Transcript Outsourcing and Globalizing: Simplifying or Complicating

Outsourcing and Globalizing:
Simplifying or
Complicating Logistics
Michael G. Coady
21st Century
Transportation Distribution Logistics Summit
September 14, 2004
Delphi Electronics and Safety 1
Delphi Electronics and Safety
Global Manufacturing Sites
Liverpool
Milwaukee
Tucson
Reynosa
Flint
St. Aubin
Kokomo
Braga
Ponte de Sor
BadSaltzDetfurth
Szombathely
Osberghousen
Suzhou
Munmak
Matamoros
Deltronicos
Rimir
CMM2
Ashimori
Singapore
Rio Grande
Delphi Electronics and Safety 2
Market Environment
How you would like it to be:
Seller’s Market
Limited Competition
Cost + Profit = Price
How it is:
Buyer’s Market
Unlimited Competition
Price – Profit = Cost
Delphi Electronics and Safety 3
Why China?
What happens when prices steadily decline and
costs don’t decline at the same rate?
Price – Cost = Profit
Delphi Electronics and Safety 4
Cost Breakdown
Overhead
Logistics
Duty
Capital
Commercial
Conversion
(Labor)
Engineering
Material
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Component Value Stream
for Products Manufactured in Mexico
China
Singapore
Japan
Malaysia
Asia*
86%
Philippines
Mexico
7%
Mexico Plant
Customer Plants
USA
5%
Europe
2%
Delphi Electronics and Safety 6
Component Value Stream
for Products Manufactured in China
Shanghai
Suzhou
XiaMeng
China
74%
China Plant
Customer Plants
GuangZhou
Asia (outside China)
26%
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Cost Breakdown
Overhead
Logistics
Duty
Capital
Commercial
Conversion
(Labor)
Engineering
Material
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Thoughts on using China as a PML

Wages + Benefits are ½ of Mexico’s and 1/30 of U.S. Sites
– High touch labor products benefit more than low touch labor products

Material cost reductions (BOM purchased in China )
– Range from 5 to 10% depending on the commodity


4% VAT added 1-Jan-04 for exported value add from China
Currency Exchange Rates
– Today the value of the RMB is locked to the $U.S.
– In the future the RMB will float with a portfolio of currencies

Logistics
– From China to the U.S.A. or Europe is quite high
– 1 month of additional inventory is required to fill the logistics pipeline (reduced velocity)

Duty
– Duty from China into Europe is quite high on certain commodities


China domestic sales always make good sense to build in China
Export sales from China are less attractive today than one year ago, but still
make sense for high touch labor products
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Back Up Slides
Delphi Electronics and Safety 10
Highly Competitive Global Market Place
Pushing
Jobs Out
Low Cost
Manufacturing Jobs
1970s
Local Content
Legislation
1990s
Pulling
Jobs Out
Indiana
Jobs
Composite
Wage Rates for
Manufacturing
and Engineering
Low Cost
Engineering Jobs
1990s
Value Chain
Vertical
Global
Dis-Integration
Local Content
1980s
Value Chain
Dis-Integration
Delphi Electronics and Safety 11
Americans Claim Most Patents
Innovation
USA
New Materials
New Processes
New Equipment
New Products
Japan
97,016
32,924
Germany
10,822
Taiwan
5,806
France
4,173
United Kingdom
4,090
Canada
3,925
South Korea
3,472
-
20,000
40,000
60,000
80,000
100,000
Delphi Electronics
and Safety
12
Source: U.S. Patent and Trademark Office’s Technology Assessment
and Forecast
Report
Applied Innovation
Launch Center
Future Vision for
Advanced Manufacturing
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