A new “global best practices programme” comparative study of measures for supplier plants operational performances suggest that emerging market suppliers in South and East Asia (SEA) are making very rapid progress in improving quality and delivery reliability compared with European competitors.
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The conclusions are presented in the “global best practices statistical Yearbook 2005” from Benchmarking and Manufacturing (B&M) Analysts.
The survey is interesting because it is one of the first public examinations of the non-cost elements of the competitiveness of the South and East Asian suppliers.
B&M analysts define South and East Asia as including India, Thailand, China and Malaysia.
B&M analysts benchmarked performance areas such as quality, reliability and flexibility.
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By GlobalDataThe headline result is that the European lead on key quality and reliability measures is much smaller than might be expected, and the SEA suppliers are an average much more flexible than their European rivals.
European suppliers were on average 18% better than their SEA rivals on key quality measures “although performance in both regions can be considered weak” say B&M Analysts .
The average supply return rate (SRR) level of European firms was 8,290 ppm, while for SEA firms it was 10,160 ppm. Internal reject rates at European firms were 1.47% compared with 1.56% at SEA firms. There was a similar pattern with customer return rate – 314 ppm at European firms and 410 ppm at SEA firms.
The study also showed that SEA companies were suffering lower losses of production time due to tooling and machinery breakdowns than European companies in the sample.
“European firms lose, on average 4.3% of total production time due to breakdowns while their SEA counterparts lose only 3.0%” say B&M Analysts , which believes that this “reflects the higher level of capital investment that the SEA firms have been enjoying.”
European firms have been able to deliver better reliability to their customers, B&M Analysts say, but quote the more reliable internal operations amongst the SEA firms can be expected to eventually deliver downstream value chain reliability that matches or even beats that of the European firms in the medium-term” say B&M Analysts.
The B&M Analysts however say that the real direct competitive threat to European supplies from SEA companies in international markets will be limited by their long production lead times. “A comparison of lead times to domestic customers in their own markets tells little of the competitiveness gaps when supplying international customers” say B&M Analysts.
Using delivery lead times to customers based on having no finished stock, the average international lead time out of production for SEA companies here is 61.3 days – compared to 7.4 days reported by European companies.
“Given that much of this represents shipping time it can be assumed that for many components this will remain an immovable competitiveness disadvantage on the part of firms based in the SEA region wishing to supply European or North American customers” say B&M Analysts .
The domestic competitiveness of the SEA suppliers presents a challenge to European suppliers looking to compete in the SEA region with local production. The competitive advantage of the longer established European companies may be more limited than is generally assumed.
A window of opportunity to European companies to establish a pre-eminence in SEA markets may be limited.
The B&M survey shows that the rate of turnover and investment growth at suppliers in East Asia is substantially faster than growth in local vehicle production.
Capital investment accounted for over 18% of the turnover of component manufacturers sampled in the East Asian region, more than double the level of the European firms in the survey.
In between 2001 and 2003 the East Asian suppliers surveyed grew by 101.5% on average, compared with an inflation adjusted growth rate of a respectable 10.9% among the European suppliers in the sample.
SupplierBusiness.com
