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Globalization's Spiral
The world economy has changed dramatically over the last decade, as companies scoured the globe for the most cost effective places to source supplies and materials. As companies began to exploit regions like China and India, they also contributed to the pace of globalization by creating workforces that could in turn buy products that might need to be shipped from overseas.
GM is a prime example of that accelerating cycle. In 2001, emerging markets such as China, India, Brazil, and Russia, accounted for just 10% of GM's total sales. In 2008, Andersson says emerging markets are on pace to account for 25% of GM's sales. Individual country figures are more eye-popping. In 2001, China accounted for 103,000 GM vehicles sold. In 2007, GM sold just over 1 million vehicles in China, a 900% rise. Russia accounted for just 2,000 units sold in 2001, but in 2007 that market climbed to 259,000 units, an 11,900 % increase. India climbed from 8,000 units in 2001 to 60,000 in 2007, a 683% rise and Brazil went from 360,000 units in 2001 to 499,000 in 2007, a 38% increase.
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The bottom line, says Andersson, is that while mature markets like North America and Western Europe continue to experience modest 3% to 4% growth, the emerging markets are exploding—and expected to continue to do so. In total GM vehicle sales in emerging markets went from 878,000 units in 2001 to 2.26 million in 2007, a 168% increase.
"In the U.S. there are 700 vehicles per 1,000 people," says Andersson. "In China there are 16 vehicles per 1,000 people. Even if China grows at 20% per year—the impact is remarkable."
Andersson says GM is dealing with the rising price of oil every day, by constantly evaluating the price of parts and the ultimate landing costs when shipping and tariffs are taken into account. The company, which has been an i2 customer since 1999, uses a combination of software modules in its analysis. It has integrated i2's Transportation Manager module along with its Inventory Optimizer module to create a Total Landed Cost sourcing application.
The landed cost application essentially allows GM to begin with the price of a part at source, and "role up" costs such as shipping, taxes, rates and duties, currency exchange rates, and required inventory buffers. Using this it can compare, for example, whether to source wheels for cars assembled in North America from China or Mexico, or other alternatives.
And every part needs to be examined separately. Andersson recently noted that it typically costs $2 to ship a radio from Asia to the U.S. "It's not a big thing," he says. But it costs $20 to ship a wheel from China to the U.S. "So, it's case by case."
Kelly Thomas, senior vice president of manufacturing for i2, says companies have always considered the total landed costs for parts sourced globally, but the soaring cost of oil has placed new urgency on being able to quickly and accurately compare those costs. "For a decade, low-cost labor trumped everything else," say Thomas. "Now supply chain costs as a percentage of overall costs have gone way up...to such an extent that it looks like we may now be at a tipping point."
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