The automotive parts supply chain in North America is changing like never before as domestic auto makers attempt to source more parts overseas and the foreign transplants seek more parts within the region. Meanwhile, suppliers – many of them in distress – remain crucial to the success of new vehicles being launched. This is the fourth installment of a Ward's 6-part series stemming from interviews with the purchasing departments of Nissan, Ford, Honda, GM, Toyota and Chrysler.
Two years ago, General Motors Corp. purchasing chief Bo Andersson was enthralled with the possibilities of sourcing components from various low-wage regions of the world for GM vehicles assembled in North America.
He told Ward's, for instance, it was possible to buy headliners from suppliers in China and fly them first-class to the U.S. for less money than producing them locally.
Today, he admits he was “a bit aggressive in my tone when we talked at that time.” The economics of such shipments have changed, as have GM's demand for quality materials and better interiors in general.
“Headliners became very, very expensive and became much more than just headliners," says Andersson, group vice president-global purchasing and supply chain, referring to the growing popularity of overhead consoles.
In addition, at the time, Andersson was talking about “a very basic type of sandwich construction headliner, very easy to package.”
Today, the auto maker no longer wants to do headliners on the cheap and has been upgrading them in new vehicles as part of GM’s overall mission to make its passenger compartments more appealing, comfortable and aesthetically harmonious.
Perhaps the headliner experiment didn’t work out, but Andersson and his globally deployed staff of 4,000 are constantly watching for innovative products and creative ways to ship them to the U.S.
“We think it’s feasible to ship glass from China, and it’s easy to package and get it here on a competitive basis,” Andersson says. “And we have made some decisions in getting door trims in from Europe to the U.S.”
GM could source windshields for North American vehicle assembly from Asia at a logistics cost to the auto maker of a mere $3 apiece, Andersson says.
Although a seemingly fragile component for long-distance shipping, Andersson says automotive glass, particularly windshields, actually is extremely sturdy and ships well, thanks to innovative packaging methods developed over the years.
Plus, there is no risk of corrosion, as can occur with metallic parts in the hulls of seafaring vessels.
Andersson says the price quotes from Chinese suppliers for good quality automotive glass are too appealing to ignore: about 10% cheaper than North American suppliers, based on total landed cost, which factors in logistics. “In some cases, it’s attractive to ship it from China,” he says. “In other cases, it’s not.”
That’s because the U.S. supply base in automotive glass is becoming more competitive with global sources and is attempting to wipe out that 10% price disadvantage.
“When you introduce something new to the market, the first reaction is, ‘It’s not possible,’” Andersson says. “And after a while people say, ‘Yes, it’s possible. So I may need to react to be more competitive.’”
As GM attempts to streamline its manufacturing processes, it is finding it possible to ship other large parts that for many years have been produced close to the vehicle assembly plant.
Take seats. For two decades, large suppliers such as Lear Corp. and Johnson Controls Inc. have set up assembly plants close enough to respond immediately to auto makers’ constantly changing build plans.
The OEMs broadcast an order for a certain number of seats, in various colors, with fabric or leather and with different levels of functionality. The suppliers have a few hours to deliver the necessary seats “just in time” and generally in sequence. Flexibility is paramount.
In Europe, however, Andersson says GM is experimenting with a 7-day fixed vehicle production schedule. “That means if it’s fixed for seven days, you can have seat suppliers far away as well,” he says.
The 7-day fixed production schedule is merely a concept for GM, Andersson says, and there are no immediate plans for widespread implementation.
“It’s something we have tested and something that works, but it requires a lot of discipline in the system that you stick with your schedules,” he says.
If even seats can be transported long distances, does that mean it is becoming possible to source virtually any part from anywhere in the world?
“Yes and no,” Andersson says. “There are a lot of things (where that) would not make sense from a total cost perspective. But if you can solve that equation and you have a fixed schedule for, say, seven days; and you know exactly what you want to do, I think it’s feasible.”
As GM contemplates more global sourcing, Japanese competitors with North American auto assembly plants are attempting to procure more parts locally. Nissan North America Inc., for instance, is aggressively stepping up its parts purchasing in Mexico to support the regional operations.
Why the dichotomy? The Japanese are expanding their North American operations, while Detroit’s three auto makers are shrinking theirs. Andersson says GM wants to buy more parts in the regions of the world where the auto maker is growing: Latin America, Eastern Europe and Asia/Pacific.
“We are manufacturing more vehicles in these countries,” he says. “That also means we are developing a local supply base (there).”
Suppliers in Mexico, Eastern Europe and Asia/Pacific started winning business with GM “by being very competitive” with established players in those regions.
“It’s very seldom that we have a supplier coming into North America that didn’t already serve us somewhere else in the world,” Andersson says. “That’s the leading change agent. For the Japanese (auto makers), it might be that North American suppliers are more competitive than the suppliers they have elsewhere.”
Well known for his fascination with data, Andersson says U.S. Customs shipping statistics show the Japanese continue to import a lot of auto parts into the U.S. on a daily basis.
Despite GM’s push for global sourcing, Andersson says he fully understands the advantages of buying locally. “The longer your supply chain is,” he says, “the more risk you have.”