Transcript PowerPoint Template - columbiasocialenterp
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." 0
Discussion Topics
•
Global Sourcing Opportunities
•
Global Sourcing Challenges
•
Corporate Social Responsibility
•
Summary
FINAL
1
Global Markets Provide Significant Opportunities for Production and Services
• • • •
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
FINAL
2
Growth in the Global Automotive Industry
FINAL
VEHICLE SALES BY REGION NOW Other Asia Pacific & Africa 24% Japan 10% 59 Mils.
The Americas 37% Europe 19 29%
Emerging Markets will Represent 86% of Vehicle Sales Growth During the Next Decade
3
PRODUCTION
Auto Parts Industry is Growing as well – Driven to a Large Extent by Auto Industry Growth
FINAL
Production value ($Bils.) 15 EXAMPLE: CHINA China auto parts production
•
EXPORT MARKET 10 7.2
7.5
CAGR: 7% 8.1
9.9
11.2
• • •
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
4
PRODUCTION
Automotive OEMs are Utilizing Emerging Markets to Drive Lower Costs
FINAL • • •
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 5
BUSINESS SERVICES FINAL
In Addition to Manufacturing, Emerging Markets are also Driving Lower Costs for Business Services
SUPPORT SERVICES Back Office Customer Contact
• • • • • • •
DESCRIPTION Basic data entry Transaction processing Document management Call centers On-line customer service Telemarketing Collections
• • • • • • • •
COMPANIES (Examples) American Express IBM Oracle Ford Oracle, Dell, Microsoft, IBM Ford Capital One Delta Air Lines, Lehman Bros.
Corporate Functions Knowledge Services R&D
• • • • • • • • •
Finance/Accounting IT Human resources Procurement Research services Customer analysis Portfolio analysis Engineering New product design and testing
• • • • • • • • • • •
ABN-AMRO AOL IBM, Intel GE, EDS, Accenture Ford, GM, DCX American Express Morgan Stanley Dean Witter 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.
6
BUSINESS SERVICES
Benefits for Business Services Go Beyond Cost Savings
Cost Other Benefits Quality Without re engineering 100 Additional savings through re engineering Additional Capacity Other None 2% 5% Service Quality Improvement 31% 15%
FINAL
Not as Good as the Original Services Better than 11% the Original Services 14% 45-65 21% 75% 26% Original cost base Offshore location cost 35-40 New cost base Productivity Improvement Expanded Skills and Capabilities 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?”
7
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
FINAL SOURCE: Boston Consulting Group Report “Capturing Global Advantage” 2004.
8
Discussion Topics
•
Global Sourcing Opportunities
•
Global Sourcing Challenges
•
Corporate Social Responsibility
•
Summary
FINAL
9
Capabilities are Improving, Challenges Still Exist
•
Some products still not cost competitive for exports Cost Competitiveness Quality and Logistics Social Responsibility Supplier Readiness and Viability Lack of Data and Experience
FINAL • •
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 Personnel and Logistics Culture
• •
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 10
Ford Learnings
• • • • •
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 cross functional team required to ensure success
FINAL
While substantial opportunities exist, it is critical to choose and to develop Suppliers judiciously 11
Emerging Market Sourcing Vision and Principles
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 cross functional, cross-brand group
Social Responsibility –
Social Responsibility will be a critical consideration in all new sourcing decisions, along with competitiveness assessments (commercial, manufacturing, quality) FINAL
12
Discussion Topics
•
Global Sourcing Opportunities
•
Global Sourcing Challenges
•
Corporate Social Responsibility
•
Summary
FINAL
13
Corporate Social Responsibility – Why It Is Important
Supports and is consistent with Ford’s Business Principles
FINAL
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 14
Corporate Social Responsibility – Ford’s Expectations
Environmental Protection
Our Production Part Approval Process (PPAP) requires conformance to the Restricted Substance Management Standard
FINAL
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/) 15
Discussion Topics
•
Global Sourcing Opportunities
•
Global Sourcing Challenges
•
Corporate Social Responsibility
•
Summary
FINAL
16
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
FINAL
17