5.23.2007

Does Global Sourcing Ever Make Sense?

Looking at a manufacturing supply chain strictly from a lean perspective, you should obtain parts locally, as close to your plant as possible, to eliminate the waste of transportation.


            But in the real world, life is complicated. Sometimes it appears that sourcing parts from overseas makes sense. That appearance may be wrong, but perhaps on occasion it is right. And calculating when long-distance sourcing makes sense is difficult.


            That is the overall impression I come away with after attending the Automotive News Manufacturing Conference in Nashville last week. The presentations and discussions frequently focused on the challenges of a global marketplace, and even the best people seemed occasionally confounded by those challenges.


            To be sure, almost every speaker agreed that most of the time, sourcing parts locally is the best course of action. And there was recognition that too many companies are seduced by low foreign labor costs without really thinking about the bigger picture.


            “We see a lot of pressure toward globalization toward parts due entirely to labor costs in Asia,” said Vicki O’Meara, president, U.S. Supply Chain Solutions, Ryder Systems. “But they are uncertain on total landed costs, and there are a lot of surprises after the fact.”


            However, most speakers agreed that sourcing parts from overseas occasionally makes sense. Sanjiv Sidhu, founder and chairman of i2 Technologies, which makes supply chain software, commented that obtaining one part from China would be unwise. But, he added, if you are also obtaining four other parts from the same region of China, then importing all of them becomes feasible.


            I was struck by some of the comments in a dinner address by Bo Andersson, GM group vice president for global purchasing and supply chain. Andersson, a blunt, amusing speaker, commented, “I don’t have a North American supply base. I have a global supply base.” As one example, he said, “we are shipping windshields from China to the U.S. today, three bucks apiece,” the clear implication being that this was a good, competitive price.


            (By the way, Andersson mentioned that GM spends $70 billion annually on parts in North America, $20 billion in Europe, $11 billion in Asia-Pacific and $5 billion in Latin America and the Middle East.)


            Another fact: While I was with other conference attendees touring the massive Nissan plant in Smyrna, Tennessee, our tour guide mentioned that about 70 percent of the plant’s suppliers are in the U.S., with the remaining 30 percent in Japan.


            GM and Nissan are no strangers to lean approaches. Both employ good people dedicated to squeezing waste out of their supply chains. And while imported parts are in the minority, they still constitute a considerable part of operations.


            During a panel discussion on supply chain issues, I got the impression that the issue that seems to perplex all the automakers is how to calculate the true cost of imported parts. Even Chris Nielsen, vice president of purchasing for Toyota’s American operations, said “we have to try to understand at a deeper cost level.”


            No one had a clear answer on when it does or does not make sense to source parts globally. I’d like to hear what you think and what you have experienced, and also whether you believe global sourcing can ever be consistent with a lean strategy. Post your comments below.


 

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