Study Reveals: Auto Suppliers Find No Cost Guarantee in China Sourcing

DETROIT--April 3, 2006--Most automotive suppliers have not yet realized savings objectives from sourcing in China, according to a study by the Original Equipment Suppliers Association and PRTM Management Consultants. The results of the study, "Enter the Dragon? Lessons Learned in China Sourcing," were presented today during the SAE 2006 World Congress.

An efficient low cost country supply chain is a competitive weapon and a question of survival for many suppliers. The study found many auto suppliers plan to nearly triple Chinese share of procurement spend by 2010. The study also found successful results in China sourcing are not guaranteed, as more than half of study participants achieved less than 40 percent of China sourcing goals. Suppliers achieving the best results tend to have been in China the longest and learned what it takes to succeed. Opportunity exists for other suppliers to learn from early movers to save money faster with less risk.

"China sourcing is not a quick fix for short-term cost targets. Dealing with a 7,000-year-old culture 7,000 miles away is simply complex. Winning suppliers are those with China sourcing efforts based on a solid strategy, determined leadership, sufficient investment in a 'Chinese Chinese' purchasing office, and local technical support," said Andreas Mai, a principal at management consultancy PRTM. "Many winning suppliers invested 6-10 years learning to successfully leverage China as an effective, low-cost source of supply."

The study, based on more than 50 interviews and surveys with executives of global automotive suppliers located in the U.S., found:

-- China sourcing requires minimum savings of 20 percent to outweigh the increased costs of logistics, quality and intellectual property risk

-- Savings vary widely, even within similar commodities

-- A remote "test the waters" approach is bound to fail

-- Highest savings were achieved by suppliers that deployed an integrated China strategy as part of Chinese market expansion and/or global product management

-- Leading suppliers built a local presence and established critical mass of at least $10 - $20 million in spend

-- Sustainable China sourcing results require high investment in local supplier development, technical and quality support

-- Early adopters achieve the highest savings rates, shorter procurement lead times and lower quality and supply chain risks, but the learning curve was 6-10 years

Neil De Koker, president, OESA, noted, "China is a relatively new business strategy for many auto suppliers. OESA provides practical knowledge suppliers can use when evaluating China and other LCC sourcing. The PRTM work provides peer-to-peer benchmarking information suppliers need to make sound business decisions about China operations."

About PRTM Management Consultants

PRTM (www.prtm.com) works closely with leading companies worldwide to achieve breakthrough business results--fast. Since 1976, we've delivered measurable value to our clients, earning one of the highest levels of repeat business in the management consulting industry. PRTM is also a recognized thought leader and innovator. There are 14 PRTM offices and 500 consultants in the U.S., Europe, and Asia.

About OESA

Formed in August 1998, OESA provides a forum for automotive suppliers by addressing issues of common concern through peer group councils, serving as a reliable source of information and analysis, providing an industry voice on issues of interest and serving as a positive change agent to the automotive industry. With nearly 400 members having global automotive sales exceeding $300 billion, OESA represents more than 65 percent of North American automotive supplier sales. For more information, visit www.oesa.org. OESA is a market segment association of the Motor & Equipment Manufacturers Association.