequently at odds over such issues as optimal product life cycle, inventory levels, customer service, cost control measures and material flow.

Siemens IT sits smack in the midst of that sprawling organization, supporting Siemens products across Europe with 800 service bases, 31 customer help desks, five support centers and 17 systems management centers. With so wide a dispersal of assets, the company relies heavily on top-quality logistics to hold it all together. In some areas, said Schumann, nearly 40 percent of the processes stemming from a service call are logistics-related.

Since 1997, Siemens has moved parts from a central warehouse to a European distribution center, both in Germany, then to depots which were formerly country warehouses. In 12 countries, Siemens IT ships parts directly to the trunks of field engineers' cars. Where that is not possible, the company will arrange for delivery at prearranged dropoff points.

Information technology is a key arrow in Schumann's quiver. As of January 1999, he was able to track the flow of parts from ordering and dispatch to return and availability - a cycle that is designed to take no more than 72 hours. At the same time, Siemens IT has been working hard to reduce inventory levels throughout the supply chain by 50 percent.

All of which places the onus on logistics providers to perform with maximum efficiency. But Schumann was shocked to discover that there was no single provider that could tie together the company's European network of depots. Potential vendors either didn't serve every delivery point, or refused to pick up seven days a week.

Granted, the Siemens logistics network is a complex one. It involves some 20 million shipments a year, 80 percent of which weigh less than 30 kilograms. Trucks handle 60 percent of the traffic, intermodal 20 percent, ocean carriers 10 percent, air-cargo providers 5 percent, and barges 5 percent.

Moreover, logistics vendors of Siemens IT are expected to offer a menu of value-added services, fit squarely into Siemens' own logistics model, and meet air-emission standards for environmentally conscious Europe.

Instead, said Schumann, most logistics providers expected Siemens IT to fit into their service portfolios, which vary from country to country. He likened his search for vendors with a truly global approach to "a fight against the windmill."

The biggest vendors haven't capitalized on the opportunity to use Siemens' requirements as a starting point for better service to all their customers, Schumann said. And no one seems capable of slashing through the thicket of differing customs regulations in non-EU countries, such as Switzerland and Turkey, and in much of Eastern Europe.

Sometimes a company's inability to centralize European distribution through a single provider arises from the nature of the product itself. Otis, the leading maker of elevators, escalators and moving walkways, has designated Charles de Gaulle International Airport outside Paris as its center of service-parts distribution for Europe. The goal is next-day delivery of parts throughout the region.

Otis must cope with diverse regulations governing its products, even within the EU, said European Service Director Pierre Amar. Elevators are considered to be public transit in most countries and are regulated accordingly. That makes standardization of product impossible.

Otis has nevertheless been able to streamline its European logistics network, closing many country warehouses and regional parts centers. But the higher level of service required from logistics providers - seven days a week, 98 percent on time - hasn't been easy to achieve. In early pilot programs, the company learned that no one operator could satisfy its requirements. While Europe's logistics network is growing in size and sophistication, obtaining service on weekends and holidays continues to be a problem, Amar said.

Many companies find themselves turning to a select number of providers with expertise in particular countries. The situation is likely to grow more complex in 2003, when additional countries, including Slovenia, Hungary, Poland, the Czech Republic and Estonia, are slated to join the EU, said Marcel Stuve, vice president of corporate strategies and logistics with Buck Consultants Ltd. in the Netherlands. Logistics providers will be faced with an even greater mix of languages, cultures, tax codes and physical infrastuctures.

Pan-European Providers?
Stuve had expected to see a substantial number of pan-European logistics providers emerging in line with European unification. "They didn't step up to the plate," he said. "Very few can do it."

He sees some hope in the recent rash of mergers, acquisitions and alliances among global providers - Schenker International and Bilspedition, P&O Containers and Nedlloyd Line, Royal Dutch PTT's purchase of TNT, and the German postal service's recent bid for Danzas Corp. The result could be a "seamless solution" among companies with expertise in individual countries, he said.

The EU used to be known as the Common Market, "and one of the things that was 'common' was an agreement to disagree," said Gary Smith, principal consultant for Internet Global Commerce with Syntra Ltd. in Dallas. With its 15 countries and 11 languages, the EU can't be easily compared with the U.S., vast though the latter's territory may be. Securing a single logistics provider in the U.S. is far easier than in Europe, Smith said, especially when shippers venture into countries that lack the most modern infrastructure.

The promotional claims of logistics providers notwithstanding, "to say that one can adequately cope [with all of Europe] is a very broad statement that needs a lot of investigation," he said.

It won't always be that way, in the view of William Villalon, vice president of global marketing for APL Limited. Speaking at a recent conference in Rotterdam, he said new alliances among shipping lines, inland carriers, freight forwarders and others will soon provide the kind of all-inclusive service that global shippers crave.

"European firms are among the leaders in making the transition from basic transportation to value-added supply-chain logistics," Villalon said.

Rolf Noetzli, vice president of logistics with Danzas Corp. in Seattle, said new advances in information technology, along with the debut of the euro as the EU's single currency, will allow logistics providers to cross borders with ease. They are moving quickly in the direction of handling everything from a single envelope to millions of tons of product at a time, he said. Add to that a slew of value-added services, including trade financing, foreign sales management, and pick and pack operations.

But the European logistics community isn't there yet. Service-intensive companies, such as Siemens IT, are still waiting for vendors to make good on their predictions. "What I really miss," said Schumann, "is a provider telling me, 'I bring you the European solution.'"

- By Robert J. Bowman


Part two of this series on automotive parts distribution in Europe will appear in the next issue.