• Madani Sahari

Supply chain roadmap to elevate vendors capabilities

SMALL and medium industries (SMIs) collectively formed an important part of any industrialized economy. Statistically there are some 800 vendors within the Malaysia automotive supply chain and majority are those of medium-sized establishments manufacturing automotive parts and components with annual turnover between RM15 million and RM50 million, respectively.

The vendors, together with 11 vehicle manufacturers/assemblers and nine motorcycle assemblers employing more than 300,000 workers.

Although most of the local vendors' outputs are for the requirements of the local automotive manufacturers and assemblers, however, some of the parts and components worth about RM5 billion are exported annually.

The recently launched National Automotive Policy (NAP 2014) emphasizes on the importance of vendor development in order to create a competitive local automotive industry. The NAP 2014 has set targets to transform at least 430 vendors to become global and regional level parts and components manufacturers by 2020.

In this respect, 180 vendors are targeted to be transformed to achieve level 5 on the global vendor capability indicator, or generally recognised as the "Supplier Competitiveness Level (SCL)", with the ultimate ability to undertake their own research and development work, offering new innovative ideas and concept for parts and components requirements by the automotive manufacturers and assemblers.

At the same time, 150 vendors are to be elevated to level 4 on the SCL able to improve the design and provide technical specifications on the parts and components manufactured as required by the automotive manufacturers and assemblers. The vendors are also able to offer alternatives to the automotive manufacturers and assemblers meeting their parts and components requirements.

NAP 2014 also targets to elevate 100 vendors to level 3 of the SCL able to perform components testing on their parts and components manufactured as specified by the manufacturers and assemblers within their production facilities and provide warranty on parts and components produced.

Successful transformation of the 430 vendors will result in Malaysia able to achieve automotive parts and components export target of RM10 billion by 2020.

Currently, the local vendors are averagely at level 2 solely having the facilities and capability to manufacture, while all design details and specifications are dictated by the manufacturers and assemblers. Some have achieved level 3 requiring more efforts to proceed to higher levels.

A Supply Chain Development Roadmap has been put forward to guide the transformation process of the local parts and components industries to become the world-class vendors fulfilling the SCL requirements. The aim of the roadmap is to continuously enhance the parts and component manufacturers' competitiveness in various aspects, particularly efficiency and operational effectiveness. The roadmap consists of measures to improve quality, operational and business management systems among the vendors.

The global automotive trends and challenges assessments form the bases for the formulation of the Supply Chain Development Roadmap. The international environmental and safety legislation, raw material cost, energy cost, exchange rates and interest rates are fundamentals that influence the competitiveness of the local supply chain network.

In addition, fast model change in all automotive segments, industrial optimization and restructuring processes taking place globally and aggressive new entrance into the network further stiffen the automotive manufacturing competitive scenario.

Although opportunities remained high in automotive ventures, industry players can be subjected to challenges, such as customers demand stagnation and pricing pressure in more established markets. Customers loyalties are fading as price and technology are becoming major criteria of choice for vehicles purchases.

In addition, global over production capacity and industrial restructuring such as complex alliances, partnerships and consolidation among global automakers off late beginning to take place, and hence demanding strategic re-examination among the local vendors in order to survive within the global supply chain.

The Supply Chain Development Roadmap outlays the stages of improvements to be observed by the local vendors, generally the best practices by the global parts and components manufacturers, for them to enter the international supply chain.

Consecutively, the six stages of improvements focus on; Business Plan, Operations, People, Diversification, Marketing and Export.

Malaysia Automotive Institute (MAI) will collaborate with various relevant organisations with expertise to develop programmes for each of the improvement stages, making them available for the vendors to undertake their respective improvement exercises.

To date, MAI has implemented two programmes under the roadmap in its effort to uplift the capability and competitiveness of the local vendors. One of which is the quality improvement practices through the Lean Production System (LPS) under the Automotive Technical Experts Assistance programme.

LPS is a systematic approach to identify and eliminate waste or non-value added activities through continuous improvement adapted from the Toyota Production System.

The second programme being implemented is the bench marking exercise among the local vendors with global automotive industries.

The bench marking procedure compares the local vendors' performances with those vendors in developed countries, such as Germany and Korea, which have implemented the Automotive Supplier Excellence and Improvement Programme.

The procedure highlights areas of weakness within the local vendors' business operations identifying the gaps that requires improvements to enhance their performances at par to those successful automotive companies overseas.

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