GKN eyes long-term supplier relationship while sourcing in China

GKN Driveline is a global tier-one supplier of vehicle driveline components and systems. And it's also well known and well operated in China.

The interview with Mr. Neil Breakwell, GKN Driveline's global supplier development manager, was carried out on the same day that GKN Driveline celebrated the 20th anniversary of its local joint venture. Asked about whether it's late to make China sourcing, he admitted it's probably a little bit late. He added that the past three years "have offered a great learning experience"; and he pointed out that people had the perception that emerging market suppliers could be low-tech companies with poor conditions, but "this was not the case in China". He's optimistic about the prospects of China sourcing despite lots of work to do to develop the suppliers.

GKN started China sourcing in 2005 with 20-year local operation

Gasgoo.com: First of all, Mr. Breakwell, please give us a brief introduction to GKN's sourcing activity in China.

Neil Breakwell (Left): GKN has operated in China for 20 years, and our sourcing is based on two strategies. First, we have local purchasers in each GKN facility in China to meet specific local needs.  Second, we have a small team of people in the GKN Group office in Shanghai who support GKN's global sourcing requirements and strategy.

I have been leading this activity in China since 2005.  My role is to support the global sourcing teams.  I do this by identifying new suppliers and then I help to develop these new suppliers to meet GKN's global requirements for quality, cost and delivery.

Gasgoo.com:  Do you think starting sourcing in China in 2005 was too late?

Neil Breakwell: GKN has been in China for 20 years.  We were the first automotive component joint venture and we have had a purchasing organization in China throughout that time.  What has changed is the rapid expansion of other GKN businesses in China.

Challenges and strategies

Gasgoo.com: What kind of supplier relationships does GKN develop in low-cost countries? How does GKN manage and retain its global suppliers?

Neil Breakwell: We're currently working with twelve local Chinese suppliers. We are developing them to become global suppliers for GKN.   We work very closely with these suppliers, helping them to meet our stringent global standards.

GKN's philosophy is to build a strong, long-term partnership with its suppliers.  It is based on trust, understanding and cooperation.  GKN's customers are all the major vehicle manufacturers. They too have to be satisfied with the quality of all our suppliers. Any change of supplier should be made clear and managed effectively.

Some commodities have to go through long and expensive approval processes with the vehicle manufactures.  Sometimes it can take a long time for a new supplier to be approved.  Supplier selection and development is a long process - it can take between six to twelve months.  It is of no benefit to develop short term relationships and business agreements. Changing suppliers frequently creates a business environment that can lead to risks, high costs for testing, extra work and loss of reputation.

Gasgoo.com: What are the big challenges with implementing sourcing in sourcing and how do you deal with them?

Neil Breakwell: There are a number of challenges that we face in implementing a robust emerging market sourcing strategy, particularly in China.  Resources have to be managed effectively to ensure that we are developing suppliers that have the strong capability and desire to work with GKN.  China is a vast country, with many manufacturing companies capable of supporting the needs of global companies like GKN.  The big challenge for GKN is to find these suppliers and then build a long-term business relationship with them.

Today, as always, there is intense pressure to reduce costs quickly.  The time it takes to successfully integrate a new supplier can be a challenge as crucial as the cultural and linguistic issues with communication.

Understanding the Chinese suppliers

Gasgoo.com: Where do Chinese suppliers need to improve?

Neil Breakwell: There are many good things today with Chinese suppliers--the high level of investment; young highly qualified engineers; excellent equipment; and the capability to produce world-class products.

There has been a large investment from the Chinese government. To support business development and to ensure the infrastructure is in place to support future growth.  China also invests heavily in the academical development of young people and this is one of China's great strengths.

The challenge facing Chinese suppliers is to truly understand the needs of foreign companies - particularly in quality and design.  This, however, may be a simple matter of improving communication.   The next step for Chinese suppliers will be to move toward a philosophy of lean manufacturing.  This will enable them to manage their internal costs, quality and delivery and the potential to gain a competitive advantage.

Gasgoo.com: How do you see the low-cost advantage of Chinese suppliers?

Neil Breakwell: The first important thing is to source the right product, with the right quality and at the right price.

For example,  steel forgings have little value added.  The main component is steel and that has a standard global price.  The product is capital- rather labor-intensive. The real advantage for Chinese suppliers is their readiness to provide labor-intensive products. This is where China has a significant cost advantage over the west.

Gasgoo.com: What products are the most suitable to be sourced in China for GKN?

Neil Breakwell: I work in GKN's Driveline business.  The components GKN purchases worldwide are bearing, steel balls, tube, forgings, steel, rubber and plastic product.  All these are available in China.  Products which require a lot of labour, such as wiring looms, are highly suitable for production in China.

Future prospects of sourcing from China

Gasgoo.com: To cope with the global economic recession, increasing costs and the rising value of the RMB, will the global players become conservative in global outsourcing?  Or will this create more opportunities for Asia?

Neil Breakwell: The global economy is suffering and we are seeing a slowdown in automotive sales, particularly in Europe and North America.  China's growth is still strong. There will be some slowdown in the market here but China will still be an attractive place for foreign investment and sourcing activities. Chinese suppliers, which are heavily dependent on exports, may find their business affected by the decline in demand.  They will need to remain competitive, win new business and continue to innovate.

But the global downturn could benefit Chinese companies and open further opportunities to work with foreign companies. International companies will increasingly look to reduce costs by sourcing in lower-cost countries. For this reason it is extremely important for Chinese companies to continually look at their processes, their products and embrace technology. This, together with implementing lean manufacturing techniques, will give them the best possible chance to develop their business and grow.

Gasgoo.com: Chinese suppliers are often complaining that they're making larger exports to the West but their profit margin is getting smaller. Is this true of your suppliers too?

Neil Breakwell: Companies in China are part of a global market where competition is strong for a shrinking amount of business.  Recently, there have been significant price increases in some major commodities like oil, steel and energy. This, together with the continuing need to manage and reduce costs, can reduce the profitability for all companies.

GKN wants its suppliers to be healthy and prosperous - to make profits so that they can reinvest in their business and provide world-class products to GKN.  But cost is an important factor too. It is vital that Chinese companies look at their costs and understand how they can control them effectively and remain competitive.

GKN is strong and disciplined in lean manufacturing. It is applied consistently in every GKN facility. This allows GKN to identify 'waste' in processes and then eliminate this 'waste.'  This reduces internal costs and ultimately improves profitability. We expect our suppliers to use the same techniques, and that is why GKN puts some much effort into developing its long-term supplier links.