Purchasing Strategies in New Automotive LandscapeMon, 09/01/2014 - 09:47
Q: How does Mexico match up to other emerging markets as a procurement and production base for GM?
A: A number of factors distinguish Mexico, including the availability of raw materials and labor costs. Labor costs are extremely important to optimize manufacturing capabilities, and we have lower labor costs here in Mexico than even markets like Thailand. Of course the other major benefit is being close to our biggest market, the US, which enables us to optimize our logistics costs. There are other potential benefits that come from using Mexico as a production hub, such as the government’s efforts to reduce energy costs. If Mexico is successful in doing that, it really will be extremely competitive. The impact of the automotive industry on the entire economy of Mexico has the potential to be huge over the next couple of years, given how far its economic impact would be felt. I have seen this happen in other countries, and I do not think people here really even realize how big the impact can be.
Q: What key factors are currently influencing purchasing strategies within the industry?
A: Purchasing managers are always looking for alternatives to reduce costs. That applies to all areas, including manufacturing, quality, and logistics, in order to make sure we bring the best value for the company. Our strategies also revolve around the availability of HR, particularly technical expertise, and the capability of the graduates coming out of university. Other areas of concern include the environment, the availability of credit, and so on.
Q: How does GM approach supplier development to create mutually beneficial OEM-supplier relations?
A: In general terms, we work in partnership with our suppliers both globally and locally to try and bring technology to the market. To create this sustainable relation, we support suppliers through a variety of programs. We encourage them to develop their skills so that they can establish longstanding relationships with us, by ensuring that they fully understand our requirements. Our Mexican suppliers are taking the same approach as our global ones by investing in R&D and innovation. They really understand what they need to do to be successful, not only in Mexico but also in the global market. We must ensure that quality is maintained across the entire supply chain. We make outsourcing decisions based on a variety of factors, and cost is just one of those. Quality is one of the most important factors so we assess suppliers’ manufacturing capabilities to ensure that they can consistently meet our quality requirements. We hold our Tier 1, 2, 3 suppliers responsible for ensuring they can meet these strict standards. We are moving in the direction of selecting suppliers that are close to our facilities in order to reduce costs. In terms of logistics, we have different strategies to optimize the process. Of course, we are always trying to optimize the costs of moving goods, such as using trains instead of trucks where possible. This is a big country and we are working with the government and suppliers to try and improve infrastructure.
Q: Only 15% of GM’s parts and vehicles produced in Mexico remains in the country. Do you see this changing in the future?
A: The vast majority of our production goes to North America. What will change is that the amount of components produced in Mexico will increase for the cars being produced in Mexico. Currently 50-70% of the parts are produced here, but we would like to increase that to 90%. Logistics are very expensive, and the goal will always be to produce needed components for the cars as close to the production plants as possible. That means aiming to produce components in Mexico for Mexico, while the same applies in the US.
Q: In what ways is GM helping Mexican engineers to develop the right skillsets to succeed in the automotive industry?
A: Mexico has a lot of public and private establishments and the government is working hard to make sure that the right programs are in place to train engineers. A number of states are prioritizing engineering studies that focus on aerospace and automotive, which is a new development. I do not foresee a big problem concerning a shortage of HR. This might become an issue in certain areas but it can be overcome. Doing so is really about private companies working together with the public sector and the government. GM provides training to its suppliers and we work together with public institutions to enable them to offer the same training to their workers.