Sourcing in China Gets Harsher at Economic Downturns

"The overall sourcing strategies of China sourcing are not expecting big changes at global economic downturns" according to a survey conducted by Gasgoo.com. This survey covers over 150 purchasing executives that attended the 2009 Global Automotive Sourcing Summit on April 21 (See Chart 1).

57% of the surveyed purchasing professionals think that the sourcing volume in China is not having a sharp decline with the crisis. 16% of OEMs, Tier 1, 2 suppliers will decrease their sourcing volume in China. "In the last few years, we have been keeping a year-on-year increase of 15%--16% but now this figure has jumped down to 3% to 5%"Says an anonymous purchasing director from a multination OEM.

The focus of sourcing in China has changed

69% of the purchasing executives think the financial crisis necessitate higher requirements over suppliers selection. In 2009, the suppliers' viability outgoes their production capacity in terms of the suppliers auditing and selecting. A purchasing director tells that "Currently, we are trying to slow down the process of auditing suppliers' financial and operational performance", "Suppliers with awful financial viability will not be on our suppliers list "says a purchasing manager.

According to this survey, 43% of the purchasing professionals think the biggest challenge of sourcing in China is Suppliers's system control capability. This shows the focus of sourcing in China has changed. (See Chart 2) "OEMs have shifted their focus from suppliers' product quality and price in the past to critical suppliers' viability and anti-risk capability in economic downturns.  How to make quick response as critical suppliers are facing up with high assets-liabilities ratio is a must for OEMs with their supplier's development and selection. "Says Kevin Chen, CEO of Gasgoo.com.

To enhance the collaboration with suppliers

"In fact, a large part of global sourcing and especially sourcing in China focuses on suppliers development. The challenges lie in whether we are capable of developing our suppliers, helping them to grow up and finally forging a win-win partnership." Says Mr. Ray Yu, sourcing director of Honeywell China.

"The collaboration with our suppliers is really important at economic downturns. Our high requirements on suppliers will eventually be beneficial for their long term development. This will force our suppliers with their improvement of quality, technology and management, which will make them stand out in this highly competitive sourcing market." Says a purchasing manager of electronic parts from a Germany Tier 1 supplier company.

To sum up, auto parts suppliers in China are supposed to make adjustment & adaptations to the market change. Gasgoo.com will also release more analysis reports on the current sourcing environment to help suppliers get better positioned in the global sourcing market.