In the driver’s seat for Volkswagen Group of America’s North American finished vehicle logistics, Mark Boucher is constantly prepared to shift gears.
Contingency planning, he says, is imperative amid challenges ranging from rail and truck capacity crunches to unexpected weather events to demands of shipping the larger vehicles preferred by today’s consumers.
In a business he concedes can sometimes get a bit too exciting, increased predictability of rail is among logistical gains counted on by Boucher, who is Reston, Virginia-based director of vehicle logistics for Volkswagen Group of America Inc.
Boucher shares what drives him and the Volkswagen Group supply chain in an exclusive interview with AJOT.
What supply chain challenges are associated with the proliferation of vehicle manufacturing outside the United States, and how is Volkswagen addressing such concerns?
That’s an interesting question for us, because we’ve actually shifted in a couple of ways.
First, for many years after we closed the plant in Westmoreland [in Southwestern Pennsylvania, in 1988], Volkswagen didn’t have a manufacturing presence in the United States.
Fast forward to 2008, when I joined the company, the factory in Chattanooga [Tennessee] was announced. Production began in 2011 with the 2012 Passat. Then we added the Atlas SUV and are now growing that to a third model – the five-seat SUV – to be joined soon by an all-electric model.
One of the things we’ve done to address our manufacturing footprint is to be producing cars here in the U.S. market, where we sell a lot of vehicles [more than 350,000 in 2018 U.S. sales for the Volkswagen brand alone]. So we’ve actually shortened the supply chain.
Very few Volkswagen brand vehicles sold in the United States are actually produced in Europe anymore. The majority of our production for every other Volkswagen Group brand [including Audi] is in Europe. For our volume brand – Volkswagen – most are either built in Chattanooga or Mexico.
We’ve dealt with the longer supply chain from Southern Mexico for many, many years. Now, almost all the other manufacturers have realized that there’s a great manufacturing base and great labor pool and a lot of opportunity to successfully build cars in Mexico. With that have come more challenges as far as railroad supply, port capacity, vessel scheduling and other things getting a lot more complex.
We’ve expanded our manufacturing facility in Puebla as much as possible and are doing some work on our footprint in Veracruz. We work daily with our colleagues in Wolfsburg [the German city that is home to Volkswagen’s global headquarters] on vessel scheduling and maximizing capacity available to us.
Our colleagues in Germany oversee all the vessel operations, and then I’ve got all the domestic concerns here in the U.S., with counterparts in Mexico, and we all work together on cross-border and international logistics.
The rail has been a challenge for Mexican production. We work very closely with the Ferromex and KCSM [Kansas City Southern de México]. It has been more challenging with more production there.
It’s not a total dogfight for equipment, but we all want those empty railcars. For everybody producing cars down there, the U.S. is their largest market, I believe. So it’s a challenge, but it’s one we work on every day, directly with our colleagues in Mexico, Germany and, to some extent, in Canada.
We actually have a task force focused on cross-border logistics because of all the challenges. It’s not just capacity. It’s transit times. It’s vandalism. It’s a lot of issues that all of us as OEMs [original equipment manufacturers] have to deal with.
But I’ve been doing this a long time. I love what I do. I love the company I work for. It’s always great to work for a company with a customer base that really has passion for our product.
What impact is the continuing consumer preference shift from traditional passenger cars to SUVs and trucks having on the supply chain, and what is your company doing in this regard?
This is another issue we’re all dealing with as OEMs. I was just in the Automotive Logistics Executive Committee meetings that we do with [railcar provider] TTX and the railroads three times a year, and this is one of the things we talk about because, with these bigger cars, you’re getting fewer on a truck and fewer on a train, using more bi-levels than tri-levels. So it’s a capacity crunch.
Constant driver shortages on the trucking side plus things the railroads are doing to streamline their operations are exacerbated by the fact that we’re all trying to ship these bigger cars.
It’s not just the transportation or conveyance that’s affecting that. As an example, let’s use the railhead in California. If I’m shipping Beetles, I can park a lot more of them there than I can our Atlas, so you’re actually looking at acreage demand increasing, even though the SAAR [seasonally adjusted annual rate] – the sales rate – is still effectively the same.
We’re selling the same number of cars or more in recent years and have plans for growth – and the vehicle are bigger. Again, there’s a battle to grab capacity as economically as you can. But it’s a cost-up in every case to ship a bigger car, so we’re trying to mitigate that as best we can by finding new transportation solutions, weighing more ocean vs. rail or truck vs. rail or trying to put more on the railroad, which is historically a bit more cost-effective than trucking, while slower.
I’m sure we and many of the OEMs spend a lot of time looking at the economics. For example, can you stomach a little more transportation time in your supply chain to the benefit of economics when you’re looking at having been used to putting 15 to 18 cars on a railcar and now I’m putting 10? Now I need two railcars or 1 1/2 railcars for every one I used to need.
So what role does rail play in Volkswagen’s supply chain, and how are you applying your eight years of experience in vehicle logistics with Norfolk Southern Corp., immediately prior to joining Volkswagen in 2008?
I’ve been doing this now almost two decades, and I’m an advocate for rail transportation for a lot of reasons. It’s said railroads are the backbone of the American economy, and, in a lot of ways, I believe that. If we didn’t have rail infrastructure in the United States, we wouldn’t be able to get the goods to market that we need to. There are just too many of them, and some of them are just too heavy, automobiles being a good example.
If we didn’t have an automotive supply chain built around rail, we as an industry would not be able to service the customer base. Rail can move a lot of inventory very long distances economically. It’s not fast. We’re always challenged by transit times and getting the various railroads to work together the way we’d like. But the railroad is absolutely vital to the automobile industry. There’s no way we could put everything on trucks.
One of the reasons we at Volkswagen liked Chattanooga initially was because it is dual-served, meaning multiple railroads [CSX and Norfolk Southern] can access the facility, and that creates competition and facilitates bargaining power. Plus the CSX goes some place the NS doesn’t, and vice versa.
We always look for rail when we’re looking at new opportunities. We just created a couple new lanes this year, based on some new volume and flows out of our ports. From our facility in South Texas, we’ve railed to four points west of the Mississippi River and have actually put a fifth one on because we started developing new routes into California in our supply chain.
We’re always looking at opportunities to optimize the potential of rail. Don’t get me wrong, we have some wonderful trucking partners, and we have taken things off rail and put them on truck and kept them there when those opportunities have presented themselves. Generally, those are shorter length of haul moves or ones where we’re having systemic problems with inconsistent transit times or damages or whatever.
Over the last couple years, I would say overall the rail transit times have been increasing. The transit times have deteriorated a bit overall, but they’ve gotten more consistent. I’ve always told my vendor partners I would rather have a longer consistent transit time with my cars in the supply chain than one that’s wildly volatile.
Transit times have gotten longer due to some changes railroads have made in their philosophies and networks, but they have been more consistent, and I will give them credit. So, while they used to maybe get there in 12 days, now they get there in 15 with a much better degree of accuracy. In the old days, it was seven days, 12 days, 18 days – heck, I didn’t know when they were coming. Now, it’s more reliable, and that’s actually a better tool for your supply chain, and I think everybody would agree.
How important are contingency plans to successful vehicle logistics, and how are you putting such planning into practice at Volkswagen?
It’s a really fine line. You never want to plan or build your supply chain for your peak shipping.
Let’s use my Audi brand as an example. The vehicles almost exclusively arrive from Europe. We have a factory in Mexico that builds the Q5 [luxury crossover SUV], but every other Audi model is built in Europe. We have a vessel that brings those cars to our facility in [Davisville] Rhode Island about five times a month. So our port manager there will get 1,000 cars five times a month.
It’s different from a factory, where you build 500 cars a day and theoretically ship 500 cars a day. Your most effective supply chain is a straight line, but, by definition of the way we receive the freight, that’s not possible there. If I built my supply chain up there with capacity for 1,000 cars all the time, I’d be half to three-quarters empty two-thirds of the month. Any logistician will look at that to see what the sweet spot is. That’s really the hard part of what we do.
But then stuff happens. There’s a weather event or the railroad doesn’t come or there’s a hold on the vehicle for some reason or whatever. And then your inventory builds. So you’ve always got to have the ability to pivot.
One thing I love about logistics is it’s never dull. It’s rarely the same thing twice. I think it’s definitely too exciting sometimes, but we have agreements in place with all of our processing and carrier partners to search for solutions if we need to. Sometimes when we search, other OEMs are searching as well, and that’s when it gets really interesting.
Chattanooga is growing to be our largest provider of VW product for the U.S., and we have limited space, like most OEMs, and we have contingency plans to go offsite or expedite cars to market. We keep a roster of backup transportation behind our many contract carriers on the trucking side, so that, when our port managers get backed up or one of the contract guys has an issue, they have a list and call the backup transportation providers, starting with No. 1 in our rankings on a variety of criteria. It’s sometimes that simple.
If you didn’t operate with contingency plans in your back pocket, you would not be able to be successful, because there’s always something with the work we do.
What outside interests capture your fancy?
I’m an old gearhead at heart. My father put himself through school in part as a mechanic and made sure I knew how to turn a wrench. I’m by no means proficient but probably good enough to be dangerous. I’ve got an old Jeep at the house that I tinker on, and I’m in between old Volkswagens, having sold my van and looking for another one.
And my lovely wife supports it. She really likes my Wrangler. That’s the one I think I have to hang onto keep her happy, because she likes to drive it and ride in it with the top down.
Outside of cars, I’m a big baseball fan. My father was military and I lived all over the country, and my first baseball game was at Wrigley Field in Chicago.
When we moved every three years, I could always turn on WGN and watch the Cubs. I always go to the three-game [Cubs] set here in Washington.
When we got married, I told my wife, who has grown to be a big Cubs fan, that if the Cubs ever go to the World Series, I’m going. Went to Game 5 [won by the Cubs en route to becoming 2016 world champs] and had the most wonderful experience ever. It’s not the Cubs’ year this year, but, like all Cubs fans, I have to say, “There’s always next year.”
