How to Find Suppliers: Location, Location, LocationMon, 09/01/2014 - 09:12
Location, location, location is the name of the game in many commercial endeavors. Perhaps it is never more important than in the planning of an effective procurement and logistics strategy. With cost reduction pressures in the automotive industry showing no signs of waning, procurement officers worldwide are well aware of the constant need to implement lean purchasing and supply chain management strategies. For those companies using Mexico as a strategic NAFTA base, localization measures must also be implemented to meet the applicable rule of origin requirements to benefit from preferential tariff treatment. The growing expediency of Mexico’s supply base is evidenced from the sheer volume of products currently being purchased in country. In the last four years alone, BMW has gone from purchasing US$600 million worth of components in Mexico to $1.6 billion, representing 6% of the group’s total purchasing volume. Despite not yet having its own production base in the country – BMW plans to start production of 150,000 units per year at its recently announced US$1 billion plant in San Luis Potosi by 2019 – its Mexico-based International Purchasing Office (IPO) works with 106 local suppliers, and as a result has generated employment for 15,000 people, according to IPO Director Antonio González.
Contrary to the historic perception of Mexico as being a low-tech manufacturing hub, according to González, Mexican suppliers are already proving their worth. “Just because we are not yet building premium vehicles here does not mean that Mexico is not capable of producing high-tech components. BMW is in fact being supplied with a large amount of high-tech components produced locally,” says González. These include electronic components, chassis and powertrain materials, and interior components. He also confirms that Mexico continues to be a strong procurement base for lower tech products that require handcrafting, such as leather grapping components. “Due to the longstanding handcrafting abilities of Mexican workers, we can make items such as harnesses, which are components with high labor requirements,” explains González.
Profitability is the key driver in the fine-tuning of BMW’s procurement strategy, and Gonzalez explains this further. “We are looking to reduce our Euro dependency and start buying more in the dollar region. We have a big extra program for vehicles being built in the dollar region, and are really looking to increase the amount of dollar purchasing, which also means building a bigger supply base.” To this end, the company is increasing sourcing levels. In 2013, it conducted roughly 600 audits amongst the local supply base in the entire NAFTA region, with the aim of adding another 50 suppliers in 2014. For a luxury automaker like BMW, selecting suppliers is not only a matter of having access to a large enough supplier pool, but also of finding those capable of meeting its exacting standards. “Each company has its own philosophy and culture. Over the last couple of years, we have been instilling an understanding of the BMW way in our suppliers, notwithstanding the synergies and cultural similarities that are helpful in companies that have already worked for other German OEMs,” explains González. Suppliers hoping to work with BMW must satisfy the company’s four key standards of quality, cost, innovation, and flexibility. González confirms that for the most part, Mexican suppliers are well versed in international standards and technology trends. However, the reality remains that only a handful of companies within BMW’s local supply base are actually Mexican. Including heavyweight players like Grupo Bocar, Nemak, and Grupo Kuo.
While the country’s supplier pool grows and evolves, BMW’s IPO in Mexico is focusing on the industrialization of the quality of its current supply base. “We are still importing a lot of tools and equipment from abroad, lengthening the industrialization process. Therefore in 2014, we really need to focus on strong quality approvals and grades on products,” González asserts. “We have a number of new product launches coming up, and our suppliers play a big part in ensuring we meet our required quality levels. BMW ramp-ups are very aggressive and we are launching products this year and next year.” According to González, 80% of suppliers are reaching the target levels, with the other 20% not far off the required level. “We also manage the PPM rates very closely, and we have decreased the number of suppliers delivering non-conformance materials above our intervention limit from an average of 18 suppliers per month to six suppliers per month,” says González. When a supplier is successful in establishing a long-term relationship with BMW, González insists that the rewards are high, in spite of the occasional low volume contracts involved. “We are not a high-volume manufacturer, we are a premium manufacturer,” says González. The lower volumes demanded by BMW mean that, to a large extent, the company is not competing with other OEMs for suppliers. Instead, it is focused on what Gonzalez refers to as a “robust supply base that will enable BMW to do more business locally.”