Volkswagen invests in Mexico for an electric future | news
At last week’s Automotive Logistics and Supply Chain Mexico conference, Peter Koltai, Senior Director of Production Control and Logistics at Volkswagen de México, admitted that production at VW’s Puebla plant (the automaker’s largest plant in the world after Wolfsburg in Germany) suffered huge losses because of Covid and the resulting semiconductor failure. More specifically, the plant lost 10,000 production units between 2020 and 2022, accounting for 20% of its production schedule last year.
The last two years of upheaval have also left many of VW’s suppliers in bad shape, which continues to affect production. Koltai said 20% of suppliers in the wider North America region are on a warning list, meaning production could be shut down barely a day in advance.
Disruption to inbound parts supply needs to be limited where possible, and VW Mexico is monitoring signals from its suppliers on a daily basis, including available stock levels and transit wait times. VW is also sending signals the other way, alerting suppliers to the impact of parts shortages on vehicle assembly.
“All signals from the supplier are crucial for us,” said Koltai. “We try not to make many program changes. We alert the supplier to the magnitude of the impact their parts shortages can cause.”
Koltai said there are between 15 and 20 potential impacts every day that could cause problems for its production in Mexico.
It is known that Mexico suffers from disruptions in the road and rail network and that there are frequent problems in the ports. There are currently major capacity restrictions on road and rail.
Crime contributes to this. Mexico and truck hijackings have increased, causing delivery services to be regularly restricted. In addition, drivers for US routes do not charge on a Friday because they do not want to drive and park overnight for fear of their own safety.
Speaking about ports, however, Koltai said that 24/7 container shipments through the Port of Veracruz have stabilized well, which helps smooth the inbound flow of materials.
Smoothing that flow from port to inland destination is something AP Moller-Maersk is prioritizing as part of its transformation from a pure maritime logistics services provider to a more integrated logistics service provider, a journey that began four years ago. Investments in infrastructure, product development and IT are the key areas of focus for Maersk in Mexico, according to Patricia Pérez, the company’s general manager for Central America.
Maersk’s APM Terminals division operates in the ports of Lazaro Cardenas and Yucatan, but Pérez said Maersk needs to expand port operations and ensure international transportation is fully aligned with adequate domestic logistics in Mexico.
“We want to contribute with additional services alongside the port operations, create these connections and offer these efficiencies,” said Pérez.
Maersk is also expanding its warehousing space in Mexico with the addition of 150,000 sqm and a focus on cross-dock services in the north of the country to ensure smoother cross-border operations.
In terms of product development, Maersk recently acquired two companies: Pilot Freight Services, a last mile company, and Senator International, which provides air freight services.
“The connection with air transport is crucial for us,” said Pérez. “This will complement the automotive industry.”
Flexible for electr
The VW Group is pursuing a new strategy to transform its products and processes for the electric age, and Mexico is at the heart of those plans. The automaker is investing $740 million in its Puebla plant by 2030 to support electric vehicle production (a portion of that investment will also go toward a new paint shop). This will affect the incoming logistics processes for EV production.
“With EVs, it’s a game changer for logistics,” Koltai said. “We have new challenges and have to adapt to transporting and handling high-voltage batteries, which are completely different than in a vehicle with an internal combustion engine.”
Rather than simplifying incoming parts logistics because fewer parts are needed in an electric vehicle, Koltai says it’s actually more complex, and VW is investing in a new factory layout and processes to handle that complexity.
This requires more transparency in the supply chain and an early warning system. VW is in the early stages of setting up a control tower in Mexico that will give it more visibility into parts supply and allow the company to predict changes and adapt proactively.
What the transformation in Mexico also requires is more flexibility. This already applies to the vehicles that Puebla currently produces, including the Jetta, Taos and Tiguan. The Volkswagen Group makes the vehicles it can based on the scarcity of materials and parts, including microchips, rather than building what was requested by the customer.
“We need to demonstrate buildability and what parts are available,” Koltai said. “Then we change the programs and get the production out of it.”
This may involve setting up new routes without the backing of the safety plan to keep production running at the plant.
Maersk is helping improve transparency in logistics services by establishing its own control tower as part of its investment in digital tools that also include blockchain technology.
“We are investing heavily in Mexico and that will be our Northstar in the country for the next five years,” she said.
Local parts investment
Another global trend that Mexico is finding itself in in response to the risk exposed by the Covid disruption is more localized manufacturing, and this is an important factor in the investments that will be made in Mexico over the next decade.
Tier One parts supplier Continental announced in July that it was investing $40 million in a hydraulic hose manufacturing facility in San Luis Potosi to support production in Mexico and North America.
Roberta Palacio, supply chain leader for North America at Continental, told delegates at last week’s conference that supply chain and logistics are critical to the success of this expansion and its execution.
Success also depends on data sharing with OEM customers and logistics, as well as better collective analysis of information that could create transparency for all parties. Improving communication about parts availability and location, as well as production requirements, allowed each party to absorb unforeseen changes or the long-term changes that come with electrification. More importantly, digitally informed communication and analysis of data would support the growth of Mexico’s automotive industry.
“We’ve been talking about digitization for years and … we’re being inundated with data, but we need to derive transparency and a clear message from that data,” Koltai said. “Together with our suppliers and LSPs, this is the most important future goal and if we can work on it together, it will be much more interesting.”
VW partner for strong logistics in Mexico
Watch this exclusive interview with Peter Koltai, Senior Director for Production Control and Logistics at Volkswagen de Mexico, on how the automaker has adapted to the disruption in Mexico’s supply chain and what it is asking its logistics partners to do to adapt to electric vehicle production prepare in Mexico