Webasto Sourcing strategy and localization in China

Webasto AG, the world's largest sunroof supplier to the automotive industry, has had six plants in China. It aims to have a 100% localization rate in China.

Theo J. M. Timmerman
 Webasto Group Vice President Purchasing

Gasgoo.com: In your sourcing team, is everybody responsible for the entire process in sourcing certain products? Or is everybody responsible for only one or a few sections of the process, such as bargaining with suppliers?

Theo J. M. Timmerman: We have all specialists responsible for sections. We have people skilled in specific commodities, but not skilled in all the commodities which is fairly difficult. We have people specialized in stamping, people specialized in injection molding, people specialized in electronics, these are all different people. In supporting those people, we have an advanced SQE (supplier quality engineering) group. And we have a supplier development group to assess and release suppliers. So the purchasing managers can ask for the supplier development team’s help if there is a quality issue from the SQE, or the supplier needs to be developed, or the manufacturing process needs to be improved.

Gasgoo.com: Do you have more supplier development staff than purchasing staff?

Theo J. M. Timmerman: No. About one supplier development staff for three purchasing people.

Gasgoo.com: When do you find it necessary to source from low cost countries?

Theo J. M. Timmerman: We source from lowest competitive cost country or best cost country. It can be any country that can manufacture the part and deliver to our plants at the lowest landed cost. It is not always necessarily China or India. If some parts can be best made in Germany, we can and will buy in Germany.

Gasgoo.com: Do you agree that China is the catalyst for global auto industry revolution?

Theo J. M. Timmerman: At the moment, yes, absolutely. It’s the most interesting market in the world.

Gasgoo.com: How would China impact your sourcing activity?

Theo J. M. Timmerman: We have to increase our focus in sourcing in China because of the importance of the market by itself, and the importance it can have on the global market.

Gasgoo.com: Webasto has an aim of 100% localization rate in China. Would that be possible to reach?

Theo J. M. Timmerman: It is absolutely possible. We learn that some very successful programs have reached 100% localized component. And we have reached 95% localization level for some programes in China. So I think it is possible.

Gasgoo.com: Do you source from a country for global plants, regional plants or just local plants?

Theo J. M. Timmerman: That fairly much depends. We have suppliers for global supply, we have suppliers for regional supply, and in some cases we have suppliers for the local supply. So it’s not by definition that we only work at global sourcing.

Gasgoo.com: Most of your suppliers in China are localized global suppliers?

Theo J. M. Timmerman:  That’s a fair saying, but definitely not all. A big part of the current localized materials are with the China global players.

The advantage to work with a European supplier that has a plant in China is that it already knows the quality expectation. The advantage to work with the Chinese Chinese supplier is that they have lower cost base normally than the implants. Therefore, we have to look at both. It’s easier to develop a German Chinese supplier than to develop a real Chinese Chinese supplier.

Gasgoo.com: What do you think of the possible quality risk working with the purely domestic Chinese suppliers?

Theo J. M. Timmerman: It is a risk, but it is a calculated risk. If a company invests at the right time with the right people to support the Chinese Chinese suppliers, like Webasto has done, then the risk is controllable. If you supply no help -- no engineering help, no quality help, no supplier development help, then the risk is extremely high, because the expectations for quality level and supply level are not the same on both sides of the table. That’s what in the past when people first started to source in China often forgot, because of the long distance, people didn’t want to travel so often, therefore the right support was not given to the local suppliers. And then people ended up by making the safe and easy choice -- to go to the old western supplier with a location in China, because it is easier. But today the focus should be on both.

Gasgoo.com: Do you have more supplier development staff than purchasing staff in China?

Theo J. M. Timmerman: I still seek to grow the supplier development capability here in China, because that is going to help us achieve faster introduction of new China suppliers.

Gasgoo.com: How does the tough price competition of automotive industry affect you and your suppliers?

Theo J. M. Timmerman: Yes, of course. If your customers go global, then the programs have to become global. This is not new. We now have products that are being sold in Europe, China and Mexico, for the same customer. The customer of course is now expecting to get a global price, and a global price unfortunately is always the lowest global price. And therefore our requirements for our suppliers is that also we have to have a global supplier that is delivered to any locations and still competitive and allows us to win a new business.

Gasgoo.com: How do you describe your relationship with your suppliers? How is that different from the Japanese way?

Theo J. M. Timmerman: We try to build global partnerships. We try to have suppliers that can support us in R&D, that always supply us with the highest quality, and that always supply us at a global competitive price. If a supplier has those three combined, then it is a good supplier. We would stay with the good supplier. If one of the three is not there, we are forced to move and start looking for another supplier. If a supplier does not allow us to be competitive, we have to find another supplier that does. If a supplier is not capable in the quality that we require, then we have to look for another supplier that does.

This is basically a partnership, it’s not as mother-daughter relationship as the Japanese have -- their suppliers are really linked to the hip with the OEM. We do try to have healthy relationships, but only up to a level that we say ok – we have reached competitiveness, quality level is ok, and the engineering supporting level is ok.

And we have no need for suppliers that make no profit, because if the suppliers make no profit, they will go bankrupt, and will cost me even more. The good suppliers will continuously improve, to allow themselves to be competitive.

Gasgoo.com: Once a company becomes your supplier, how many years can you keep the partnership?

Theo J. M. Timmerman: We have suppliers that have already been supplying us for over 25 years and up. It’s very possible, if a supplier has a process and mentality on continuous improvement, then that are the right suppliers that we want to stay with.

Gasgoo.com: What about in China?

Theo J. M. Timmerman: Since the localization effort started, we have some suppliers that have been with us from the beginning, and are still with us today. If we have a good relationship with the supplier, we try to grow the supplier, and to award the next business and new business as well. If, on the other hand, we have an issue with the supplier quality or price or whatever, then we try to take the business from the bad supplier, to add it on top of the good suppliers for them to grow even faster.

Gasgoo.com: How many chances do you give your suppliers to make mistake?

Theo J. M. Timmerman: We have an escalation process in supplier quality. If we find a quality issue, we will notify the supplier, then he can fix the problem. If he can not fix it himself, we can send somebody from the supplier development troop to help fix the problem. If however, repeatedly, the former problem can not be solved and stays unsolved, then he would get “red” status This status, means he will not be awarded new business, but he can still continue to supply the old business. And if then he fixes the quality issue in the “red” status, then he goes back to “green” and will also be able to be awarded new business. If he doesn’t fix the quality issue, then we have to find another one. In the automotive industry, you can’t change suppliers easily, because then you have to get approval from the customer, you have to do all the R&D and testing, it would be very expensive to have to change suppliers. But quality issues are also very expensive.

Gasgoo.com: Some people say some auto parts’ production cost in China may even higher than in Europe, because the equipment which is imported from Europe is a big cost, and the labor cost in China is rising. What do you think of the production cost in China?

Theo J. M. Timmerman: If you look at for example the electronics market, everything is globalized, if the companies in China take the same old equipment as the companies have in America or Europe, there is 100% automation, then there is not much advantage in China. But the advantage there could be the import duties and transportation savings, because if you have to import the ECUs form Europe into China, you pay 12% duty, 8% for transportation, that is money, that is not extra profit for the supplier, but it is making the component in China more expensive than Europe. So even though the process is not cheaper, you need to have localized suppliers in Asia and in Europe.

Gasgoo.com: Webasto’s purchased products in China doesn’t reach 100% automation?

Theo J. M. Timmerman: There is still a lot of components that have a lot of manual process, therefore there are many many products that have high competitive level in China, because of the cheap labor.

Gasgoo.com: What products? Inner blind? Center gross member? Glass support? Sunshade Assy?

Theo J. M. Timmerman: Almost all of our products. There is a big competitive advantage in the assemblies, small surface assemblies are the big opportunities. There are big opportunities in plastic module, big opportunies in labor, in seal module, a lot of opportunies in the rails, the sunshades.

Gasgoo.com: How many suppliers do you have for one product?

Theo J. M. Timmerman: If you mean one product for one car, there is only one supplier for each part. But if you look at all the programs, there are many suppliers for one part. Many means more than four.

Gasgoo.com: Many automotive OEMs have cut a lot of suppliers during the financial crisis. How about Webasto?

Theo J. M. Timmerman: In Europe and America, we start from last year to reduce the over 4000 suppliers by 35%. You cannot make it as best as possible to manage over 4000 different suppliers. That’s why we have a commodity strategy that now basically says four preferred suppliers per sub commodity -- they can be regional, global, or locally preferred suppliers. Two in development and one in exit, so that we can continue to look always to introduce new one, and exit the old one, in every commodity. The four normally established suppliers are already with known quality and known competitive pricing. The two we have said have to be developed in the LCC or the best cost countries, and one is probably somebody who is local and who has quality issues, that means he will first of all, no longer be awarded new business, and where possible we’ll take the current business and move it to one of the preferred suppliers.

Gasgoo.com: But in China, you are adding suppliers?

Theo J. M. Timmerman: Yes. We can also select from those suppliers to the suppliers we want to add also in Europe and America.