Shifting Gears: General Motors Invests in Logistics

31 October 2013 Dashboard Insights Blog

General Motors’s (GM) new Arlington, Texas, stamping plant is the 10th contiguous stamping plant added to GM’s global operations in the last five years. And, there’s a reason for that. Actually there are several. The realigned manufacturing process is a tactical move predicted to improve profits through savings on logistics, promise of higher quality, and risk mitigation.

The addition of the new metal stamping plant, which will produce large metal parts, such as doors, hoods, and side panels for the next generation of the full-size SUVs, on the campus of the nearly 50-year-old Arlington assembly plant is expected to save GM $40 million a year in shipping costs. The assembly plant currently receives stampings from GM locations, some more than 1,000 miles away. GM expects the $250 million investment in the new facility to be easily recouped in transportation cost savings, alone. But that is only part of the plan.

The company said in a prepared statement that co-locating the manufacture of key components would improve quality. GM’s executive vice president of global manufacturing and chairman of GM China, Tim Lee, said in the statement “It [the new Arlington facility] is built on the philosophy that a plant can function properly only if its employees understand the mission and are properly trained, and that any problems in production are immediately identified and repaired at their core.”

Further, the company says that moving parts a matter of feet from assembly as opposed to miles mitigates the risk of parts arriving damaged—scratched or dented during transport. The company hopes to eliminate the extra cost required to repair such frequent damage and in the process improve quality, which should increase profits.

It is an exciting time for manufacturing in the U.S. In fact, we’re seeing more U.S. manufacturers from all industries re-shore their operations back to the U.S. to do exactly what GM is doing—save costs on logistics, mitigate risks, and increase flexibility and innovation. With overseas labor costs increasing and U.S. labor costs being reset, more manufacturers are thinking twice before chasing the offshore promise of cheap labor. Consider also that there is a steady increase in foreign direct investment in U.S.-based manufacturing facilities, which supports the profitability of domestic production by reducing costs and time to market.

In the auto industry, Japanese parts maker Denso Corp. is investing $1 billion in the U.S. over the next four years to expand its North American operations. It is reported to be the largest producer of automobile radiators and air-conditioning systems in the world. In the past few years, Chrysler Group LLC encouraged suppliers to locate near its Belvidere, Illinois, plant where it expanded production for the Dodge Dart; and Volkswagen AG created a supplier park next to its Chattanooga, Tennessee, factory in 2011.

South Korea’s largest tire maker, Hankook, announced in October 2013 that it would invest $800 million to build its first factory in the U.S. to be located in Clarksville, Tennessee. Currently ranked the eighth largest global tire manufacturer, Hankook supplies to Hyundai, Kia, and other well-known brands such as Ford, GM, Chrysler, Volkswagen USA, Nissan, Toyota, and Honda. Nissan has nearby plants in Tennessee and Mississippi, while Hyundai and Honda both have plants in Alabama.$800-million-to-build-first-u.s.-plant#ixzz2iTKZ6oNE

The U.S. automotive industry is seeing it’s fastest expansion since 1950 according to estimates by Morgan Stanley. Automotive News reports that the New York based bank sees automakers adding 3.5 million vehicles worth of annual production capacity through 2015.

The next generation of auto manufacturing in the U.S. is making significant moves—encouraging parts makers and suppliers to move or build new facilities closer to assembly plants to reduce shipping costs, improve quality, and increase profits. Sounds like a win for everyone.

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