Turning the supply chain from a cost into a profit centre

Christopher Ludwig (CL): Is Yazaki feeling the effects of post-Covid lockdown and restrictions, and are there still impacts on business operations?

Bo Andersson (BA): I asked team members to connect from day one with the local health authorities. We have been doing a good job. We had challenges in Portugal in April. We are in a city called Ovar that is outside Porto. The government decided to close down the city for a long time. Today in Mexico the government is looking at the people who are at risk. We have 5,000 that are viewed by us and the government as risk factors so we pay them, but we let them stay at home. 

But we have adjusted very quickly. If governments understand our importance in the local community, they will support us. We were not taking risks and we have been much better off than most of our competitors regarding people being sick and having fatalities. We have had fatalities but a very small number.

CL: Yazaki manufactures wiring harnesses, instruments and components, including electronics. We are talking about a complex supply chain in locations that are perhaps not the easiest to plug into. Has it made the ramp up more challenging?

BA: Yes and no. In North America we build somewhat for inventory and that means we have 27 distribution centres in Mexico and the US. They have continued to work and helped us to avoid being impacted. On the other hand, in April and May we had very little revenue and we were sitting with a lot of inventory.  

From June when we started coming back in North America, we have been shipping roughly 80% from inventory. In Europe we have a very different business model and we are working in sequence centre operations. For most of our German OEM customers, we have 80 hours to build and ship the harnesses that goes into a BMW 7-Series for instance. That has benefits but also disadvantages. 

CL: Is electrification and area that offers risk and reward for Yazaki?

BA: I have worked on electric vehicles since 1993, with the EV1 at GM. I’m not a very big believer that everyone will drive an EV but I do believe in hybrids and see that some of our customers are getting 50% of their market fleet in hybrids, so it’s clearly an opportunity for us. For Yazaki, for [supplying] gasoline and diesel [powertrain] we have $600-800 in revenue. On a hybrid we have $1,400. On full electric we have $2,200. 

CL: Throughout this period there have been calls for more localisation of the supply chain to improve resilience and have less reliance on sourcing from certain countries. You have led huge supply chain organisations, so you understand the complexity. Is it an appropriate objective to increase regionalisation?

BA: We always need to look for the optimal solution. In December, January and February I didn’t get a lot of sleep because we had 1,900 part numbers that we got out of China. Unfortunately, we had some suppliers that were very close to the Wuhan region, but we never missed a shipment to our customers. 

Was it difficult? Yes. If you take April, May and June we had different challenges. Here we found out that we had made sourcing decisions where we buy simple parts that were not optimally sourced. We may buy small plastic parts from Nicaragua and it just happened by accident. So now we are looking at everything we buy and asking whether this is an optimal strategy. Is it fitting with our total cost principle? Are we better off having two sets of toolsets and one toolset taking care of our Asian customers and another localised in Europe? We are trying to localise as much of our supply in the region it is built. 

CL: An important part of avoiding line stops is working on the visibility in the supply chain. So in terms of Yazaki’s supply chain, do you have a clear enough view across that and the lower tiers?

BA: Absolutely not. In North America to our customers we supply roughly 27,000 part numbers every day. In Europe we supply 40,000 part numbers. What we take from our supply base globally is 100,000 part numbers. The good thing is that in our global purchasing, which I have been managing for the last year, we know the top 50 suppliers account for 88% of our volume. But we don’t know the part numbers, so we are working very hard on total value chain visibility – we have a lot of work to do.

CL: You lead on global purchasing for Yazaki. Have you been able to find more synergies in purchasing and in areas like logistics?

BA: We are an $18 billion organisation globally. Direct purchasing is $10 billion. A big number. The best case is where we have put together our global purchasing. Every year we buy 14,000 containers of ocean freight from Asia. For the first time we put it together in one [request-for-quotation] package, it was $100m. 

We went to the ocean freight supply base and offered them this whole package. We got very good bids and saved money. We took a risk-free approach, so instead of saving 20% we said we would save 10%. It highlighted that our plants in Asia had some principles and preferences. Our plants in Europe had other principles, as did the plants in North America. So we put together our expectations and we have a strong leader in Paris [global logistics purchasing manager Adam Misiak] that was managing this whole package. 

Here I say to many of you in logistics: we have many opportunities to show that you can do a better job. We are going much more to having 3PL solutions instead of having our own warehouses. We are very focused on reducing our inventory but also focusing on localising. 

We do a lot of freight and unfortunately also use premium freight. 

CL: Are there other areas where you need key support from logistics providers?

BA: First, our customers are relying more on us. We are moving to a full-service model rather than build to print, which doesn’t really work for us. 

Secondly, we will constantly look at our footprint. 

Third, as I said, a very big piece of our cost is spent on material logistics, warehousing and distribution. We see that we are becoming more competitive on sequencing. If we can build a component such as cable terminals ourselves, we can be part of the design of a harness. That means we can build them in our plants, and we can sequence them into the customer.

GM has a facility in Lansing, for example. We sequence 5,000 harnesses every day and we have roughly one hour to get ready. If there is a line stop, we will feel it immediately. 

CL: How is your customer base split at the moment? Do you still have a fair amount of build-to-print versus full-service models?

BA: We are trying to reposition ourselves. We want to be premium Japanese, relatively expensive supplier. Not everyone can afford us but if they can they will get excellent service and perfect quality, and flawless launches and excellent programme management. 

Our five customers are big OEMs. The first is Toyota, our absolute largest. They have very high expectations and we learn a lot from them.  Then we have FCA, GM, Ford and Honda. But we also supply 20 car sets a day to McClaren, for example.

CL: Is moving to a full-service model important from a profit margin side? Even before Covid tier ones were facing margin challenges, with the squeeze on cost, the increase in R&D, and the business side. How much of a challenge is that for Yazaki? 

BA: We are private and have the benefit of a longer-term view but on the other hand our shareholders have profit expectations on us. What we have learned is that the better job we do in continuous improvement, avoiding all types of waste, the better profitability we will have. 

We have also had frank discussions with our customers, and where the risk is too high and reward is too little, it doesn’t work for us. We will always be professional and if we have to select to end the relationship with customers we should perform perfectly to the last day. It is about where to play and where not to play. The good thing is we have more customers coming to us and asking whether we can do [full service].

CL: What do you think will be the biggest challenges for the future supply chains and how will they change compared to today?

BA: We will see more consolidation. FCA and PSA will have huge buying power [when merged]. We will see plant consolidation. But on the other hand, they will expect more from their partners. What we hear more and more from our customers is that they want the suppliers to take more risk and invest more money. I’m okay with that if we can make money at our end. 

The buying power will be larger. We will have more large global companies. On the other hand, as I said, we have start-up companies, which may not be start-ups anymore because from a valuation standpoint they are large, but they are still small companies.

CL: What is the most important thing you hope to have achieved at Yazaki by 2025?

BA: The biggest challenge for us is how can we adapt to the situation. The companies that are adapting the best and adapting the fastest, are the companies that are generating new business models out of the situation. 

I don’t like to say it, but I don’t think we will go back to the private lives we had before. I don’t think we will go back to the business lives we had before. But I think there is a lot of opportunity to show that you can add value, that you can do it faster and do it differently. That is what we are striving for at Yazaki, day in and day out – how can we make a difference, how can we bring more value to our customers and how can we use this situation as a big opportunity to become stronger.