Suppliers rush to meet demands, yet anticipate overcapacity
Jim Fulcher, contributing editor -- Manufacturing Business Technology, 8/1/2004 6:00:00 AM
Given its population and burgeoning economy, China is on the verge of becoming the world's fastest-growing automotive market. But even as suppliers the world over rush to increase production, they foresee overcapacity that could quickly outpace market demand.
No doubt the Chinese passenger-vehicle market is growing rapidly, according to Tony Yip, managing director, Asia, for enterprise systems vendor QAD. From 2002 to 2003, the market grew 25 percent, and while there might be eight million passenger vehicles now in use in China, the population could support as many as 26 million, Yip says.
Findings of the China Auto Suppliers Survey—written by the Economist Corporate Network and recently released by the Automotive Industry Action Group (AIAG) and IBM Business Consulting Services' Institute for Business Value—indicate China's auto suppliers are well aware of the opportunity. More than half of the respondents—representing nearly 300 companies—plan to increase capacity by more than 20 percent annually over the next five years.
Respondents also are aware of the downside of trying to gain capacity so quickly. Despite their plans, 80 percent of the companies surveyed don't expect market demand to keep up with their increasing capacity.
"A critical success factor for Chinese auto suppliers—whether they are domestic or are involved in foreign joint ventures—will be the extent to which they invest in infrastructure required to gain cost-competitiveness," says Dan Blake, global automotive industry leader, IBM Business Consulting Services. "Right now, their level of IT spending is quite low—more than 75 percent invest less than $100,000 annually."
Lack of past IT spending is evident when examining these companies' business practices. For instance, more than half of all orders are still sent and received by fax, and only 25 percent of all companies polled are asked to track inventory in-transit or at their customers' sites.
The reason for the preponderance of manual processes is that ERP is used by just 25 percent of the responding companies. Of those companies using an ERP solution, more than half are QAD customers, the survey reports.
"Right now, they're doing the bare-bones basics, but they're interested in spending to improve business processes and technology levels," Blake says. "As their supply chains mature and get more complex, China's auto suppliers will redefine business processes and significantly increase IT investment-to-revenue ratios."
Survey respondents already report such plans: More than two-thirds plan to improve business processes through increased use of IT. The top priority is to automate purchasing and project management; the next priority is to automate quality and financial management, the survey says.
Automating quality and following standards will be short-term goals—considering the need for cost-competitiveness, says Yip. "From our perspective, many of these suppliers are struggling to meet standards," he says.
"We anticipate IT spending to increase quickly," Yip says. "Automotive OEMs and Tier 1 suppliers have some quality certification capabilities, and they will drive spending among Tier 2 and 3 suppliers. We expect to see the technology adoption rate climb quickly."
Featured Company
Most Recent Resources
- From CAD Systems to Customers - New collaboration capabilities bring...
- Real Time Energy Management - FREE White Paper and Video
- Deployed in 45 days, Zebra Enterprise Solutions Material Flow System...
- How to Eliminate 7 Wastes from your Supply Chain with Real-Time...
- Is Your Website Really Winning You Business
