Automotive Local Sourcing: Will Total Cost Focus Win Over Unit Cost at Jaguar Land Rover? (Part 1)

Even though this article in the Birmingham Post does not begin to scratch the surface of the total cost benefits of working with a highly qualified local or near-shore supply base, it does raise an interesting case of a domestic supply base that will have to find ways to compete against global suppliers. The occasion for this situation is Jaguar Land Rover's (JLR) plans to keep a UK production facility open and to double its production over the course of the next four years. Before being bought out, JLR had developed a largely regional supply base in the past (and as Range Rover owners know, the company has not shied away from tapping GM and others for engines and other major components).

For anyone who has been left stranded by the side of the road in a Jaguar or Land Rover over the years -- you know who you are -- it's probably abundantly clear to you that the company has not historically managed supplier quality at the same level as Japanese, German or even now US automotive OEMs. But this focus is changing fast, as JLR is expecting both low cost and quality from its future supply base. As the story notes, this move will now put "the pressure" on regional suppliers to compete for contracts. According to the story, David Bailey, a reporter and automotive blogger, notes that JLR has "indicated it plans to look internationally for parts, but efforts from regional development agency Advantage West Midlands and the Manufacturing Advisory Service (MAS-WM) in the region could be set to pay off" for local suppliers.

Given JLR's new ownership (I personally find it a delicious imperial irony that an Indian firm now controls Jaguar), it's not surprising that the venture will begin to look overseas for new sources of supply, especially in India, as the story notes. Yet I'm not convinced that if you begin to do the total cost calculations that a majority of Indian or Chinese supply bases -- even for lower tier parts -- can ever work on a total cost basis from an export perspective, factoring into account both procurement (e.g., raw materials, value-added manufacturing, assembly, PPM/quality, payment terms, etc.) and supply chain (e.g., inventory requirements, logistics, on-time performance, customs/duty/tariffs, etc.) cost factors.

Stay tuned as we examine some of these total cost factors in more detail, and how it can impact overall global (and local) sourcing decisions in automotive and other industrial areas.

Jason Busch

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