ZF Lemforder UK choose Rudolph & Hellmann Automotive for activity based cost manufacturing logistics

Purchasing Manager & SCP Manager ZFUK, Paul Miller tells us why

Released: Monday, 30th January 2012

Our first goal was to ensure the changeover from a mixed logistics operation involving 32 heads went without a hitch. This was our main concern because when we appointed R&HA, there was only nine weeks left on our current contract.

The existing contract had run since 2007 and it was ZF Lemforder UK Ltd’s first experience of outsourcing logistics. Back then business was stable, no one could have anticipated just how much this would change during the next 3 years.

This was our first hard lesson in outsourcing logistics

Although relatively small in numbers, the onsite logistics operation is one of the most critical elements of our business. Failure in logistics results in manufacturing coming to a stand still or customers’ orders not being fulfilled. In 2007 the management had agreed this wasn’t our core skill and we didn’t possess the necessary experience to improve the efficiency in this area of the business.

The decision to outsource one third of the activity enabled us to ‘dip a toe in the water.’ With a new 3pl provider on board we felt we had the necessary experience to optimise our in-house logistics operations.

The pain of 2008 made no difference to the logistics contract

2008 was a huge blow to the global automotive industry, never experiencing anything like this we knew we had to dramatically reduce our outgoings. With multiple car manufacturing plants extending shutdowns and working on reduced hours, we had no choice but to follow suit.

Then came the shock, there was one cost we couldn’t cut

Even though the workload had dramatically reduced, the logistics contract remained the same. The contract we had entered into meant a set fee was invoiced every month. The contract was centered on the current contractor performing a number of standard key activities at a fixed cost. This was a fee we had to pay whether ZF Lemforder required the activities to be carried out or not.

There is no incentive to improve the operation if a contract is by the hour

Getting through 2008/09 wasn’t easy but we have recently been successful in acquiring a significant amount of new business and the increase in customer orders has meant that the current way of working within the logistics function isn’t capable of supporting this growth.

To secure this new business we needed to change to activity based cost

With JLR’s ambitious expansion plans and the recent announcement from Toyota to build new Auris here in the UK, there are enormous opportunities. If we are to step up our production capability, the logistics operation needs to be flexible and performance related. Activity based cost is becoming the ZF Lemforder corporate standard and is commonplace across our German operations.

Activity based cost is the only response to this steep increase without risk

With 12 months to run on the current contract I was given the challenge of securing a contract with a 3pl provider who would work based on an activity based cost. Although this is standard practice across the automotive industry in Germany it doesn’t appear to be common in the UK. My counterparts in Germany provided me with the framework to draw up the RFQ and I approached the UK’s leading on site 3pl providers.

Only three 3pl’s responded to the ‘activity based cost’ contract opportunity

One 3pl initially said they could do it and then changed their mind at the second round. A second 3pl provided a cost, which was a significant increase, even when based on our current activity levels. Only R&HA could provide a true activity based cost solution. Although we hadn’t met with R&HA before we were aware of their formidable reputation. They were the first 3pl to bring ‘cost based activity’ to the UK and work with the worlds leading automotive manufacturers.

R&HA were willing to share the risk and drive performance improvement

With only 9 weeks to run on the existing contract there was a lot to do in a short period. The biggest concern was that the switch of 3pl providers didn’t disrupt our production or impact on our customers. The TUPE implications with the transfer of staff added to the complexity of the switch over. The R&HA implementation team gave us confidence, they were sensitive in every dealing with the people being TUPE’d over and the communication was excellent. Clear, concise, highly detailed but to the point.

The switch couldn’t have gone better or been easier

During the period prior to the switchover, during the switchover itself, and in the eight weeks since I have had very little cause for concern. Everything has been as I would have hoped, if not better. The improvements are coming through as R&HA focus in on specific KPI’s to continually drive out inefficiencies. Every week we have a meeting to share information, identify a focus for improvement and review KPI’s.

Our team leaders, manufacturing managers and procurement have noticed a marked improvement in the responsiveness and professionalism

The investment by R&HA during the run-up to the switch has definitely been the key to their success and our senior management team have noticed the difference. Employee relations were a real concern when undertaking this significant change in our working practices. However, if we are to be responsive to the needs of our customers, we need a dynamic logistics operation which can flex with their demands.

Activity based cost makes everyone work harder at working smarter

It is a true partnership where the risks and rewards are shared. It has required a significant change in our philosophy and it has its challenges. For example procurement of a fixed contract is much easier than a dynamic activity based cost. However, we now have absolute control over our costs. Should customer demand increase or reduce we can respond instantly. This means we can focus our attention on core activities, knowing the logistics are taken care of.