GM’s plan to cut logistics costs is a good start

US automobile sales remain strong. According to auto researcher, Kelly Blue Book, new car sales increased an estimated 16% to 15.8m units in July. The big three – GM, Ford and Chrysler – reported year-over-year increases of 16%, 11% and 11% respectively, while Toyota reported a 17.3% increase.

While sales continue to be strong, automobile manufacturers are looking towards their supply chain to improve efficiencies and thus profitability.

One such manufacturer doing that is General Motors (GM). This week, the company announced plans to cut $1bn in its North America’s logistics costs by 2016. According to the company, this will help increase its profit margin by 1%. Among its plans include bringing parts plants closer to its assembly plants; extending rail lines directly to plants; and it is considering opening more logistics operations centers near to assembly plants.

According to Grace Lieblein, vice president of GM global purchasing and supply chain, “The challenge is how do you do logistics efficiently and frankly minimize cost, because that cost you save can be reinvested in the product and strengthen our fortress balance sheet,”

One example of this is trimming transportation costs. In some cases, railways end a mile or less from GM facilities. This resulted in GM having to utilizing truck transportation to move finished vehicles to railroads.

Another example is the company’s plan to build its first logistics center. Announced in May, the facility will be located near GM’s Lansing Grand River assembly plant. The 400,000 sq ft facility will be used to sort and deliver parts to the assembly line in a process known as sequencing. The center is intended to cut costs and transportation between local suppliers who currently handle the task. If proven successful, additional such facilities will likely be built.

As GM implements these changes, the company is also looking to improve relations with suppliers. One way it is doing this is by sharing more information with all tiers of its supply chain and it has developed internal tools to eliminate possible bottlenecks. GM also wants to involve supplier partners early in the product-development process.

As the company gets set to introduce a number of new products in the coming year, it will need these improved supplier relations to be successful.

GM’s announcement to cut $1bn in its North American logistics costs is a good start, but more is needed as the industry continues to innovate and competition increases.