The quest to add manufacturing capacity is taking place at a faster rate than expected market growth, raising overcapacity concerns and the possibility of a shakeout within five years.
In pursuit of lean operations, automakers worldwide have focused on investing in technology. The specific survey looked at how China’s automotive suppliers make use of process and production technology.
Researchers found that IT spending by automotive suppliers in China was generally low, with more than three-quarters of respondents investing less than $100,000 per year. It also examined major concerns, including an overwhelming need to find and retain good staff, which was cited by survey respondents as a barrier to successful development. When it comes to automating operations, less than a quarter of respondents use enterprise resource planning (ERP) systems.
This study makes it clear how standardization of business process and technology could catapult China into a crucial position in the global automotive industry, said Andrew Cummins, executive director of AIAG. Specifically, the research suggests the urgent need for suppliers in China to embrace common criteria, benchmarks and tools for business process and performance in order to achieve the cost-competitiveness they seek.
While the building blocks of advanced manufacturing concepts such as vendor-managed inventory are hardly present in China, more than two-thirds of companies surveyed said they want to improve their business processes in order to engage in inventory management, more accurate production planning, and tracking through bar-code labelling.
The study concluded that China’s domestic companies and joint ventures alike perceive cost-competitiveness – not quality – as a significant barrier to increased exports, and that it may be a question of production efficiency and economy of scale.
More than half of respondents plan to increase annual manufacturing capacity by more than 20% over the next five years, and just one in five expects market demand to equal that rate of growth. Moreover, Chinese domestic automotive suppliers are focused on export to Southeast Asia, while foreign joint ventures plan exports to North America and Japan, as well.
This study reveals extraordinary developments in the region’s automotive industry and the volume of response suggests China’s automotive suppliers are both aggressive and ambitious in their efforts to become an engine for global industry, added Dan Blake from IBM Business Consulting Services. A critical success factor will be the extent to which they invest in the infrastructure required to make the engine a cost- competitive proposition.
The survey polled nearly 300 respondents serving the light-vehicle market in China providing cars, light trucks and buses up to 3.5 tons specifically in an attempt to gain an insight into the forces fuelling industry growth, as well as respondents’ plans to manage and resolve market challenges. Of the suppliers surveyed, 57% were purely domestic Chinese companies and 43% were foreign joint ventures.
