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What Should Companies Consider to Be More Cost-Efficient?

By Alejandro Enríquez | Mon, 07/20/2020 - 12:08

USMCA and COVID-19 have forced automotive suppliers to become more financially efficient. OESA’s 2Q20 analysis on the state of the automotive supplier base in North America reported a 600 percent increase of distressed suppliers over the past three months. As OEMs and Tier 1 companies restart their operations in a new trade environment and a new normal, here are some strategies suppliers can look at. 

According to Seraph Consulting: “Suppliers will be looking to relocate and consolidate operations to improve profitability and reduce risk.” This will imply major opportunities for the Mexican automotive industry. As Eduardo Solís, former Executive President of AMIA, pointed out: “The new rules of origin established in USMCA are stricter in terms of obligations to centralize supply manufacturing in the region. Stricter rules of origin indeed could bring new opportunities under a de-globalization effect in North America.”

Relocating operations to North America to become more financially efficient is an option for global players. In this sense there are three options for them: joint-ventures, acquisitions or greenfield projects. “Choosing any of these depends on the company’s strategy,” says Hector Soto, Engagement Partner at Seraph. “Acquisitions could also mean mergers in some cases, while greenfield projects remain always a viable option for global players. In the case of joint-ventures, clear rules should be specified so both companies can take advantage of each other’s strengths,” he says.

Zanini Auto Group had in Mexico its first greenfield project as a company back in 1999. "Transferring operations always remains a challenge, particularly in the initial steps. I personally prefer greenfield projects over acquisitions as they work better in the long-term," says CEO of Zanini Auto Group, Jordi Torras. For Torras, when transferring operations, the role of the project manager is essential as it is the person in charge not only of transferring manufacturing lines but also company's values.

For local companies to be cost-efficient, a bet on data analysis should be a top priority. Although collecting and processing data can be complicated at first, “it will provide significant opportunities to improve efficiency and reduce manufacturing costs,” says Gustavo Moya, CEO and Research Director of Ixaya.

For Seraph consultants, a strategy is needed so that data collection does not become a fallacy: "the collection of data becomes the aim and key measure. This is an activity fallacy." To make the most out of data, companies should first identify particular needs, then develop a plan, select the right tools and finally, validate the process.

Focusing on scrap management is also an important element to reduce costs. “Many managers make bad decisions based on the wrong priorities, leading to waste of resources and potential. One very important aspect is good engagement with the staff. Every person at the company has their own expertise,” says José Luis García, Engagement Partner at Seraph Consulting.

Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst