German industry takes cost-cutting approach with local suppliers – Production in China

February 25, 2015 | Global News, News China

German manufacturers are now focussing on their supply chains in China. Supplier development programmes, which are common in Germany, are becoming more prominent in the Chinese market. Companies react to increasing production costs, greater competitive pressure and price cuts, which are demanded from the Chinese government. German industry sees tremendous scope for improvement at their suppliers: Productivity in Chinese factories can be increased by more than a third, whilst scrap and lead times can be halved – which will allow to achieve high cost savings. This is the outcome of a market analysis by Staufen, a consultancy company.

“We still occasionally find structures in the factories of Chinese suppliers that remind me of my industrial placement in Germany 25 years ago,” says David Müller, General Manager of Staufen in China. “There is great potential which Chinese companies need to exploit in order to stay competitive not just for the global, but also for the local market.”  

The pioneers in the field of supplier development are, yet again, vehicle manufacturers, however other industries such as mechanical engineering and white goods are catching up rapidly. “These are not classical programmes for improving delivery reliability or parts quality, but more about identifying and exploiting potentials for cost reduction in suppliers’ plants,” says Müller, a former Head of Purchasing for a large vehicle manufacturer in China.

Like in Germany, vehicle manufacturers and other large industrial companies in China also outsource component assemblies to their local partners. In addition, the trend towards just-in-time (JIT) and just-in-sequence (JIS) deliveries does not allow any time for short-term fixing of quality issues with suppliers.

Manufacturers do not just have issues with antiquated processes at their suppliers, but also with cultural aspects. “At Chinese suppliers, a change of mindset is required. The awareness how quality can be ensured from the very beginning, and why this is important, needs to be systematically created and realized accordingly in the production processes. This is primarily a topic for the management,” says China expert Müller. German manufacturers provide their local suppliers with specific training programmes – providers of such programmes, such as the Staufen Academy, have seen demand double in the past year.

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