FROM SCRATCH NEWSWIRE

SCAVENGING THE INTERNET

WISE UP OR LOSE OUT, GM TELLS PARTS SUPPLIERS (South Africa)

Posted by Gilmour Poincaree on December 4, 2008

PORT ELIZABETH Thursday December 4, 2008

by Bob Kernohan – BUSINESS EDITOR

PUBLISHED BY ‘THE HERALD ON LINE’ (South Africa)

SMALL vehicle component suppliers need to smarten up or face the possibility of closing because they increasingly risk being uncompetitive, a motor company executive cautioned in Mandela Bay this week.

General Motors SA global purchasing and supply chain vice-president Evan Dold was speaking about the need for the vehicle manufacturing industry at all levels to become totally world competitive.

He said the cost of components in a vehicle made up 75% to 85% of the total.

Dold said studies carried out by GMSA in the second quarter had shown that there was an ex-factory “cost gap” of about 30% between a sample of parts sourced locally and the same parts sourced from the most competitive cost location in the Latin America, Africa, Middle East region, under which GM‘s SA operations fall.

He said further: “When sourced from the lowest cost sources globally, such as from emerging markets like Thailand, the gap increased to about 40%.”

Dold suggested that domestic manufacturers could capitalise on the weakness of the rand and narrow the competitiveness gap by increasing domestic content, so also providing a stronger hedge against future currency weakness.

“Growing local content while volumes are down will be a challenge. But it is not all doom and gloom, and the weak rand will work in our favour.

“We should also use the downturn to eliminate unnecessary costs so that when the rand strengthens, we are more competitive and profitable.”

Domestic component production volumes also needed to increase.

“This is a particularly difficult challenge right now, but the industry has always been cyclical and at some stage the markets will start turning.

“Even with the downturn in volumes globally, the weak rand should assist some of our more competitive local suppliers to grow volumes through new export contracts.

“In some cases we can also grow volumes with our most competitive local suppliers by rationalising our supply base and re-sourcing business from less competitive suppliers.”

On increased volumes, Dold said: “Our studies have shown that a doubling of volumes will on average lower the piece part cost by some 10% to 20%, depending on actual volumes.”

Asked about the possible implications for small domestic suppliers of changes worldwide, Dold said it had to be realised that manufacturers were now “globally integrated”.

“For instance, when we are told of a price increase by a local supplier, that information goes into the pot and it is discussed in a global context.

“It has to be realised 85% of GM‘s global business is done with its top 350 suppliers.”

If GMSA‘s local suppliers provided the required quality, service and world-competitive costing, the company would continue to do business with them, Dold said. Otherwise, it could look to its worldwide supply base.

He urged smaller suppliers to take advantage of opportunities in areas like joint ventures with similar enterprises or “selling out” to multinational companies.

Dold pointed to some steel component manufacturers and the catalytic convertor industry as being success stories.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE HERALD ON LINE’ (South Africa)

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