Most China-Bound Suppliers Not Saving Money

A new study by PRTM Management Consultants finds the majority of North American automotive suppliers sourcing from China are not realizing great savings.

“Over half the participants in our study achieved less than 40% of their savings goals” at their Chinese operations, Stephen Pillsbury, principal-PRTM, says at a recent Original Equipment Suppliers Assn. conference.

While company practices, not components, were the key savings driver with suppliers doing business in China, PRTM did find suppliers in the fields of tooling, chassis/powertrain, electronics and body/interior yielded the greatest savings, while those producing plated materials, brass products, coil springs and parts requiring complex machining, saw the least savings.

For the study, dubbed “Enter the Dragon? — Lessons Learned in China Sourcing,” PRTM surveyed more than 50 people from Tier 1, 2 and 3 North American suppliers with revenues in excess of $200 billion.

PRTM found that while 42% of suppliers surveyed were “challenged,” mainly because they were trying to source parts remotely and had no local Chinese presence, the “leading” 22% of North American suppliers in China achieved twice their intended savings at a rate 30% faster than expected.

The primary reasons many suppliers missed their China savings targets were product design and specification issues (25% of respondents) and quality-related costs (20%), the study found.

Andreas Mai, principal-PRTM, says North American suppliers must be certain their Chinese partners understand their drawings and technical details to curtail product design and specification issues, and that certain suppliers must train their Chinese partners to understand the concept of continuous improvement.

PRTM concluded that China sourcing requires a minimum savings of 20% to outweigh such negatives as costs associated with logistics, quality and intellectual property risks.

Mai cautions suppliers not to get too excited about the low price of a Chinese-made component. He says suppliers wishing to save money by producing in China need to factor in the cost of insurance, saying about 10,000 containers are lost annually during shipment from China to the U.S.