Auto News recently reported that Magna International, one of the top three auto suppliers based in Canada, has been rethinking its supply chain of late, noting that “local strategy and efficiency improvements as key cost-saving measures within its supply chain.” In particular, supply chain localization was one of three trends within Magna’s supply chain identified by Carrie Van Ess, vice president of procurement for the Americas, at a recent industry briefing. Van Ess said a new supply chain model is emerging in which “goods are produced, sold and consumed in the same geographic region,” according to the article.
Spend Matters and MetalMiner research suggests that Magna’s experience is becoming the norm (and not the exception) for large global OEMs and suppliers today. The old low cost country sourcing adage that “if you can fit it in a shoebox, it’s a good fit for LCCS efforts,” is fading inside many organizations. Instead, these companies are turning their attention to managing total sourcing costs and total life cycle costs associated with not only bills of materials but individual parts and components that go into a finished product or assembly.
As the Auto News article notes, Van Ess believes “Localization brings cost-savings across the supply chain, especially in light of climbing costs in traditionally low-cost regions.” Of course in our experience, many Chinese companies have themselves moved spend to Vietnam, Africa, and other lower cost countries (not to mention far inland within the Chinese borders). But there are risks (and often lower rewards) associated with such churn of the supply base, even when it is incumbent suppliers that are locating new facilities in lower cost markets.
Yet procurement and supply chain localization is truly easier said than done in many cases. As our analysis continues on Spend Matters Plus, we will share some of the enablers of localization, including the use of the right sets of technology, to manage the growing set of decentralized activities that occurs with localization.