Globalisation and the

Automotive Component Industry

Asia Pacific and Central

European focus
Dave Coffey
Bel-Essex Engineering

1 December 2005
 2005 Global Purchasing Policy of
Toyota Motor Corporation
March 2005 – Nagoya Japan
Cost
• Strengthen global cost competitiveness

Quality
• Achieve and maintain an unrivalled
quality globally

Technology
• Create an overwhelming advantage

Production/Supply
• Establish a global supply system with
stable supply
 Key Industry Issues In 2004
Product quality and new products were rated the most important industry
issues in 2004.
Please tell me how important each of the following issues is to the auto industry right now.
Importance (4-5 on a 5 pt. scale)

100%
90%
80%
70%
60%
50%
91%
40% 84%
77% 72%
30% 58% 56%
20%
47% 45%
10%
0%
P ro duc t Quality New P ro ducts Eco no my Ne w Techno lo gie s Enviro nmenta l Regula tory Co ns ume r Tas tes Labor Relatio ns
Co nc erns Environment
 New Models And Technologies Are Top
Areas Of Manufacturer Investment
New models and new technologies are reported to be the largest areas of
investment.
In which of the following areas do you expect manufacturers to increase their investment over the
next five years? (Multiple answers accepted.)
80%

70%
63%
59%
60%

50% New technologies

New models
40% 37% Marketing
29% New plants
30% Human resources

20% 17%

10%

0%
Competitive analysis of South Africa relative
to Central Europe & Asia Pacific
•Financial performance
Turnover
Employment
Capital expenditure levels
Stock
•Key customer measures
Quality (external, internal and rework)
Delivery Reliability
Flexibility
•Human resource development
Basic education
Investment in training
 Background Information
Based on data from:
South African Automotive Benchmarking Club (SAABC)
Global Best Practice Benchmarking Programme
– courtesy of Justin Barnes

Participants in the Benchmarking Programme:

- SA auto component manufacturers (n=71)
- Central Europe auto component manufacturers (n=35)
Slovenia: 17.6%, Romania: 8.8%, Czech: 8.8%, Poland: 2.9%,
Hungary: 61.8%
- Asia Pacific auto component manufacturers (n=21)
India: 52.4%, Malaysia/ Thailand/China: 28.6%, Australia: 19.0%
 Turnover
Inflation adjusted turnover trend, indexed in domestic currency to 2001 figures

300

280

260

240
Turnover index

220

200

180

160

140

120

100
2002 2003 2004
SA 114.65 122.97 121.27
Central Europe 128.81 149.21 156.23
Asia Pacific 187.39 194.70 233.16
Year
 Employment
Total employment trend (including contractees on payroll),
using an index based on 2001 figures
300

280

260
Employment index

240

220

200

180

160

140

120

100
2002 2003 2004
SA 108.17 115.05 119.77
Central Europe 168.18 215.28 248.32
Asia Pacific 210.18 212.73 238.92
Year
 Capital Expenditure
New capital equipment expenditure (CAPEX) as a proportion of total sales

11

10

8
Percent

0
2001 2002 2003 2004
SA 4.02 5.22 5.22 4.08
Central Europe 7.47
Asia Pacific 10.79
Year
 Cost Performance
Market Drivers & operational performance SA avg. Asia Pacific Difference
measures avg. (%)
Total Inventory 37.83 21.83 73.29
Raw Material 20.50 13.67 49.96
COST
Work in Progress 6.92 3.27 111.62
Finished goods 10.41 4.89 112.88

Upper Quartile SA U.Q Asia Pacific Difference

U.Q (%)
Total Inventory 20.24 4.06 398.52
Raw Material 9.40 2.25 317.78
Work in Progress 1.42 1.00 42.00
Finished goods 2.00 0.31 545.16
COST
 Customer returns (ppm)
Average automotive customer return rate (0km failures returned by customers)
9,000

8,000

7,000
Parts per million

6,000

5,000

4,000

3,000

2,000

1,000

0
2001 2002 2003 2004
SA 8,064 3,431 1,739 613
Central Europe 1,261
Asia Pacific 293
Year
 Internal reject rate (goods rejected as a percentage of output)

3
Percent

0
2001 2002 2003 2004
Inter. avg. 1.54
SA avg. 3.68 3.87 3.48 2.98
SA upper quartile 0.70 0.69 0.39 0.50
SA lower quartile 5.00 5.00 5.00 4.00
Year
* Asia Pacific = 1.29% : latest SA = 3.26%
 Internal rework rate (goods reworked as a percentage of output)

4.0

3.5

3.0

2.5
Percent

2.0

1.5

1.0

0.5

0.0
2001 2002 2003 2004
Inter. avg. 0.93
SA avg. 3.07 3.68 3.71 3.13
SA upper quartile 0.03 0.03 0.10 0.10
SA lower quartile 1.47 1.97 1.85 1.40
Year

* Asia Pacific = 1.78% : latest SA = 2.79%

 Delivery Reliability
Average delivery reliability record to all customers
(deliveries made on time and in full)
100

95

90
Percent

85

80

75

70
2001 2002 2003 2004
SA 91.25 90.44 92.45 93.21
Central Europe 91.96
Asia Pacific 97.92
Year
Flexibility - Delivery Frequency to Customers
Delivery frequency performance to major customers: 2004

Percent
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

SA firms

Central Europe firms

Asia Pacific firms

Daily+ Daily Every 2/3 days Weekly Fort-nightly Other

Flexibility - Lead Times out of Production
Average lead time out of production to domestic & international customers: 2004

50
45.1
45
40.6
40

35

30
Days

25

20
14.2
15 12.1

10 8.0
4.1
5

0
Domestic International
SA firms 12.1 45.1
Central Europe firms 8.0 14.2
Asia Pacific firms 4.1 40.6
 Basic Education Levels

Numeracy & literacy levels*

SA firms 80.17%

Central Europe 99.24%

firms
Asia Pacific firms 99.24%

* Workers presently at ABET level 3 (equivalent to Grade 4-6) or higher

 Investment in Training
Training investment as a percentage of the total
remuneration bill (wages & salaries)
8

6
Percent

0
2001 2002 2003 2004
SA 2.06 2.02 1.73 1.95
Central Europe 2.78
Asia Pacific 7.76
Year
 Investment in Training
Number of days spent on formal off-line training: Total & by employment category
10

8
Days

0
Man Super Prod Avg
SA 2.89 3.20 2.36 2.47
Central Europe 8.14 7.65 3.64 3.45
Asia Pacific 5.26 3.84 2.72 3.56
Employment categories
 Output per employee
Inflation adjusted output per employee levels,
using an index based on 2001 figures
140

Output per Employee Indexed 120

100

80

60

40
2001 2002 2003 2004
SA 100.00 109.00 113.62 109.82
SA upper quartile 100.00 126.98 134.20 127.46
SA low er quartile 100.00 97.61 95.29 96.42
Asia Pacific 100.00 67.68 87.70 98.39
Asia Pacific upper quartile 100.00 94.07 116.72 102.33
Asia Pacific low er quartile 100.00 47.31 56.64 64.89
Year
 Remarks
Asia Pacific and Central Europe are clearly advancing in:
- Technology (capex, knowledge base/training)
- Manufacturing Excellence (flexibility, quality, reliability)
- Cost (raw material, growth and economies of scale,
labour rates)

Long gone are the days where our real competitor is the
developed economy of the globe – we must become
competitive against Central Europe and Asia Pacific

I believe there is a national understanding for the strategic

necessities of:
- Competitive raw material pricing vs IPP
- MIDP or equivalent
- Investment incentives
 Remarks - Human Resources
Leadership at all levels
• Key to success
• Need the right fit for the position
• Identify weakness and build capability
• Use the strengths to develop others
• Good leaders:
• will ensure effective teamwork and communication
(need a formal forum in which to communicate)
• will demand performance
• will ensure good leadership at all levels
• will understand and accept accountability
• require the right organisational culture
 Remarks - Human Resources
Workplace competence/knowledge base
• We are not spending enough on training of personnel
– we are even well beaten by the developed
economies
• There is so much complaining about the lack of skills
– so what are you going to do about it; consider when
we get to 6% economic growth?
• Strict adherence to standardised work instructions is
fundamental - discipline
• Culture of doing it right the first time – process,
process, process
 Conclusion

• We have made significant progress to get where we

are today with a very much stronger Rand

• Negative views on the future need to be washed aside –

the future requires the right attitude and we have it – we
have done it before

• We need to lift our game again – we must react to what

our competitors are doing and change our behaviour

• Invest in people; select the right leaders