ALG newsletter

Designing new generation Vehicle Distribution Centres

Why New generation VDCs?

Growing motorisation rates worldwide are challenging traditional vehicles supply chains. Although larger logistic capacity is required, operational efficiency and cost optimization are a must to survive in this highly competitive environment.

It is in this context that new generation Vehicles Distribution Centres (VDCs) are emerging. From traditional storage areas, today’s VDCs are evolving into logistic hubs, providing a wide range of value added services, enabling the VDC to become the final step in the vehicles production chain.

New generation VDCs are also going “digital”: innovative technologies are ensuring a complete integration of the vehicles supply chains, from production to customer delivery, including yard management and ancillary services.

ALG
Imported vehicles logistics chain and VDCs (non-exhaustive)

A challenging market combined with the need digitalisation are generating the opportunity to increase VDCs added value to the automotive value chain.

Fundamentals for the conception of New Generation VDCs

Nowadays there is a need to align new and old VDCs to current industry trends. However, matching value offering with market requirements can be a complex task for strategic planners and COOs. Therefore it is advisable some fundamentals are taken into consideration from the beginning.

First and foremost, existing VDC strengths and areas of improvement must be fully understood. For this purpose, existing infrastructure assets, operational cost structure, capacity and value added services, as well as the competitive positioning versus other players must be evaluated in detail.

A comprehensive view over the logistics chain is required. VDCs are a key element in the long process from production to delivery. Reviewing supply chain strategies to align the VDC with overall business and operational goals is a key driver to success.

It is essential to ensure all stakeholders are involved in the VDC conception. Considering needs and requirements from all stakeholders is mandatory for a tailored solution that brings the right balance between potential conflicts of interest among the asset’s operators, users and customers.

Lastly, strategy for a new VDC should be defined with short, medium and long term vision: targeted markets, volumes to be handled, value proposition, project phasing, outsourcing of services…

A strategic approach for the conception of new VDCs requires a thorough understanding of current and future needs as well as full vision of all the value chain.

ALG
ALG’s strategic approach for the conception of New Generation VDCs (non-exhaustive)

Bringing the strategic approach to a tangible design

A step forward in the VDCs conception is translating business and operations requirements into a tangible design.

ALG experience shows that making use of structured methodologies is essential to achieve it. Furthermore, it ensures higher flexibility to adjustments, provides different levels of detail as well as it eases communication with all stakeholders involved.

Designing a VDC following a bottom-up approach is highly advisable: from the individual design of elements to the global layout and interaction of the VDC with its surroundings.

ALG
ALG’s bottom-up approach for the design of New Generation VDCs (non-exhaustive)

A structured methodology is essential to provide an adequate understanding of the business and operations requirements.

The first stage in the design must target the geometric definition of each element in the VDC. Design criteria should bear in mind forecasted volumes, logistic and functional requirements, safety standards, as well as IT requirements.

The second stage is the layout definition. Key elements drivers include the prioritisation of flows and activities, jointly with urbanisation needs. Planning managers should firstly develop alternative solutions for the VDC. These solutions must be evaluated based on a multi-criteria comparison analysis to select the one to be further developed. At the end planners must select the layout bringing best trade-off between functionality, investment cost, technology ease or minimization of its environmental impact.

Finally planning managers should provide specific solutions for the VDC’s interaction with other infrastructure such as port terminals, production plants, railway and road accesses and the connection to utilities & services.

It is advisable to design VDCs following a bottom-up approach in order to ensure all elements and their interactions are considered.

ALG White paper-03
ALG’s design of road accesses of a New Generation VDC (illustrative)

Additional aspects to ensure VDC design excellence

VDC top managers should bear in mind that no perfect solution exists. However, planning managers can make use of different strategies to provide reliability and flexibility to their VDC designs.

A first option is to include reasonable safety margins in all VDC elements dimensioning. This will help avoid capacity constraints when unexpected peaks of demand appear or new customers are acquired. In any case, individual elements’ safety margins must be combined to minimise the impact of investment needs.

Reaching a perfect design may not be possible but planners should ensure flexibility in their solution to be able to adapt the VDC to future changing needs.

Benchmarking can also bring applicable ideas to the VDC design. It should be noted that not all VDCs may be the best reference since automotive market and logistics present relevant differences in most geographies. Consequently best practices to be applied must be carefully chosen to ensure they are actionable and implementable in the VDC design.

Chignolo arragona ALG
Sample of ALG’s VDCs benchmark database, comprising more than 40 VDCs worldwide

Developing complementary “upside” scenarios based on increased demand or additional infrastructures may provide larger flexibility at long term as well as avoiding non-priority investments.

Finally it is highly advisable that planners make use of operations simulations in order to identify potential bottlenecks and constraints, areas of improvement or risks. This helps define and implement all necessary mitigation measures.


About the authors
Pablo Ruiz del Real is MSc in Civil Engineering, Partner and Advisor at ALG
Ruben Naveiro is MSc in Industrial Engineering and Manager at ALG
For more insights, please check www.alg-global.com or contact:
pruiz@alg-global.com
rnaveiro@alg-global.com