Pros and cons: choosing international or local suppliers?
With the right international supplier, automotive manufacturers can save considerable costs. However, the Corona pandemic vividly demonstrated how quickly global supply chains can falter. Should companies work with local suppliers after all? An analysis.
What makes a good supplier
The free market and globalization have made it possible for small suppliers in the provinces to compete with plants in Romania or a Chinese metropolis. When choosing suppliers, automotive manufacturers have to take various factors into account. The most important are reliability, supply speed, price level, quality, innovation, and flexibility in cooperation. Sustainability is now also a must-have in the requirements for an optimal supply chain. Neither local nor global partners achieve top marks in all areas.
Reliability and speed of delivery
In times of just-in-time production and global competitive pressure, smooth supply chain operations are more significant than ever. Production delays cause additional costs by the minute and annoy the end customers, who have increasingly less tolerance for planning errors. Local suppliers score points here with short transport routes.
With every kilometer and every national border that the goods have to travel less, the risk of delays in loading and transport decreases. The regulatory burden of importing components from countries outside the EU is significantly higher than when cooperating with local suppliers. At the same time, companies minimize hurdles caused by customs controls.
However, local suppliers are not always able to meet demanding delivery requirements. On the other hand, international groups have the know-how and the structures to ensure reliable and fast deliveries – even if the logistics or raw materials situation on the world markets becomes difficult.
The price level
One of the main arguments for international suppliers has always been lower costs. Due to global inflation and economic differences, companies benefit from massive savings if suppliers manufacture in countries with lower price levels. This leaves more budget to invest in additional services or innovation work. However, the cost advantage is relativized by the sometimes considerable transport costs. To calculate the actual cost advantage, currency risks, customs duties, and other trade barriers must also be factored in.
Regarding local suppliers, labor costs alone ensure that suppliers cannot compete on price in a global comparison. However, companies save on transportation costs and can assume simple communication channels. However, certain raw materials may not be available locally depending on the industry, so the risks of long transportation routes cannot permanently be eliminated.
Quality and innovation
Made in Germany still stands for quality. Local suppliers can prevail over international competitors with first-class manufacturing quality. Many hidden champions that supply German industry are based in Germany. However, the truth is that companies have a much wider choice of service providers when they open up to international partners. Many offer a more attractive overall package than the supposedly apparent quality leaders from Germany.
Low costs no longer necessarily mean low quality. It used to be said that plants in Asia and southeastern Europe would not meet German quality standards. In the meantime, this statement is no longer tenable. Especially if the sites are part of an international group that coordinates cooperation, companies can rely on specified certifications and quality standards.
Many countries with low production costs, such as China, have even developed into innovation centers in particular niches over the decades. Both local and international companies use the framework conditions to bring new technologies to market maturity and offer them to European companies at moderate prices. Those working with local suppliers often have to pay more than twice as much for comparable standards.
Flexibility in collaboration
A global partner scores with well-differentiated, effective structures. What is an advantage in terms of delivery speed can be a disadvantage in customer service. Communication channels are rigid and inflexible. In some cases, cultural differences mean that agreements fail or deadlines are not met. If companies have to work with changing contacts who do not speak their native language, this becomes an additional hurdle that jeopardizes the cost-efficient, reliable supply chain.
In contrast, smaller local suppliers in the DACH region typically distinguish themselves through customer service. They are usually easier to reach by phone, sometimes offer generous support arrangements, and can implement change requirements even at short notice. In addition, language barriers and cultural differences are eliminated.
Some raw materials are not available regionally in the automotive industry, and extended supply chains are sometimes inevitable. Local suppliers can also have a critical carbon footprint. Many global partners use resources more sparingly than regional suppliers, and some products according to the cradle-to-cradle principle or other circular economy approaches. Regional is not per se more sustainable.
International certifications such as ISO are also setting binding standards for cooperation. Awards and voluntary commitment on the part of suppliers provide additional indications of the importance the partner attaches to sustainability.
Sustainability also includes assuming social responsibility and not supporting suppliers who create jobs under inhumane conditions. End customers in Europe increasingly and rightly expect companies not to exploit the plight of people in other parts of the world. At the beginning of industrialization, there was a lack of awareness of occupational health and safety, a lack of workers’ rights. Today, business and social responsibility are inextricably linked.
Conclusion: International suppliers are ahead in comparison if the framework conditions are right
Our overview has shown: There are good reasons for both local and global partners as suppliers. Each decision has its advantages and disadvantages. However, the disadvantages of global suppliers, such as risks due to long transport routes or quality concerns, can now be minimized if companies select international partners strategically. And they do so in such a way that they get the best of both supplier worlds.
Unknown suppliers for cold forming from Asia are certainly not the best choice to establish a reliable supply chain as an automotive manufacturer. However, the situation is different with groups like Felss. They are headquartered in the DACH region but operate plants in Germany, the EU, and outside Europe.
They offer their customers stability, can cushion logistical challenges more easily, generally have many years of experience, and have structures to implement innovative methods cost-effectively. International corporations combine the competitive pricing from their plants in low-wage countries with the high-quality standards and personal attention that companies expect from local suppliers.