Affinia :Developing Business in China

An interview with David C Sather, Vice President of Affinia

Gasgoo.com: Please talk about Affinia’s global distribution of purchases and the proportion of China's purchases.

David C Sather：Affinia’s global footprint has changed dramatically in the past 3 years. We have closed over 25 different facilities primarily in North America to right size our business. Affinia has made the commitment to grow our manufacturing and distribution footprint in Asia during this same 3 year period. I am pleased to say today we have 3 prominent manufacturing locations in China! We manufacture Rotor’s and Filtration products in Longkou, China and by July of this year we will be manufacturing Friction products in a new plant being built in Laixi, China. All three plants will manufacture products that are sold and distributed around the world.

We made a very substantial commitment to manufacturing in China, as well as India and other parts of the world that are regarded as the best cost countries. We are also focusing on localizing our sourcing of material and components to support these operations. Affinia has invested in people and technology to support our manufacturing facilities in China. As a result, our footprint has changed quite dramatically in the last 3 to 4 years and it continues to change as we meet the growing challenges of a Global marketplace.

Distribution is another challenge as customers want product faster and of course less expensive. Today we ship hundreds of containers direct to our Global customers from our Chinese factories or we ship to our distribution centers strategically located in North America and Europe.

Gasgoo.com: What about in Europe?

David C Sather: While Europe is currently not a major sales market for us，we intend to pursue substantial growth in that market as well. Affinia acquired late last year a Chassis company in North America that specializes in European car platforms. This will expand our European product offering which will help to grow our sales in Europe, North America as well as China.

Gasgoo.com: New car production and sales in China increased rapidly in 2010, but your major market is still in North America. Regarding Affinia’s procurement strategies, what’re the significant differences in the aftermarket between China and North America?

David C Sather：Our procurement strategies won’t change. We are aware that new car sales in China increased rapidly in recent years; therefore we believe that our business opportunities will be greatly expanded in China. The strong demand for replacement parts will continue to grow as more and more automobiles and light trucks are sold in China. This will be very good for the Affinia brands and products. Making product in the markets we serve will further enhance our sales opportunities. This growth is driving the capabilities and the competitiveness of the supply base in China, and will become much more robust and qualified, which means that we will provide more product numbers and choices for consumers in China and other parts of Asia. Our sourcing efforts concentrate on BCC (Best Cost Countries) and localizing wherever possible to match our growing Asian manufacturing footprint.

Gasgoo.com: Is cost the biggest reason for Affinia to shut down many facilities in North America and move them to China?

David C Sather: It’s certainly been driven by cost. The consumer today demands more competitive price without compromising quality. Cost continues to go up while selling prices continue to go down. The customers that we serve such as NAPA，O’Reily and Carquest, and many others demand continued cost improvement. There is no way to meet those challenges without taking a hard look at the manufacturing and distributions costs. Since the products we manufacture are tied to automotive “needs”, it’s almost impossible to meet those demands without moving to best cost countries. We focus on looking for qualified manufacturers and distributors to grow our China domestic business. Besides cost improvements, producing the products locally enables us to make products that we intend to sell locally and lay a good foundation for our future business in China.

Back to your question, the car shift of production supports the strategy well because we know the future for the automotive aftermarket will be where the cars are ultimately sold. As the shift of the car sales volume moves to Asia, so will the eventual aftermarket sales demand for the product and services Affinia manufacturers and sells. We have positioned Affinia very well to meet that going demand, and we are bringing our high quality products into China in order to serve car owners better.

Gasgoo.com: Please tell us Affinia’s strengths and weaknesses when purchasing in China.

David C Sather：The strengths are cost and the improving quality. Quality continues to improve as we develop our local sources and implement our manufacturing process technology. On the weakness side, it’s the “infra-structure” inconsistency. The world market that we serve today demands products everyday just in time. However, local suppliers sometimes struggle with power shortages, worker shortages, impromptu strikes, and other disruptions that impedes the need for consistent capacity day in and day out. As our business in China is growing all the time, there will be much higher requirements and consistency, and it will be key to meeting this continued growth and stability.

Gasgoo.com: What measures has Affinia Group taken to reduce the cost on procurement process?

David C Sather：We continue to search for the best types of suppliers to support our operations from “cost、consistency and quality” standard points. Affinia works with our suppliers on VAVE (Value Analysis and Value Engineering) type of activity. It’s a process that we have used internally to stream line our process’s as well as with our strategic suppliers process’s and supply chains. We look for the waste and take it out of the process to be more efficient and consistent in production volume and cost improvements. It’s very beneficial and supportive of those efforts. Another significant cost improvement initiative is “localizing” more and more of our sources. This helps reduce inventory, shipping costs, and allows just in time deliveries to our plants all the while supporting the local sources.

What I want to add is that, on the cost side, many people minimize or forget about the cost and complexity of getting the products made in the best cost countries to customers in North America. Transportation costs today have a much bigger and growing impact on our bottom line. The products we manufacture and sell are very heavy, because they are metal based with considerable mass. Shipping container costs are very high, so we look for best cost shipping and logistical companies to work with in order to minimize the cost. Consolidation of lower volume product is also investigated to minimize the transportation costs!

We strive to provide our customers the best products, with manageable lead times, and competitive prices.

Gasgoo.com: What are the standards when streamlining your suppliers?

David C Sather: First, we are trying to find the suppliers who can closely match our requirements and ultimately the end customer. Whatever these demands are, we try to match our suppliers with those demands. The customers want our products quickly, with a constant challenge of reducing our lead times. The procurement challenge is to find suppliers that can meet those requirements.

Affinia looks at the financial strengths of the supplier to ensure they will be here tomorrow, not those struggling or suffering financial weakness. We invest a lot of time and effort in building a partnership with our strategic suppliers and believe that whatever we are doing will be in the best interest long term for both Affinia and our supply partners.

Gasgoo.com: In your opinion, what’s the biggest gap when shifting from aftermarket supplier to OE supplier?

David C Sather： In fact Affinia was OE supplier originally but today we are more focused on the aftermarket. We offer different automotive products for just about every vehicle produced today including but not limited to VW, Porsche, Chrysler, Land Rover, Ford, Saab, Fiat, Suzuki, Nissan, etc. We closely keep in touch with OEMs in China and participate in some of their product development and pre-testing activities. The requirements for OEMs are rigorous, but Affinia’s products have gone through all the trials in North America to ensure our products match OEM’s fit, form, and function each time, every time. We are confident in providing our products for both the OEMs as well as the car owners themselves in China or anywhere in the world for that matter.

It is more negotiable for delivery time on the aftermarket. However, our aftermarket products are manufactured by the same standards as OE suppliers. We pledge Affinia’s aftermarket products can meet or exceed original equipment standards.

Gasgoo.com: In your opinion, what’s the development direction and changes of China Automotive Industry during the next 5 years? How will that affect your procurement system?

Besides the car production boom in China, aftermarket also will grow rapidly and there will be continuous improvement in quality, lead times, and of course cost challenges. As the OE Automotive Industry shifts, the expectations will continue to grow and the requirements will continue to tighten. Cost and cost management will continue to be the key parts of transition. The infrastructure in China is still very important to the automotive industry. The inconsistency with power, energy, electricity and environment pollution all have to be dealt with and adjusted for accordingly.

From Affinia’s point of view, we continue to invest in the technical side of the business, including people. We are adding more technical and research people in China. The people are the key to driving Affinia’s success.

Gasgoo.com: How will the earthquake in Japan impact global auto parts supply chain?

Speaking for Affinia, we do very little business today in Japan, and it did not impact our procurement or supply base significantly. We are very distraught and concerned for the people in Japan.

For the automotive industry in general, I think it depends on the commodity and component. Japan plays a very important role in the electronic automotive industry as well as other key automotive componentry. It will definitely have a significant impact on the industry, but again not on Affinia at least not directly. You probably have heard or read that there are several automotive manufacturers today shutting down due to disruption of products and facilities.

Gasgoo.com: Why does Affinia manufacture so much today?

We can certainly control the quality, the process and the design very effectively when we actually control the manufacturing.

The products that we design and manufacture are very safety focused by manufacturing we can ensure that there are no “short cuts” taken that might compromise the safety or integrity of our products. Also the cost management is much more visible, allowing us to do deep dives into the process from the beginning to the end. We can be very cost-effective by managing these process ourselves. Our people must undergo training as pre-job practice so they have better understanding of the Affinia culture and process. That being said we do have many strategic suppliers who practice these same principles and are in their own right very competitive and safety conscience.