GLOBAL SUPPLY CHAINS IN MOTION: THE CASE OF JAGUAR LAND ROVER Aristides Matopoulos Aston University Agata Banaszewska Jaguar Land Rover INTRODUCTION Putting global supply chains in motion requires exhaustive preparations and decision making at many different levels that have a direct significant impact on a company's performance. This case study analyses the complexity of supply chain operations in the automotive industry and how Jaguar Land Rover, a UK-based original equipment manufacturer (OEM), has managed to deal with this complexity and with the challenge of rapidly expanding its operations at a global scale. BACKGROUND The origins of Jaguar can be traced back to 1922, although the company gained much of its reputation and growth after the Second World War. The company was purchased by Ford in 1989. Land Rover, which was bought by BMW in 1994, joined Jaguar under Ford in 2000, creating a new strong Jaguar Land Rover brand. This acquisition was followed by a period of significant difficulties where the company flirted with bankruptcy and a bailout from the Government. The 1.1 billion takeover by Tata (India's largest automobile manufacturer) in 2008 created new opportunities for the company. Indeed, efforts and investments in new technology and product launches started to pay off. Despite the fact that the first year closed with 281m loss, Jaguar Land Rover managed to turn around its situation and created 32 million pre-tax profit in the financial year 2009/10 and reached 2.6 billion pre-tax profit in the financial year 2014/15. The revenues more than tripled from 6.6 billion in 2009/10 to 21.9 billion in 2014/15. Also, the company employed more than 34,000 people globally (as of 2015, which made for a 100% increase over three years). According to industry experts, the success of 2010-2015 also played a significant role in the resurgence of the UK automotive manufacturing sector in a period when the European automotive industry had demonstrated a significant decline. THE GEOGRAPHY OF JAGUAR LAND ROVER'S SUPPLY CHAIN Manufacturing The manufacturing base of the company is primarily in the UK (Figure 1) and is currently (2015) split across six sites with three vehicle manufacturing plants (Castle Bromwich, Solihull and Halewood), two advanced design and engineering centres (Gaydon and Whitley) and one engine manufacturing centre near Wolverhampton. The 500 million engine centre was opened in 2014 and is designed to manufacture a range of four-cylinder petrol and diesel engines. Full production commenced in 2015 with a targeted capacity of 400,000 engines per year. Since 2008/2009, Jaguar Land Rover volumes have almost doubled and two of its three UK plants (Solihull and Halewood) have switched to a three-shift pattern to meet the increasing demand. A car rolls off the production line every 90 seconds. In addition, the company has grown and is constantly looking at expanding its manufacturing operations in other parts of the world (Figure 2). Selected Jaguar Land Rover vehicles are assembled (using local assembly kit) globally in local assembly plants: Land Rover Defender in Kenya, Malaysia, Pakistan and Turkey; and Evoque, Freelander 2, Jaguar XF and XJ models in India (opened in 2011 in Pune). Local assembly kit is a set of parts necessary to assemble a certain vehicle. In local assembly operations, therefore, all parts necessary to manufacture a specific car are collected, packed and exported by the OEM to another region for final assembly. Jaguar Land Rover executes two types of local assembly operations: complete local assembly (CLA) and semi-local assembly (SLA), both by means of contract manufacturers that hold Jaguar Land Rover manufacturing licence. In CLA a vehicle is fully disassembled; in SLA certain parts of the vehicle may be assembled prior to shipment. Two part groups can be distinguished: body in white (BIW) - the body of the vehicle assembled out of large metal pressed parts - and trim and final (TAF) - the internal parts of the vehicle. The design of a car can have a direct impact on shipping operations. For example, the design of Land Rover Defender is very specific, as the vehicle possesses an internal frame (a skeleton of BIW) to which other BIW parts are attached (e.g. doors, bonnet). This allows for a CLA - all parts can be shipped separately. Operations in India are SLA because neither Land Rover Freelander nor Jaguar XF/XJ models possess an internal frame. This means the BIW parts that are manufactured by Jaguar Land Rover in the UK are assembled together to form the body of the vehicle prior to shipment. The body is also fully painted, thus after the arrival at a kit assembling plant it is ready for the assembly of TAF parts. Jaguar Land Rover has testing and development centres in Dubai, Minnesota in the United States and at the Nrburgring in Germany. Furthermore, in 2012, by means of a joint venture, Jaguar Land Rover extended its operations to China. The company agreed a partnership with a local Chinese firm, Chery Automobile Company, and established Chery Jaguar Land Rover (a 50:50 joint venture). In November 2014, the first model rolled off the line: a Range Rover Evoque. Suppliers The car industry has been developed as an extended and complex network of different level tier suppliers. First-tier suppliers deliver to OEMs either individual parts or large integrated systems that are assembled from parts delivered by second-tier suppliers. Jaguar Land Rover collects parts only from first-tier suppliers, mainly because of demand schedules that are sent only to first-tier suppliers. First-tier suppliers must therefore place separate demand schedules on second-tier suppliers. Jaguar Land Rover has a base of approximately 900 suppliers that are located in continental Europe (50%), the UK (45%) and the rest of the world (5%). Jaguar Land Rover seeks suppliers who deliver quality and reliability while being considerate of the total logistics cost. Other key factors to consider are location, transport time and cost, weights, sizes, duties and security of supply. Jaguar Land Rover holds close relationships with its suppliers (i.e. each supplier is provided with a mid-term demand forecast). Furthermore, certain confidential information is also shared to enable suppliers to plan their infrastructure and potential necessary investments to meet future demands. Furthermore, many Jaguar Land Rover contracts with service providers are fully open book. On the one hand, this allows Jaguar Land Rover to ensure the company is getting value for money, especially when international freight is involved; on the other hand, it demonstrates that Jaguar Land Rover recognises that its service providers have not only the necessary expertise in the field but also a very good understanding of the market because of cooperation with other OEMs. This results in a better overview of, for instance, the different transport routes, ports and operating rates that are available. The use of suppliers' extensive knowledge provides various opportunities (e.g. cost savings). Demand and sales From 2010 to 2015, the company witnessed unprecedented success. Sales almost doubled from 232-839 vehicles sold in 2010 to 462-678 in 2014. In 2014, Jaguar Land Rover established new sales records in 38 markets, while in total the company exported to more than 170 markets. Figure 3 shows the development of Jaguar Land Rover global sales volumes over the last decade. Changes in demand took place not only in terms of total absolute volumes but also in terms of geography. For example, in 2011, 24.1% of sales were in the UK, 22% in Europe (excluding the UK and Russia), 20.9% in North America, 12% in China, 4.9% in Russia and 15.9% in the rest of the world, while in 2014 China overtook the UK to become Jaguar Land Rover's largest market with 26.4% of sales. Europe followed (excluding the UK) with 18.7%, the UK with 17.9%, North America with 16.2% and 20.8% in the rest of the world. Jaguar Land Rover sells on a build-to-order basis for most markets except the US, where dealers usually order in stock. The challenge for Jaguar Land Rover is to provide reliable delivery dates that allow a high level of customer satisfaction to be maintained, while also efficiently managing inventory and cash flow in terms of wholesale and retail deliveries. LOGISTICS AT JAGUAR LAND ROVER The speed and scale of growth enjoyed in recent years increases supply chain complexity and creates a need for new logistics solutions. The role of the logistics function at Jaguar Land Rover is vital and this is evident by the early involvement of logistics within the lifecycle process of car development (e.g. as soon as the concept of a particular car is created the logistics team contributes with an input into the approach and departure angles 1 of the vehicle as well as the lashing configurations 2 ). A number of logistics activities take place throughout the complete supply chain to ensure vehicle production is lean, prompt and effective. One can enumerate the following main activities: inbound (collection and transport) and outbound (distribution of finished vehicles) freight, packaging design, warehouse and inventory management and in-plant logistics (e.g. line feeding and stock handling). Logistics is also responsible for the operations strategy (i.e. line rates, shifts, volumes) and for the management of thirdparty contracts. Freight: Inbound, outbound and modes of transport Upstream in the supply chain, logistics is responsible for the collection and delivery of component materials to point of use for both production and prototypes, while downstream in the supply chain it is responsible for the worldwide distribution of finished vehicles. In total, inbound and outbound freight vehicles cover almost 60 million road miles per year, equivalent to going to the moon and back 125 times. More specifically, the inbound flow (from both the UK and Europe) includes the collection of 120,000 parts from approximately 800 suppliers across 20 countries, with over 5000 full- and partial-load collections to sites in Castle Bromwich, Solihull and Halewood, and to nine more cross-dock centres in the UK and Europe on a weekly basis. Three types of road collections are used, in order of preference: (i) full truck load (FTL): the most efficient collection type, a full truck is loaded at a specific supplier and parts are directly delivered to a destination plant; (ii) milk run: milk runs are used to collect parts from various suppliers located in a close neighbourhood to achieve FTL; and (iii) less than full truck load (LTL): used when low volume parts need to be collected from distant suppliers, the utilisation of truck capacity is suboptimal. To minimize the impact of LTL on total cost, consolidation centres located all over Europe are used (i.e. LTL trucks instead of delivering parts directly to plants deliver instead to those consolidation centres). Different parts are consolidated and FTL trucks are then sent to a destination plant. Apart from road transport, Jaguar Land Rover also uses rail, sea freight and airfreight. In the UK, heavy investments in rail infrastructure at the Castle Bromwich and Halewood facilities took place to allow for 25% of finished vehicles to be distributed by rail to major ports. Rail freight is also used for inbound freight, where possible. Only suppliers with high parts supply and good access to a rail network are suitable. One of the examples at Jaguar Land Rover is the supply of engines from the Ford plant in Spain (Almussafes, Valencia). The plant has direct access to the rail network and high supply volumes allow for the use of this transport mode (Figure 4). The main drawback of rail freight is the lack of flexibility (i.e. all shipments need to be arranged with the rail network owner). When additional volumes of parts are requested or the delivery of parts to loading point is delayed, rail freight leaves little flexibility to accommodate it. As such, most of Jaguar Land Rover's inbound freight uses road transport. Even though airfreight is the most time-efficient mode of transport, its high cost outweighs the benefit of its short delivery time. This mode of transport is used only in emergency situations or for special moves of finished vehicles (e.g. vehicles destined for VIP customers or launch events). The main challenge related to inbound operations is data integrity. To execute optimal collection of parts, inbound freight operations need to know what parts, in what volume and from which suppliers need to be collected. Given the current high diversity in Jaguar Land Rover's portfolio and a high number of parts on each vehicle's bill of materials (BOM), maintaining 100% effective data integrity becomes a challenging task. This is also due to the high number of parts that are uplifted 3 every year and new models entering into the Jaguar Land Rover portfolio. Increased volumes provide new opportunities for more cost-efficient sourcing, and this may also lead to changes in the current supplier base. Another aspect that introduces complexity to inbound freight is related to part characteristics (e.g. weight and type of goods). Legal requirements impose weight restrictions on vehicles. Furthermore, dangerous goods (e.g. chemicals) need to be transported in special conditions and with correctly trained drivers. Other aspects that inbound freight operations must take into consideration include bank holidays (in total more than 300 days in Europe) and shutdown periods of suppliers. Bank holidays in a specific country may affect transport in the country itself, as well as other countries on the same route. For instance, a bank holiday in France that is an entry point for road deliveries from Europe to the UK will affect parts sourced from other European countries (e.g. Germany and Italy). In order to incorporate all enumerated factors, optimisation tools are used to provide optimal and feasible collection plans. The global outbound distribution of finished vehicles makes use of 11 UK ports and tends to ship from its receiving ports. Southampton and Portbury are key ports for deep sea and southern Europe respectively; significant volumes are also shipped via the Port of Immingham. For international shipping, Jaguar Land Rover primarily uses sea transport. Automobiles are shipped on roll-on/roll-off vessels (RORO) or pure car carriers (PCC, especially designed vessels that can carry up to 6000 automobiles). The company at the moment uses over 100 different global ports of entry, of which 15 are located in Europe (Figure 5). Almost 98% of the outbound volume is distributed via RORO and PCC, while containers are used for the remaining 2%. The need for multi-modal transport... and why it is not always applicable Vehicles are distributed by several contracted logistic service providers (LSPs), each of which is responsible for a specific part of the journey. For instance, one LSP may be responsible for the transport of vehicles from a plant's dispatch area to the port, and other LSPs would be responsible for sea freight and final delivery from the destination port to a dealer. The selection of LSPs is executed via a tendering process, during which a number of factors (e.g. experience, costs, travel time and quality) are assessed. Costs and time are influenced mainly by the size and weight of vehicles, mode of transport chosen, travel distance and destination and volumes shipped (which in turn will affect the frequency). Overall, for outbound freight, unlike for inbound, multi-modal transport is often the preferred option. This is due to the geographical spread of operations, the length of the supply chain and the need to reach many different customer locations. However, despite the advantages and the necessity for multi-modal transport, it may not always be applicable, owing to a number of factors, such as differences in types of components, terms of supply, Incoterms-related issues, customs, import regulations, packaging needs and product complexity. The lack of appropriate infrastructure is another very important reason. Often, there are infrastructure limitations, for example some sites are not serviced via rail or cannot support sailing schedules or there may be capacity issues at the port of entry. Jaguar Land Rover's growth in recent years allows economies of scale in inbound as well as in finished vehicle distribution operations. Nevertheless, higher production requires larger dispatch areas or shorter throughput times. The main challenges of outbound operations are the high levels of quality that need to be maintained regardless of the destination country, the time constraints affecting customer service levels (weather conditions may affect chosen sea freight routes and thus transport duration), the size of some Jaguar Land Rover vehicles (i.e. they are larger than the standard, therefore not ideally sized to containers), governmental transport regulations that vary between countries and low environmental impact (e.g. minimum CO2 emission). Logistics service providers (LSPs) Similar to many other OEMs, LSPs play a key role in Jaguar Land Rover manufacturing. They are involved in various activities throughout the supply chain, from the collection of parts and in-plant material flow management to the distribution of finished vehicles. The company's LSPs also make a significant contribution in the global growth of Jaguar Land Rover, mainly in the design and implementation of logistics outsourcing strategy. In order to ensure those inbound and outbound logistics challenges are dealt with in the most effective way, Jaguar Land Rover contracts LSPs with high levels of experience and expertise in specific regions (LSPs need to have knowledge of the local area, e.g. legal constraints or how weather conditions can affect transport). This allows high customer service levels to be maintained (e.g. intact quality of vehicles and timely delivery). Owing to the fact that a number of different LSPs can be used to transport a specific vehicle shipment, scrupulous quality checks need to be executed every time an ownership of responsibilities is passed from one LSP to another. The primary LSPs for Jaguar Land Rover include: Syncreon Logistics, DB Schenker, Priority Freight and DS Smith. Syncreon runs the UK export sales centre (ESC), a cross-docking operation designed to receive, repack and consolidate the material into sea and airfreight shipments. Furthermore, it also runs the in-plant logistics for the Wolverhampton engine plant. Similar services are provided by DB Schenker, but only for prototype build parts destined for non-UK assembly plants. Additionally, DB Schenker is responsible for the collection and delivery of those parts to the Launch Shed (ESC for prototype parts). The LSP Priority Freight is used for the emergency shipment of parts following quality issues, stock losses or late part engineering changes. In addition to the above, Jaguar Land Rover has established a more strategic relationship with a specific LSP (DHL) that plays a critical role in Jaguar Land Rover's overall logistics operations. Its responsibilities in the supply chain encompass a much more expanded scope in contrast to other Jaguar Land Rover LSPs. This type of LSP is called a 'lead logistics provider' (LLP). DHL is responsible for coordinating Jaguar Land Rover's entire inbound network, including transport management, stock handling and line feeding at three UK plants. DHL is responsible for around 85% of global inbound freight, including all of Europe and the UK, with a common service for plants through LTL and FTL shipments. Managing the relationships with LLPs is critical, as Jaguar Land Rover can achieve cost savings and increase operational flexibility. In doing so, relationships need to be built on openness (willingness to share often confidential information) and, above all, trust. Packaging Effective packaging is of critical importance for the car industry not only because it protects raw materials and finished vehicles but also because it affects cost and logistics operations. It is estimated that a significant amount of capital is often locked in automotive parts packaging, which in the case of inbound parts may cost 2-4% of the total part value. 4 In order to ensure the quality does not deteriorate during transport, a packaging solution needs to be developed for every part and tailored to the specific transport mode. Packaging in this sector falls mainly into two categories: returnable (e.g. pallet boxes, collapsible pallet boxes, containers, pallets and lids) and expendable (e.g. similar cargo units as above but made of cardboard, foam or plastic). The automotive industry uses traditionally returnable packaging mainly for the benefit of cost, quality and operational efficiency. Nevertheless, returnable packaging comes also with some disadvantages (e.g. disruptions in the supply chain owing to missing or damaged containers or re-design of special packaging for non-standard size parts in case parts specifications change or line feed space is decreased). The main downside of returnable containers is, however, their unsuitability (for reasons of cost) for long supply chains. The solution to this is the use of expendable packaging intended only for one-way transport operation. This practice is in place particularly in one-way automotive trading relationships (e.g. spare parts or for emerging markets) or when consolidation centres are involved. In the latter case, parts would be delivered to consolidation centres in returnable containers, repacked into expendable packaging and shipped to the destination location. The global expansion of Jaguar Land Rover led to an increased use of expendable packaging. In fact, all parts necessary to build the Range Rover Evoque require a specifically designed, expendable packaging. To support this process Jaguar Land Rover established a close relationship with DS Smith, a leading British-based international packaging business. The involvement of this experienced packaging solution provider has allowed Jaguar Land Rover to achieve a high rate of undamaged parts deliveries. An example is a packaging solution for the fit of the glass panels. CONCLUSION Jaguar Land Rover's record sales combined with plant expansions and growth in overseas markets have created numerous challenges across the supply chain, from supplier sourcing and managing inbound material flows to vehicle distribution and reverse logistics for returnable packaging. This case study has illustrated the sheer scale of supply chain operations that is happening behind the scenes in the automotive industry and has also illustrated the importance of meticulous logistics planning and execution in order to deal with the challenges of global expansion and its associated complexity. QUESTIONS How does the design of a car affect logistics operations? What are the advantages and the challenges of local assembly operations? What are the issues that Jaguar Land Rover's supply chain needs to consider with regard to the ongoing increase in export volumes? What are the preferred modes of transport used by Jaguar Land Rover and why? Discuss the main advantages and disadvantages of multimodal transport in the case of Jaguar Land Rover. How important is the role of LSPs in the automotive industry and why? What are the benefits of introducing returnable packaging instead of expendable packaging? What do you think are the challenges related to packaging solutions that have emerged from Jaguar Land Rover's global expansion? ACKNOWLEDGEMENTS The authors wish to thank the entire Materials Planning and Logistics Group at Jaguar Land Rover for providing relevant data and information during numerous discussions. In particular, we would like to thank David Dyke, Nicola Fry, Martin Flynn, Adam Twomey and Chris Hanson. NOTES 1. The approach angle is the maximum angle of a ramp onto which a vehicle can climb from a horizontal plane without interference. Departure angle is its counterpart at the rear of the vehicle - the maximum ramp angle from which the car can descend without damage. Both are important for shipping purposes (to put the car on a ship or on a truck). 2. This refers to lashing chains/wires used in different ways to secure the cargo on board. 3. 'Uplifting' refers to the issuing of new engineering specifications for a part because a model year has run out and/or new additions being introduced which result in a new BOM (e.g. the BOM of a vehicle of 2016 model year will differ from the BOM of 2015 model year). 4. Deloitte (2012) Automotive Supply Chain: Unlocking potential cost savings in automotive packaging, http://www.oesa.org/Doc-Vault/Knowledge-Center/Supply-chain-content/Deloitte-Reducing-PackagingCosts