Logistics is key for Volvo as it expands globally

In the year 2000, markets outside Western Europe and North America accounted for just 16 per cent of Volvo Group sales. By 2012, that share had grown to 47 per cent, reflecting Volvo’s strategic move over a decade to strengthen its position beyond its traditional markets. It achieved this through acquisitions, mainly in Asia, and expansion of its distribution and service networks in regions such as Eastern Europe and South America.

The implications for the group’s supply chain network of components, engines and finished vehicles are very obvious. That, of course, is a worldwide trend, as observed by Mario Van den Bussche, director for sea and rail at Volvo Group Trucks Operations, Logistics Services. “I have been working in logistics since 1995 and the one clear trend has been globalisation,” he says. “The number of supplier locations has grown over the years and the number of destinations for our products has grown over the years. We are selling products in around 190 markets now.”

Based in Ghent in Belgium, one of Volvo’s major locations for production and spare parts distribution, Mr Van den Bussche is responsible for the purchase of all sea and rail logistics services, including shortsea and deepsea roro, less-than-container loads (LCL) and full container loads (FCL). His remit covers the Volvo Group, which consists of four truck brands: Volvo Trucks, Renault Trucks (100 per cent owned by AB Volvo), Mack Trucks and the Japanese UD Trucks.

Beyond these four truck brands, the Volvo Group manufactures and distributes two brands of construction equipment, Volvo and SDLG, producing articulated haulers, wheel loaders, excavators, road machinery and compact equipment. The group also includes Volvo Buses, and Volvo Penta, which builds diesel engines for leisure and commercial boats, as well as power systems for industrial applications.

“Historically, our supplier base was very much Europe-based but over the years we have opened factories in the USA, South America, Russia and Asia Pacific,” says Mr Van den Bussche. “We have expanded to cover the fast-growing markets of South America, South Africa, India and China in particular, and our supplier base has had to grow in those regions too. Our logistics network is constantly changing, but where we see the biggest changes are Asia Pacific and India.”

Volvo Group’s logistics network now connects more than 100 factories, parts distribution centres and logistics centres. “Our aim is to revise and source our logistics networks with a certain frequency, after which they usually remain stable for the contractual time that we have agreed upon with our transport providers,” says Mr Van den Bussche.

There are, he says, four criteria which are very important for Volvo in designing its logistics networks. “First, we want to have cost-competitive solutions, of course. Secondly, we try to design our transport networks so that our lead times are short. We are focused on having a tight network with fast transit times in order to keep the capital that is tied up in the supply chain under control.

“Thirdly, there is the reliability of the network. As much as we look for cost-competitive and fast networks, equally important is that our networks are reliable. We will never go ahead with networks based on quick transit times if they could later end up being unreliable. They are then of no value at all.

“Fourth, we try to build our networks in the most environmentally friendly ways and try to reduce the CO2 footprint of our transportation.

“To find a good balance between these four cornerstones – cost-competitiveness, quick transit times, reliability and minimal CO2 – is a continuous process.”

Volvo does not have a blanket strategy of, for example, sea rather than road or rail. “For us, it is not a matter of one mode versus another mode. We believe that all modes of transportation should work together, to meet our overall targets in the best possible way.”

Volvo Powertrain is Volvo’s in-house supplier of driveline components for many of the truck and construction equipment brands, as well as Volvo Buses and Volvo Penta.

“Powertrain production is globally present and acts as a supplier of engines, axles and gearboxes to the four ranges of products,” explains Mr Van den Bussche. “That means we have powertrain factories supplying the assembly plants with driveline components. We try to apply our logistics principles throughout the entire network, and that also includes the external suppliers. Most of the time, we will arrange the transport of components from our suppliers ex works. That way, we control the supply chain ourselves.”

Mr Van den Bussche explains that there are always improvements to be made. “Adjusting the network in order to include new factories or destination markets, as well as making the supply chain more reliable and as fast as possible, is a continuous process and really important for us.”

Logistics purchasing focuses on three distinct processes: external inbound, which is the supply of components to the factories; the vehicle distribution process; and the spare parts distribution process for the after-market.

“It is really vital to make sure that spare parts distribution is fast and reliable for our dealers and customers. When purchasing logistics networks, Volvo is trying to source and find synergies between these three processes. However, due to the nature of the products and carriers, the finished vehicle distribution tends to be very much a standalone process with few synergies with the other processes,” says Mr Van den Bussche. “Nevertheless, we are trying to find the synergies of our total volumes. For example, in our European shortsea and rail set-ups our external inbound volumes, finished vehicles and powertrain components are, if possible, combined into joint set-ups. We are also looking into synergies regarding external inbound and parts distribution.”

The Volvo Group’s global logistics network involves shipping around 110,000 teu of containers every year. Up to 95 per cent of finished vehicles are moved via roro, but some vehicles – mainly smaller construction equipment – are shipped in containers. “That might happen in order to reach a certain market with higher frequency, in faster transit times or in a more cost-effective way,” says Mr Van den Bussche. “Certain ports are not called at by roro vessels but sometimes we can make use of a container service.”

Keeping track of all these movements is a challenge. Volvo has three in-house IT applications: Atlas for the external inbound process, A4D for the vehicle distribution process and SCM for the parts distribution process. “These three applications are used to monitor the supply chain, from shipment from origin to arrival at destination,” says Mr Van den Bussche. “With these applications, we link with our transport providers, so that instant updates can always be provided as to where components and finished vehicles are. For example, A4D is used from booking to pick-up to delivery of the vehicle at the final destination. It is constantly fed by status updates, where the consignment passes key points in the supply chain.”

The demands on Volvo’s logistics skills can only increase, as the group has ambitions to expand much more in Asia, with a particular eye on the Indian and Chinese markets. South America, Russia and South Africa are also markets where the Volvo Group has strong hopes of expanding and increasing volumes. CST