20160725_global_sourcing.pdfVIP

September 2007 Automotive component sourcing in a globalized world Global sourcing can be a powerful – indeed necessary – competitive tool for many automotive manufacturers facing price pressures in a mature market. It can be worthwhile if a strategic, rather than opportunistic approach can be applied. By Markus Bergmann, Paul Gao, Ramesh Mangaleswaran, Glenn Mercer, Riccardo Schiatti and Andreas E. Zielke Only 25 years ago one of the few electronic items in a car was the radio; today perhaps more than a fifth of the value of the typical automobile is in electronics - quite a shift for an industry traditionally more at home buying mechanical parts. The parameters have changed even for metal parts: recent surges in steel prices have sent more than a few suppliers into bankruptcy. Meanwhile, on the sales side, car companies are doing everything possible, including concessions on vehicle prices, in order to maintain healthy demand levels in what are mostly mature markets. The result is enormous pressure on purchasing departments to reduce a vehicles cost base, typically at a steady pace of 2 to 5% annually for components in production. Global sourcing is one of the most attractive ways to ease this pressure. Not only is demand for parts sourcing from low-cost countries (LCCs) greater than ever; the conditions for companies to source from them effectively are also much more favorable. Buyers are more comfortable with global markets, communicating with far-flung production sites is faster and cheaper, the red tape that has hindered the international f