Businesses sourcing parts from China are failing to achieve expected cost savings.

The original equipment supplier association and management consultancy, PRTM says half of companies studied achieved less than 40% of anticipated savings.

Despite this fact, many auto suppliers still plan to almost triple their procurement budget in China by 2010.

“China sourcing is not a quick fix for short-term cost targets. Dealing with a 7,000-year-old culture thousands of miles away is complex.

Successful suppliers are those with China sourcing efforts based on a solid strategy, determined leadership, sufficient investment in a Chinese purchasing office and local technical support. Successful suppliers typically invest 6-10 years learning to leverage China as an effective, low-cost source of supply,” said PRTM.

The study, based on more than 50 interviews and surveys with executives of global automotive suppliers found:

  • Sourcing in China requires minimum savings of 20% to outweigh the increased costs of logistics, quality and intellectual property risk

  • Savings vary widely, even within similar commodities

  • The highest savings were achieved by suppliers that deployed an integrated strategy as part of their Chinese market expansion and/or global product management programme

  • Leading suppliers have built a local presence and established critical mass of at least $10m (£5.4m) - $20m (£10.8m) in spend

  • Sustainable sourcing in China requires significant investment in local supplier development, technical and quality support

  • Early adopters have achieved the highest savings rates, shorter procurement lead times and lower supply chain risks, but the learning curve is between 6-10 years.