FINAL
Expectations for
Emerging Market Sourcing
Jean Mayer
Executive Director, Asia Pacific and Africa Purchasing
& Global Purchasing Systems
"The information contained herein is FORD PROPRIETARY information and may include FORD CONFIDENTIAL information as defined in
Ford's Global Information Standard II. Reproduction of this document, disclosure of the information, and use for any purpose other than the
conduct of business with Ford is expressly prohibited."
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Discussion Topics
• Global Sourcing Opportunities
• Global Sourcing Challenges
• Corporate Social Responsibility
• Summary
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Global Markets Provide Significant
Opportunities for Production and Services
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Production
• Increasingly able to achieve world-class quality
• Significant landed cost savings
• Trend to more complex components/assemblies
• Competitive environment, necessary for survival
Services
• Quality as good or better than in high-cost markets
• Savings versus high-cost markets
• Companies also use low cost markets for
improvements in speed – “follow the sun”
approach
2
Growth in the Global Automotive Industry
VEHICLE SALES BY REGION
NOW
Other Asia
Pacific &
Africa
24%
Japan
10%
59 Mils.
Europe 19
29%
The
Americas
37%
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Emerging
Markets will
Represent
86% of
Vehicle Sales
Growth
During the
Next Decade
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PRODUCTION
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Auto Parts Industry is Growing as well – Driven to a
Large Extent by Auto Industry Growth
Production value
($Bils.)
EXPORT MARKET
EXAMPLE: CHINA
China auto parts production
15
CAGR: 7%
11.2
9.9
10
8.1
7.2
7.5
• Supplier quality becoming
world class (Toyota, GM
and others are already
sourcing from China)
• Export Market is 14% of
total
• Primary growth is in basic
commodities
• Primary driver is cost
advantage
• Lower labor rates
• Scale efficiencies
• Government incentives
5
1998
1999
2000
2003E
2005E
Source: China Auto Industry Yearbook (1996-2000); China Auto Market (2000); China association of automobile manufacturers; ISI; BCG interviews
and analysis
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PRODUCTION
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Automotive OEMs are Utilizing Emerging Markets
to Drive Lower Costs
• Most OEMs have a significant presence in
Emerging Markets – for local market
requirements and increasingly for export
production
• A larger percentage of overall cost structures
are influenced by Emerging Markets – driving
down benchmark costs
• Survival is dependent upon achieving
benchmark costs
Entire value chain must contribute – customers
expect lower costs to pass through the chain
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BUSINESS SERVICES
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In Addition to Manufacturing, Emerging Markets are
also Driving Lower Costs for Business Services
SUPPORT
SERVICES
Back Office
DESCRIPTION
COMPANIES
(Examples)
Increasing Complexity
• Basic data entry
• Transaction processing
• Document management
•
•
•
•
American Express
IBM
Oracle
Ford
Customer
Contact
•
•
•
•
Call centers
On-line customer service
Telemarketing
Collections
•
Oracle, Dell,
Microsoft, IBM
Ford
Capital One
Delta Air Lines,
Lehman Bros.
Corporate
Functions
•
•
•
•
Finance/Accounting
IT
Human resources
Procurement
•
•
•
•
•
ABN-AMRO
AOL
IBM, Intel
GE, EDS, Accenture
Ford, GM, DCX
Knowledge
Services
• Research services
• Customer analysis
• Portfolio analysis
•
•
American Express
Morgan Stanley Dean
Witter
R&D
• Engineering
• New product design and
testing
•
•
•
•
Microsoft
General Electric
GM, Toyota
Plastech
•
•
•
SOURCE: McKinsey Global Institute paper “Offshoring: Is it a Win-Win Game?”; “The Global Razor’s Edge” Fast Company v79 F 2004.
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BUSINESS SERVICES
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Benefits for Business Services Go Beyond
Cost Savings
Other Benefits
Cost
Without reengineering
100
Additional
savings
through reengineering
Other
Additional
Capacity
None
2%
5%
31%
Service Quality
Improvement
Quality
Not as Good as
the Original
Services
Better than
the Original
11%
Services
15%
14%
45-65
21%
35-40
Original
cost
base
Offshore
location
cost
New cost
base
26%
Productivity
Improvement
Expanded
Skills and
Capabilities
75%
As Good as
the Original
Services
Companies can realize a number of benefits, in addition to cost savings. For example:
• Speed/Timeliness – can utilize a “follow the sun approach” due to time differences
• Quality/Service Level Improvements – Improve quality of staff (education/skill level)
or up staffing levels to improve service
SOURCE: 2003 A.T. Kearney Automotive Industry Executive Survey; Aberdeen Group “The Global Sourcing Benchmarking Report”;
McKinsey Global Institute paper “Offshoring: Is it a Win-Win Game?”
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Many Industry Observers Believe the Benefits (for
Production and Services) are Sustainable
• Annual cost reductions in LCC markets have
consistently exceeded those in mature markets
due to:
– Expanding scale
– Deepening relationships with suppliers
– Competitive environment
• Wage rate growth in China and India will be limited
by the large number of under-employed
– China has 800 million people living in the country
– India has 25 million English-speaking, educated
workers, expected to expand every year
• Labor rate differential is so large, gap is expected
to remain substantial for the foreseeable future
SOURCE: Boston Consulting Group Report “Capturing Global Advantage” 2004.
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Discussion Topics
• Global Sourcing Opportunities
• Global Sourcing Challenges
• Corporate Social Responsibility
• Summary
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Capabilities are Improving,
Challenges Still Exist
Cost
Competitiveness
Quality and
Logistics
Social
Responsibility
Supplier
Readiness and
Viability
Lack of Data and
Experience
Personnel and
Logistics
Culture
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• Some products still not cost competitive for exports
• Not all suppliers capable of producing to global quality standards –
although quality levels are increasing
• Some suppliers lack supply chain management capability
• Health and safety issues; minimum wages – misinterpretation of work laws;
differences in level of environmental regulation and compliance
• Suppliers underestimate the support required for Ford – may over promise
• Lack of consistent specifications
• Many state-owned firms have weak balance sheets and may not survive
• Lack of historical data
• Lack of team member experience leads to ‘home run’ timing
• Need for personnel with deep technical/functional knowledge, i.e., North
American or European network, and an understanding of the local market
• Need to overcome internal resistance
• Even with local fluent English-speakers, takes time to communicate and
understand meaning and intent
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Ford Learnings
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• Begin by procuring components and services
that are readily available
• Find suppliers able to meet demands of
traditional markets and have capability to grow
• Concentrate sourcing efforts on same
commodities and suppliers
• Work with these selected suppliers to improve
their capabilities – we don’t have the capacity to
do this across all suppliers
• Dedicated sourcing offices with strong crossfunctional team required to ensure success
While substantial opportunities exist, it is critical to choose
and to develop Suppliers judiciously
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Emerging Market Sourcing Vision and
Principles
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VISION: a single supply base for a given region to support local
and export production, at world class levels in terms of quality and
cost, following the Human Rights Code of Conduct
KEY SOURCING PRINCIPLES
•
Supplier Data – Suppliers need to provide transparent material
cost data, quality assessment, and social responsibility assessment
•
Sourcing Approach – Supplier and component sourcing
approaches and recommendations are developed by a crossfunctional, cross-brand group
•
Social Responsibility – Social Responsibility will be a critical
consideration in all new sourcing decisions, along with
competitiveness assessments (commercial, manufacturing, quality)
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Discussion Topics
• Global Sourcing Opportunities
• Global Sourcing Challenges
• Corporate Social Responsibility
• Summary
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Corporate Social Responsibility –
Why It Is Important
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 Supports and is consistent with Ford’s Business Principles
 Operational benefits realized by improving environmental and
working conditions performance – lower energy cost, less waste,
increased productivity, improved safety, decreased turnover, and
training cost
 Brand Risk Management – can’t rely on regulation and
enforcement of environmental and labor laws in emerging markets
amnesty
international
“We won’t be targeting the governments anymore, we will be
going at the global corporations and recognized brands.” –
John Passacantando, Executive Director, Greenpeace
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Corporate Social Responsibility –
Ford’s Expectations
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Environmental Protection
 Our Production Part Approval Process (PPAP) requires
conformance to the Restricted Substance Management
Standard
 Third party ISO14001 certification is a requirement for
production suppliers and designated non-production suppliers
Working Conditions
 Ensure that those making Ford products and components, or
providing services, are treated with dignity and respect
 Global Terms and Conditions (GTCs) stipulate:
 Absolute prohibition of child labor (under 15), forced labor, and
physical disciplinary abuse
 Full compliance with all applicable laws – including minimum
age, compensation, work hours, health and safety protections
Find Ford’s Social Responsibility and Environment Guide on
Ford Supplier Portal (https://fsp.ford.com/)
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Discussion Topics
• Global Sourcing Opportunities
• Global Sourcing Challenges
• Corporate Social Responsibility
• Summary
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Summary
• Emerging Market sourcing opportunities exist for
both local production as well as for export of parts
• Ford is developing a competitive supply base in
terms of cost, quality, delivery and social
responsibility – concentrating on the same
suppliers and commodities to move up the
learning curve as quickly as possible
• Suppliers must drive cost improvements through
the value chain – drive to benchmark costs
• Corporate Social Responsibility is a critical
expectation that has to be managed through the
supply chain
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