Going “local” with parts sourcing

Going local is increasing within the automotive industry. The trend is shifting from sourcing from low-cost countries to sourcing closer to home as a means to not only reduce costs but also to reduce such risks as political, economic and weather-related.

For example, Nissan North America is now encouraging suppliers to locate near its US assembly plants. According to Chris Styles, Nissan’s senior director of logistics and supply chain management, several recent global challenges such as the 2010 tsunami in Japan, flooding in Thailand and unpredictable foreign currency changes resulted in this change in strategy. Nissan plans to open a 1.5m sq ft supplier center in Canton, Mississippi this year along with a similar facility at its plant in Smyrna, Tennessee. According to Styles, Nissan looks for parts that are difficult to or expensive to transport to move closer to facilities.

Canadian automotive supplier Magna International also has noted this trend. Carrie Van Ess, Vice President of procurement for the Americas recognized this trend, “A new supply chain model is emerging, in which “goods are produced, sold and consumed in the same geographic region.” According to Magna, localization brings cost-savings across the supply chain, especially in light of climbing costs in traditionally low-cost regions.

This trend is not only resulting in an emergence of “automotive manufacturing hubs” across the country but also changes in transportation and warehousing needs. Bosch announced plans to open a 156,000 sq ft centre in South Carolina near the BMW facility. Among the reasons for this location, were improved efficiency, faster deliveries and the recently opened inland port and close proximity to the Port of Charleston. According to Bosch, it will join with sister facilities in the region to share shipping suppliers.

Going local is not just a US phenomenon. Hyundai Motor, the world’s fifth-biggest automaker combined with affiliate Kia Motors, recently reported a 7.0% decline in quarterly net profit compared to a year earlier. As a result, the company will seek to cut costs, boost the portion of high-margin premium cars, and increase local parts sourcing to help reduce currency exposure.

Another example is that of VW. After five years since it entered India it still has a small market share of 2.1%. As such, VW plans to increase local sourcing of car parts from the current level of 65%-70% to 90% by locally assembling engines and gearboxes. By sourcing locally, VW anticipate its market share of the domestic Indian market will improve.

The automotive manufacturing industry is evolving from a global focus to one of a regional focus. In September, Ti plans to publish its annual Global Automotive Logistics report. To register your interest please contact Holly Francis at [email protected]. Also, regionalization is occurring in other industry verticals as well. For more information on the shift from globalization to regionalization, please see Ti’s CEO John Manners-Bell’s presentation, De-Globalization: Where does this leave the global logistics industry?