Global Competitiveness Naacam

Globalisation and the Automotive Component Industry Asia Pacific and Central European focus Dave Coffey Bel-Essex Engineering 1 December 2005

2005 Global Purchasing Policy of Toyota Motor Corporation March 2005 – Nagoya Japan Cost • Strengthen global cost competitiveness Quality • Achieve and maintain an unrivalled quality globally Technology • Create an overwhelming advantage Production/Supply • Establish a global supply system with stable supply

Key Industry Issues In 2004 Product quality and new products were rated the most important industry issues in 2004. Please tell me how important each of the following issues is to the auto industry right now. Importance (4-5 on a 5 pt. scale)

100% 90% 80% 70% 60% 50%

91%

40%

84%

77%

72%

30%

58%

56%

20%

47%

45%

Co ns ume r Tas tes

Labor Relatio ns

10% 0% P ro duc t Quality

New P ro ducts

Eco no my

Ne w Techno lo gie s

Enviro nmenta l Co nc erns

Regula tory Environment

New Models And Technologies Are Top Areas Of Manufacturer Investment New models and new technologies are reported to be the largest areas of investment. In which of the following areas do you expect manufacturers to increase their investment over the next five years? (Multiple answers accepted.) 80% 70% 60%

63% 59%

New technologies New models Marketing New plants Human resources

50% 40% 30% 20% 10% 0%

37% 29%

17%

Competitive analysis of South Africa relative to Central Europe & Asia Pacific •Financial performance Turnover Employment Capital expenditure levels Stock •Key customer measures Quality (external, internal and rework) Delivery Reliability Flexibility •Human resource development Basic education Investment in training

Background Information Based on data from: South African Automotive Benchmarking Club (SAABC) Global Best Practice Benchmarking Programme – courtesy of Justin Barnes Participants in the Benchmarking Programme: - SA auto component manufacturers (n=71) - Central Europe auto component manufacturers (n=35) Slovenia: 17.6%, Romania: 8.8%, Czech: 8.8%, Poland: 2.9%, Hungary: 61.8%

- Asia Pacific auto component manufacturers (n=21) India: 52.4%, Malaysia/ Thailand/China: 28.6%, Australia: 19.0%

Turnover Inflation adjusted turnover trend, indexed in domestic currency to 2001 figures 300 280 260 Turnover index

240 220 200 180 160 140 120 100

2002

2003

2004

SA

114.65

122.97

121.27

Central Europe

128.81

149.21

156.23

Asia Pacific

187.39

194.70 Year

233.16

Employment Total employment trend (including contractees on payroll), using an index based on 2001 figures 300 280

Employment index

260 240 220 200 180 160 140 120 100

2002

2003

2004

SA

108.17

115.05

119.77

Central Europe

168.18

215.28

248.32

Asia Pacific

210.18

212.73

238.92

Year

Capital Expenditure New capital equipment expenditure (CAPEX) as a proportion of total sales 11 10 9

Percent

8 7 6 5 4 3 2 1 0 SA

2001

2002

2003

2004

4.02

5.22

5.22

4.08

Central Europe

7.47

Asia Pacific

10.79 Year

Cost Performance Market Drivers & operational performance measures

COST

SA avg.

Asia Pacific avg.

Difference (%)

Total Inventory

37.83

21.83

73.29

Raw Material

20.50

13.67

49.96

Work in Progress

6.92

3.27

111.62

Finished goods

10.41

4.89

112.88

SA U.Q

Asia Pacific U.Q

Difference (%)

Total Inventory

20.24

4.06

398.52

Raw Material

9.40

2.25

317.78

Work in Progress

1.42

1.00

42.00

Finished goods

2.00

0.31

545.16

Upper Quartile

COST

Customer returns (ppm) Average automotive customer return rate (0km failures returned by customers) 9,000 8,000

Parts per million

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 SA

2001

2002

2003

2004

8,064

3,431

1,739

613 1,261

Central Europe

293

Asia Pacific Year

Internal reject rate (goods rejected as a percentage of output) 5

Percent

4

3

2

1

0

2001

2002

2003

2004 1.54

Inter. avg. SA avg.

3.68

3.87

3.48

2.98

SA upper quartile

0.70

0.69

0.39

0.50

SA lower quartile

5.00

5.00

5.00

4.00

Year

* Asia Pacific = 1.29% : latest SA = 3.26%

Internal rework rate (goods reworked as a percentage of output) 4.0 3.5 3.0

Percent

2.5 2.0 1.5 1.0 0.5 0.0

2001

2002

2003

2004 0.93

Inter. avg. SA avg.

3.07

3.68

3.71

3.13

SA upper quartile

0.03

0.03

0.10

0.10

SA lower quartile

1.47

1.97

1.85

1.40

Year

* Asia Pacific = 1.78% : latest SA = 2.79%

Delivery Reliability Average delivery reliability record to all customers (deliveries made on time and in full) 100

95

Percent

90

85

80

75

70 SA

2001

2002

2003

2004

91.25

90.44

92.45

93.21

Central Europe

91.96

Asia Pacific

97.92 Year

Flexibility - Delivery Frequency to Customers Delivery frequency performance to major customers: 2004 Percent 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

SA firms

Central Europe firms

Asia Pacific firms

Daily+

Daily

Every 2/3 days

Weekly

Fort-nightly

Other

100%

Flexibility - Lead Times out of Production Average lead time out of production to domestic & international customers: 2004

50 45.1

45

40.6 40

Days

35 30 25 20 15 10

14.2 12.1 8.0 4.1

5 0

Domestic

International

SA firms

12.1

45.1

Central Europe firms

8.0

14.2

Asia Pacific firms

4.1

40.6

Basic Education Levels

Numeracy & literacy levels* SA firms

80.17%

Central Europe firms Asia Pacific firms

99.24% 99.24%

* Workers presently at ABET level 3 (equivalent to Grade 4-6) or higher

Investment in Training Training investment as a percentage of the total remuneration bill (wages & salaries) 8 7

Percent

6 5 4 3 2 1 0 SA

2001

2002

2003

2004

2.06

2.02

1.73

1.95

Central Europe

2.78

Asia Pacific

7.76 Year

Investment in Training Number of days spent on formal off-line training: Total & by employment category 10

Days

8

6

4

2

0

Man

Super

Prod

Avg

SA

2.89

3.20

2.36

2.47

Central Europe

8.14

7.65

3.64

3.45

Asia Pacific

5.26

3.84

2.72

3.56

Employment categories

Output per employee Inflation adjusted output per employee levels, using an index based on 2001 figures Output per Employee Indexed

140

120

100

80

60

40

2001

2002

2003

2004

SA

100.00

109.00

113.62

109.82

SA upper quartile

100.00

126.98

134.20

127.46

SA low er quartile

100.00

97.61

95.29

96.42

Asia Pacific

100.00

67.68

87.70

98.39

Asia Pacific upper quartile

100.00

94.07

116.72

102.33

Asia Pacific low er quartile

100.00

47.31

56.64

64.89

Year

Remarks Asia Pacific and Central Europe are clearly advancing in: - Technology (capex, knowledge base/training) - Manufacturing Excellence (flexibility, quality, reliability) - Cost (raw material, growth and economies of scale, labour rates) Long gone are the days where our real competitor is the developed economy of the globe – we must become competitive against Central Europe and Asia Pacific I believe there is a national understanding for the strategic necessities of: - Competitive raw material pricing vs IPP - MIDP or equivalent - Investment incentives

Remarks - Human Resources Leadership at all levels • Key to success • Need the right fit for the position • Identify weakness and build capability • Use the strengths to develop others • Good leaders: • will ensure effective teamwork and communication (need a formal forum in which to communicate) • will demand performance • will ensure good leadership at all levels • will understand and accept accountability • require the right organisational culture

Remarks - Human Resources Workplace competence/knowledge base • We are not spending enough on training of personnel – we are even well beaten by the developed economies • There is so much complaining about the lack of skills – so what are you going to do about it; consider when we get to 6% economic growth? • Strict adherence to standardised work instructions is fundamental - discipline • Culture of doing it right the first time – process, process, process

Conclusion •

We have made significant progress to get where we are today with a very much stronger Rand

•

Negative views on the future need to be washed aside – the future requires the right attitude and we have it – we have done it before

•

We need to lift our game again – we must react to what our competitors are doing and change our behaviour •

Invest in people; select the right leaders