Article at a glance:
Carmakers in North America, Europe, and Japan—lured by savings that could cut their auto parts bills by 25 percent and reassured by quality improvements—are shedding their skepticism about parts made in unfamiliar locales such as China and India. Sourcing car parts, however, isn't as simple as buying shirts or toys. Car models are complex, with a life span of five to seven years, so manufacturers must develop long-term relationships with suppliers and enter into contracts that are difficult and expensive to unravel. A host of shifting factors, such as exchange rates and wages can change over such a long period, thus turning what had looked like big savings into big mistakes.
The take-away
Shifting to auto parts suppliers in China and India won't be easy and won't happen overnight. Automakers need to evaluate carefully which items are likely candidates for far-off sourcing and which should be sourced closer to home—for now, at least.
This article includes the following exhibits:
- Exhibit 1: Cost structure changes in store for auto parts suppliers
- Exhibit 2: A "cluster" approach to cost savings
- Exhibit 3: Benefits of lean-manufacturing techniques for auto parts supplier