Bosch pushes to buy more components locally

Supplier expects more cost savings by working closer with preferred vendors

Stuttgart. Robert Bosch GmbH spends 20 billion euros, or about $24.6 billion at current exchange rates, each year buying components and suppliers. And Bosch wants to increase the amount of components it purchases from local vendors near its plants around the world.

Overseeing the purchasing department is Gerhard Turner, a 25-year Bosch employee. Turner, 54, was named director of central purchasing and logistics in April. His previous jobs at Bosch include department manager of materials management, and manager of the factory and business division.

Turner was asked about Bosch's relationship with its suppliers, and the risks that come with buying in low-wage countries.

What is important in your cooperation with suppliers?

We place great importance on the technical competence of our suppliers, as well as a close partnership. We cultivate a very intensive exchange under our Supplier Technical Empowerment Program, especially with our preferred suppliers, with whom we increasingly develop products jointly.

How many companies do you place in this preferred suppliers group?

Nearly 300 out of more than 9,000 suppliers. Many large firms are among them, to the extent that this group accounts for about one-third of our purchase volume.

What trends are you seeing in purchasing?

For one, e-business is an issue. Electronic purchasing is becoming more important. The SupplyOn market place, which we founded, has established itself as one of the few purchasing platforms. It gives us standardization in our communication with suppliers.

Another trend is global sourcing. As an internationally positioned company, we make purchases worldwide and also ask our suppliers to accompany us into the global growth markets.

Which regions do you find especially interesting?

Primarily Asia, including such countries as China and India. But also South America, along with Central and Eastern Europe.

Where do you still see the potential for cost savings in purchasing?

We see the greatest potential in close technical cooperation with our preferred suppliers. Our objective is to meet the cost goals, which we set, right from the start of production. That's because changes in mid-production are hard to execute and are expensive.

But hasn't there always been this kind of cooperation?

No, not as close as this. A good vendor understands the manufacture of its product in greater detail than we do. Before, we developed many components ourselves and had them manufactured by our suppliers according to our designs. But that left the specialist's know-how under-utilized, along with opportunities for savings.

Do you cooperate with other suppliers to save money in purchasing?

Intense competition with other suppliers is an obstacle to that form of cooperation. There is cooperation on questions of standardization. The supplier sector and the automakers are also working together on harmonizing quality systems.

What philosophy are you following on purchasing in low-wage countries?

For starters, we have about 260 manufacturing facilities worldwide, with about 200 outside of Germany. Thus, a local-market strategy is important to us. That means seizing the opportunities that arise in these growth regions. So when we have a factory outside the country, it's our goal to supply this factory locally.

How high is the share of products that Bosch is buying in these countries?

Currently, we are in the low two-digit percentage range for purchases in newly industrialized countries. But we will steadily raise this in the next few years in line with our worldwide growth strategy. We are at the start of this development.

What are the challenges for suppliers if they purchase in low-wage countries?

They include the economic stability of the country, the stability of its currency, the technical competency of the supplier on site, and the capital equipment of the company that is expected to be involved in the cooperation.

In Eastern Europe, for example, many supplier companies resulted from management buyouts in the early '90s. These companies are still suffering from excessively thin equity capitalization. That makes it all the more important to cooperate closely, as partners, likewise in the management of risk.

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