Jun 7, 2005

Integrated Supply Alive and Well at BMW

A visitor to BMW’s North American factory near Spartanburg, South Carolina, might assume the fork-lift truck drivers shuttling components around the assembly line were employees of the carmaker. In fact they work for TNT Logistics, part of TPG, the Dutch post and package group(“Outsiders Tighten Supply Chain”, Financial Times, 12/7/04)

Finding ways to embed a company’s products and services more deeply into customers’ operations is the holy grail of an old marketing concept from the 1980’s: Integrated Supply. Originally envisioned as a way to dramatically reduce the total costs of acquiring and using a product, most entrenched industrial companies and their consultants quickly reduced the concept to consolidating procurement activities to create scale and lower transaction costs. That would have been a good first step, but the real economic gains come from dramatically changing operational effectiveness on the floor. TNT Logistics has sold BMW on that more strategic view, and the results have been exciting for both companies.

Already, tangible benefits are being realized by BMW: out-of-pocket logistics costs are declining 10-15%, delivery truck productivity is up 30%, and on-time deliveries are exceeding 99.2%. For another client – Eaton Corporation – TNT has taken on certain sub-assembly work at their warehouses.

With industry after industry in North America facing increasing component manufacturing threats from overseas exporters (read: China), more and more smart companies will be looking for strategic supply chain partners that can help them redefine the conventional operating model in their business to their advantage.

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