Outsourcing and Globalizing: Simplifying or Complicating Logistics

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Outsourcing and Globalizing Simplifying
orComplicating Logistics

• Michael G. Coady
• 21st Century
• Transportation Distribution Logistics Summit
• September 14, 2004

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Delphi Electronics and SafetyGlobal
Manufacturing Sites
BadSaltzDetfurth
Liverpool
Milwaukee
Szombathely
Flint
St. Aubin
Osberghousen
Suzhou
Kokomo
Braga
Munmak
Ponte de Sor
Tucson
Reynosa
Matamoros Deltronicos Rimir CMM2 Ashimori
Singapore
Rio Grande
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Market Environment
How you would like it to be Sellers
Market Limited Competition
Cost Profit Price
How it is Buyers Market Unlimited Competition
Price Profit Cost
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Why China?
What happens when prices steadily decline and
costs dont decline at the same rate?
Price Cost Profit
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Cost Breakdown
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Component Value Streamfor Products Manufactured
in Mexico
China
Singapore
Japan
Asia 86
Malaysia
Philippines
Customer Plants
Mexico Plant
Mexico 7
USA 5
Europe 2
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Component Value Streamfor Products Manufactured
in China
Shanghai
China 74
Suzhou
Customer Plants
China Plant
XiaMeng
GuangZhou
Asia (outside China) 26
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Cost Breakdown
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Thoughts on using China as a PML

• Wages Benefits are ½ of Mexicos and 1/30 of
  U.S. Sites
• High touch labor products benefit more than low
  touch labor products
• Material cost reductions (BOM purchased in China
  )
• Range from 5 to 10 depending on the commodity
• 4 VAT added 1-Jan-04 for exported value add from
  China
• Currency Exchange Rates
• Today the value of the RMB is locked to the U.S.
• In the future the RMB will float with a portfolio
  of currencies
• Logistics
• From China to the U.S.A. or Europe is quite high
• 1 month of additional inventory is required to
  fill the logistics pipeline (reduced velocity)
• Duty
• Duty from China into Europe is quite high on
  certain commodities
• China domestic sales always make good sense to
  build in China
• Export sales from China are less attractive today
  than one year ago, but still make sense for high
  touch labor products

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Back Up Slides
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Highly Competitive Global Market Place
Local Content Legislation 1990s
Low Cost Manufacturing Jobs 1970s
Pushing Jobs Out Composite Wage Rates
for Manufacturing and Engineering
Pulling Jobs Out Global Local
Content Value Chain Dis-Integration
Indiana Jobs
Value Chain Vertical Dis-Integration 1980s
Low Cost Engineering Jobs 1990s
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Americans Claim Most Patents
Innovation New Materials New Processes New
Equipment New Products
Source U.S. Patent and Trademark Offices
Technology Assessment and Forecast Report
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Applied InnovationLaunch Center
Future Vision for Advanced Manufacturing