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8/10/2019 Roland Berger Supplier Procurement Study 2008 20080101
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STR-90008-481-02-02-E.ppt 1
Automotive suppliers procurement study
February 2008
Main success levers to master the procurementchallenges are not exhausted
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Management Summary
150 international supplier executives of the automotive industry were questioned regarding
future procurement market trends and to the usage of optimization levers within their companies.
73% of the suppliers assume tougher market conditions for the future, especially by a further increase of raw material prices in combination with constantly high price pressure from the OEMs.
STR-90008-481-02-02-E.ppt 2
cost savings are not exhausted, eg. joint design-to cost approach with sub suppliers before SOP
Common experiences reveal that by the best possible combination of all procurement levers costsavings of up to 20-25% are possible. Due to daily internal routines the average realizes 3-4%
Additional topics like ‘low cost country sourcing’ or professional ‘negotiation management’ get
higher priority and amend classic purchasing topics like standardization or make-or-buy analyses
In this context the suppliers have to redesign the department interplay of project and serialpurchasing in combination with R&D as well as the quality department to reveal the best results
The procurement departments face the necessity to align their organizational and process require-
ments – a balancing act of organizational efficiency and realization of cost savings
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STR-90008-481-02-02-E.ppt 4
A. The challenge: Despite continuous efficiency increases theprocurement of the supplier industry still faces many hurdles
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The pressure on automotive suppliers has significantly increasedover the past years – Suppliers are in a "sandwich" position
The automotive powerplay
END USERS • Stagnation of demand in triad markets
• Increasing price sensitivity and focus on total cost of ownership
• Growing awareness for environmental issues
• Decreasing brand loyalty
STR-90008-481-02-02-E.ppt 5Source: Roland Berger/Rothschild
SUPPLIERS
s • Proliferation of product portfolio
• Growing attention to low cost car concepts
• Strive for technology innovations in the Powertrain to reduce vehicle emissions
• Further reduction of vertical integration, also in product design/engineering
• Shift of investment focus to emerging markets (esp. Russia and India)
• Attempts to reduce structural overcapacities (e.g. through increasedmanufacturing plant flexibility)
RAW MATERIALPROVIDERS
• Ongoing raw material price increases
• High bargaining power driven by consolidation (e.g. steel & aluminum)
Ongoing intense pressure on margins
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Procurement saving targets of suppliers are mainly defined by acontinuous demand for decreasing prices of all OEMs
Overview on main OEM cost saving programs
OEM Cost savingprogram
Targeted savings[EUR bn]
Estimated pricepressure on suppliers
STR-90008-481-02-02-E.ppt 6
.
6.0
7.0
2.0
For Motion/For Motion Plus
OLYMPIA
Efficiencyoptimizationprogram
- . .
-4/-6% p.a.
-6/-7% p.a.
-6% p.a.
OEMs requireyearly pricereductions of
4% to 7% p.a.
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The market is widely expected to become even tougher – Further increasing raw material prices are considered as main challenge …
Market trends development – Survey results
Increase of market trends during next years
84%Raw material prices
Market conditions for suppliers
STR-90008-481-02-02-E.ppt 7
"Increase"/"strong increase" in % of all respondents
73%Low-cost country sourcing
68%Competitor consolidation
68%Part/product variety
42%Development cycle times
37%Multiple sourcing of OEMs
21%Joint procurement platforms
Harder
Same
Easier 3%
73%
24%
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2.000
3.000
50
100
Raw material price and US-dollar development
… which might be caused by the price increases of main rawmaterials for the automotive industry during the last years
Crude Oil-Brent Cur. Month FOB [USD/BBL]
[USD]
Aluminium Alloy Cash [USD/MT]
[USD] +61% +28%
STR-90008-481-02-02-E.ppt 8
0
1.000
Jan
2006
Dec Jan
2007
Dec
0
Jan
2006
Dec Jan
2007
Dec
Steel, Hot rolled Coil [USD/MT]
World steel/price index
US-Dollar [USD/EUR]
USD decrease
0,0
0,5
1,0
Jan
2006
Dec Jan
2007
Dec
0
200
400
600
800
Jan
2006
Dec Jan
2007
Dec
+57% -20%
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Influencing factors of current supplier procurement
Purchasing departments are acting in a field of various differentrequirements – Performance pressure further increases
PROCUREMENT
• Continuous high saving targets per purchaser each year
• Capacity reduced in the past for efficiency reasons
• More internal interfaces by internationalization
INTERNAL FACTORS
STR-90008-481-02-02-E.ppt 9
Highest operationalefficiency
and
highest materialcost savings
• High data availability and transparency demanded
• Additional requirements from production and quality dep.
• Earlier involvement in R&D projects
• …
EXTERNAL FACTORS
• High price pressure of OEMs
• Increasing/fluctuating raw material prices
• Currency exchange rates• New competitors from emerging markets
• Professionalization of global procurement
• Shorter innovation cycles lead to decreased supply times
• Multiple OEM sourcing strategies
• ...
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26%100%
Cost breakdown example of automotive suppliers
Material costs count for more than 50% of all costs in the supplier industry – Main optimization lever with an 1:1 profit impact
Average supplier P/L breakdown 2006
• Des ite continuous rice decreases
REMARKS
STR-90008-481-02-02-E.ppt 10
5%5%
54%
9%
1%
Source: IKB; Roland Berger research
in all sectors, the relative share of material cost is rising
• In this context, the realization of potential cost savings in thepurchase can mainly contribute
to an optimum company result
• Besides the pure cost reduction of materials, the optimization of theintegrated procurement process
can deliver additional reductionsTotal
outputPersonal
costsMaterial
costsSG&A D&A Interest EBT
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Summary of study objectives and approach
Key objective of this study: Identify main market trends and leversfor automotive suppliers to optimize their procurement business
Study objectives
APPROACH• Provide an overview on the assessment of
STR-90008-481-02-02-E.ppt 11
automotive supplier industry
• Identify main success levers for automotive suppliers to optimizetheir procurement business
• Understand the different degree of using
optimizing levers within the companies
• Indicate possible solutions and potentialcost savings by project examples
• Procurement survey with a questionnaireat 150 international automotivesupplier executives
• Desk research
• Analysis and benchmarking of operational procurement data
• Incorporation of Roland Berger project experience
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STR-90008-481-02-02-E.ppt 12
B. Status quo: The material cost saving potential of the procurementis not exhausted – many key levers are not fully implemented
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High cost reduction potentials of an integrated material groupstrategy and of a design-to-cost approach only insufficiently used
Optimization priorities of suppliers reflected to cost saving ranges
• Internal / external data
POSSIBLE OBSTACLES
69%
Optimizationpriority
Procurementmodules
Material group strategy
Saving rangeof projects
5-10%
STR-90008-481-02-02-E.ppt 13
"High"/"very high" in % of all respondents
ava a ty an transparency
• Incentive systems not in line withoverall targets (eg. discounts)
• Long lasting relations betweenpurchaser and sub supplier
• Interface responsibilities notclearly defined / measured
• Contradictionary targets of R&D,quality and procurement
• Capacity restrictions caused bydaily routines
• Time pressure, especially in theproject phase
58%
53%
47%
42%
28%
1) Not included in survey. Derived from project experience
Design-to-cost
Negotiation management
Sourcing strategy
Supplier management
Organization/processes1)
10-12%
3-6%
7-12%
2-5%
4-12%
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Despite clearly defined material groups in the companies theinternal strategy realization seems to be challenging
Material group strategy – Survey results
• Maximum saving potentialre ardin the addressed volume
REMARKS
84%Clear definition/differentiation
Indirect
ImplementationModule levers Saving impact1)
STR-90008-481-02-02-E.ppt 14
is 5-10%
• 68% of the suppliers consider the internal degree of animplemented material groupstrategy as high/very high
• Additional cost cutting potentialis ‘high/very high’ say 69% of the
executives• Main obstacles are the time
consuming data research andthe missing internaltransparency
63%Transparency of market and
internal supply data
42%Regular performance/realization
of make-or-buy analyses
32%Periodic performance/realization
of standardization analyses
Indirect
Direct
Direct
"High"/"very high" in % of all respondents
Optimization focus
1) Project experience
low to high cost savings
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Bundling and realization of current payment conditions are veryefficient negotiation levers – Used by just 50% of the suppliers
Negotiation management – Survey results
• Maximum saving potentialregarding the addressed volume53%
Negotiation planning, preparationIndirect
ImplementationModule levers Saving impact1)
REMARKS
STR-90008-481-02-02-E.ppt 16
is 3-6%
• Just 21% of the suppliers con-sider the internal degree of animplemented negotiationmanagement as high/very high
• Additional cost cutting potentialis high/very high say 53% of the
executives• Main obstacles are established
comfort zones, sub supplier relations, time pressure or misleading incentive systems
47%Realization of current payment
conditions
42%Bundling of project and serial
volumes during awarding
5%Usage of reverse auctions for
awarding of new volumes
Direct
Direct
Direct
1) Project experience
"High"/"very high" in % of all respondents
Optimization focus
low to high cost savings
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Only the half of all suppliers use the cost cutting potential of mainsourcing levers like volume bundling or LCC sourcing
Sourcing strategy – Survey results
• Maximum savings potentialregarding the addressed volume58%
Volume bundling opportunitiesDirect
ImplementationModule levers Saving impact1)
REMARKS
STR-90008-481-02-02-E.ppt 17
is 7-12%
• 58% of the suppliers consider the internal degree of an imple-mented sourcing strategy ashigh/very high
• Additional cost cutting potentialis high/very high say 47% of theexecutives
• Main obstacles are internationalexperiences, data sources andlong lasting supply relations
53%Regular analyses of low-cost
country sourcing opportunities
53%Optimum of actual supplier
portfolio
47%Clear definition of supplier
categories/pyramids
Direct
Indirect
Indirect
1) Project experience
"High"/"very high" in % of all respondents
Optimization focus
low to high cost savings
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Active improvement of quality and logistics performance of subsuppliers rarely used – Excellent lever in yearly price negotiations
Supplier management – Survey results
• Maximum saving potentialregarding the addressed volume68%
Continuous supplier quality
assessments in lo istics Indirect
ImplementationModule levers Saving impact1)
REMARKS
STR-90008-481-02-02-E.ppt 18
is 2-5%
• 53% of the suppliers consider the internal degree of animplemented supplier management as high/very high
• Additional cost cutting potentialis high/very high say 42% of theexecutives
• Main obstacles are sharedinterface responsibilities withproduction and quality depart-ments as well as missingconcepts/processes
58%
Regular performance of supplier
improvement workshops
Continuous supplier quality ass-
essments in project/serial phase
54%Optimum of the actual PPAP/
MPA approach
32%
Indirect
Indirect
Direct
1) Project experience
"High"/"very high" in % of all respondents
Optimization focus
low to high cost savings
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Balancing organizational efficiency and realization of cost savingsis a challenging issue due to company individual requirements
Organization/processes – Survey results
Company ratios on procurement
• Benchmarking of operational figures
REMARKSProcurementvolume/sales%
Employeesprocurement/totalem lo ees %
Procurementvolume/purchaser EUR m
STR-90008-481-02-02-E.ppt 19
has to be reflected to organizational
structures and purchased materials
• Material cost depends mainly on thecompany's degree of value added
• Degree of internationalization andorganizational complexity defines
the ratio of necessary purchasers – next to the material groups
• Procurement volume per purchaser depends on the supply materialsand products
42%
Min.
51%
Ø
92%
Max.
4.4
Min.
8.8
Ø
18.0
Max.
0.3%
Min.
0.9%
Ø
1.7%
Max.
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Top performers achieve purchasing cost reductions of 5-6 % per year – Saving potential especially before SOP is much higher
Potential cost savings and dimensions
Annual material cost reduction[% of total material cost]
Levers to reduce purchasing cost[total procurement cost reduction potential in %]1)
High5-6%
STR-90008-481-02-02-E.ppt 20
1) In relation to purchasing volume addressed
Potentialcostsavings
Low
Project Productphase
Series
10-20%
7-12%
5-10%
3-6%
2-5%
4-12%
Design-to-cost
Organization/processes
ourc ng
strategy
Negotiationmanagement
Supplier management
Material groupstrategy
Average Benchmark
3-4%
Weak
1-2%
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STR-90008-481-02-02-E.ppt 21
C. Solution: Need to setup a holistic procurement approach designedto master the upcoming challenges
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Procurement in the supplier industry – Optimization and costreduction programs should consist of the six correlated modules
Overview pyramidal module system and objectives
1
Material group
strategy
1 Optimization of material demandstructures
STR-90008-481-02-02-E.ppt 22
2
Sourcing
strategy
4
Supplier
mgmt.
5
Negotiation
mgmt.
3
Design-to-
cost
6
Organization/
processes
2 Optimization of the supplier portfolio
3 Cost reduction of products duringproject/development phase
4 Improvement of supplier manage-ment processes
5 Advanced negotiation managementfor cost reduction
6 Streamlined organization/processesaccording to defined strategies
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In our projects an explicit defined material group strategy is thebasis for the derivation of optimization levers in all other modules
Material group strategy – Project fact sheet
PROJECT KEY RESULTS
• Transparency on actual material demand
• Concept Make-or-buy/standardization
• Evaluated catalog of improvement levers
OBJECTIVE
Optimization of complete material demand structure:
• Determination of Make-or-buy for selected parts,components
•
1 MATERIAL GROUP STRATEGY
STR-90008-481-02-02-E.ppt 23
Main sub results1 2 3 4 5 6 7 8
M T W T F S S M T
Team Roland Berger
Henkel
Schmitt
Hagenmeyer
Hollmann
Kaiser Florian
Kohr
Renzow
Schnieper
Trenkwalder
January
Docu-
ments
, . .
Methodical approach/toolslow high
Effort to use tool
1.1
1.2
1.3
1.4
1.5
1.6
Supply data/market analysis
Supplier and part catalogs
Risk assessment
Make-or-buy analysis
Standardization analysis
Modularization evaluation
Morphological raster
Transparency on actual demands
Concept of commodity structure
Concept/measures Make-or-buy
Risk analysis in commodity groups
Measure catalog standardization
Revised implementation plan
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PROJECT KEY RESULTS
• Classified/revised supplier portfolios
• Potential saving targets (e.g. volumebundling/LCC souring)
OBJECTIVE
Optimization of supplier portfolio for each material group:
• Identification of possible cost advantages in low costcountries
•
Sourcing strategy – Project fact sheet
A clear sourcing strategy should be developed by a proved approach – Comprehensive perspective essential for the implementation
2 SOURCING STRATEGY
STR-90008-481-02-02-E.ppt 24
Main sub resultsMethodical approach/toolslow high
Effort to use tool
2.1
2.2
2.3
2.4
2.5
2.6
Supplier pyramids/categories
Supplier portfolio optimization
Volume bundling/reallocation
Low cost country sourcing
Scoring models for relocations
Internal Sourcing Committee
Market analysis/supplier visits etc.
Concept target supplier portfolio
Concept supplier requirements
Demand/target volume bundling
Catalogue of LCC sourcing options
Brief supply market assessment
Revised implementation plan
Docu-ments
+ =
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Design-to-cost – Project fact sheet
How we try to maximize cost reductions during the developmentphase – Involvement of sub suppliers for design-to-cost activities
3 DESIGN-TO-COST
PROJECT KEY RESULTS
• Realizable optimization measures pro part
• Significant product simplifications
• Quantified cost reduction potentials
OBJECTIVE
Cost optimization of projects/products duringdevelopment phase:
• Identification of design and specification simplifications
•
STR-90008-481-02-02-E.ppt 25
Main sub resultsMethodical approach/toolslow high
Effort to use tool
3.1
3.2
3.3
3.4
3.5
3.6
Life cycle assessment
Product benchmarking
Product disassembling
DFMA analysis
Cost driver analysis
Complexity analysis
Workshops with suppliers
Documented approach/process
Benchmarking results pro product
Cost driver/complexity catalogue
Evaluated re-design levers
Project/product priority catalogue
Revised implementation plan
ABC
ABC
ABC
Docu-ments
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Negotiation management – Project fact sheet
Overall planning and preparation of yearly price negotiations aswell as monitoring the sustainability of results is essential
5 NEGOTIATION MANAGEMENT
PROJECT KEY RESULTS
• Material price reductions (project/series)
• Optimized bonus/one time payments
• Improved payment conditions (e.g. discount)
OBJECTIVE
Material cost reduction by optimal preparednegotiations:
• Planning of negotiation schedule and detailed preparation
•
STR-90008-481-02-02-E.ppt 27
Main sub resultsMethodical approach/toolslow high
Effort to use tool
5.1
5.2
5.3
5.4
5.5
5.6
A/B/C supplier initiative analysis
Negotiation preparation/planning
Cost structure (BoM)1) analysis
Negotiation performance
New payment conditions
Comprehensive result tracking
Workshops/trainings with buyers
Supplier list incl. targets, volumes
Material price calculation models
Finance model payment conditions
Checklist negotiation preparation
Master negotiation presentation
Controlling/monitoring tool
231.423056.156812.685231.423
231.423056.156812.685231.423
231.423056.156812.685231.423
231.423056.156812.685231.423
1 2 3 4 5 6 7 8
M T W T F S S M T
Team Roland Berger
HenkelSchmitt
Hagenmeyer
Hollmann
Kaiser Florian
Kohr
RenzowSchnieper
Trenkwalder
January
_______
Checklist
_______
ABC
ABC
ABC
231.423056.156812.685231.423
231.423056.156812.685231.423
1) BoM = Bill of Material
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Organization/processes – Project fact sheet
The purchasing organization has to be enabled to realize thedefined strategies and to continuously improve the performance
6 ORGANIZATION & PROCESSES
PROJECT KEY RESULTS
• Strategy related purchasing organization
• Improved processes/interface functions
• Trained employees
OBJECTIVE
Optimized purchasing structures as basis to realize thestrategy:
• Adjusted organization/processes
•
STR-90008-481-02-02-E.ppt 28
1) BoM = Bill of Material
Main sub results
. .
Methodical approach/toolslow high
Effort to use tool
6.1
6.2
6.3
6.4
6.5
6.6
Assessed gap analysis
Concept target organization
Concept target processes
Evaluated interface scoring
Training concept buyers
Revised implementation plan
1 2 3 4 5 6 7 8
M T W T F S S M T
Team Roland Berger
HenkelSchmitt
Hagenmeyer Hollmann
Kaiser FlorianKohr
RenzowSchnieper
Trenkwalder
January
___ ______ ___ ______
Top-down benchmarking
Process gap analysis
Best practice organization
Scoring model interface assessment
Basic manpower evaluation
Employee skills analysis
Buyer workshops/trainings
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Example for an integrated optimization program in parallel to dailyprocurement routines – High return on implementation
Integrated project example
Portfolio management/sourcing strategy
Project description PROJECT MODULES
PROJECT SCOPE
• Development of anintegrated supplier management program
OPTIMIZATION LEVERS
1 PORTFOLIO MANAGEMENT
• Definition of bundling strategies
• Reorganization of the supplier portfolio
STR-90008-481-02-02-E.ppt 29
• Optimizedprocesses
and instru-
ments
• Additional
saving
potential of EUR 75 m
(in 3 years)
Supplier management/
development
Value engineering/design-to-cost
Quick wins
• Increasing procurement
efficiency• Development of valueengineering with subsuppliers
CLIENT
• Tier 1 supplier of interior components
• Revenues of EUR 2 bn,thereof EUR 650 mwithin the project scope
DURATION
• Launch period (3 weeks)
• Detailing/implementation(9 months)
2
SOURCING STRATEGY
• Optimization of sourcing strategies• Adaptation of sourcing instruments
3 SUPPLIER MANAGEMENT
• Development of an sub supplier assessment and improvement system
• Optimization of management until andafter SOP
4 DESIGN-TO-COST
• Integration of supplier innovations
• Development of joint value engineering
5 QUICK-WINS
• Material group related optimization
• Optimization of supplier contracting
• Improvement of discount conditions
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D. Roland Berger experience – Strong expertise in procurementfor the automotive industry drives superior project results
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Within our competence center we advice the leading internationalcompanies of the automotive industry
Overview selected international clients
OEMs SUPPLIERS SERVICE PROVIDERS
STR-90008-481-02-02-E.ppt 31
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Our global team successfully realized procurement projects for theglobal TOP automotive players
Roland Berger Automotive Team
PROJECT EXAMPLES
Overview – Extract of automotive procurement projects
• Product cost reduction program for aRUSSIA
1 Partner
STR-90008-481-02-02-E.ppt 32
• Chinese sourcing strategy andimplementation for a Tier 1
• Make-or-buy strategy and LCCsourcing evaluation for a Tier 1/2
• Global purchasing strategy for anGerman OEM
• Integrated supplier managementsystem at a Tier 1
• Cost reduction program for general/investment goods at a Tier 2
• Developing a purchasing KPI-systemat a Tier 2
WESTERN
EUROPE
8 Partners
50 Consultants
USA
1 Partner
5 Consultants
SOUTH AMERICA
EASTERN
EUROPE2 Partners
15 Consultants
10 Consultants
JAPAN4 Partners
20 Consultants4 Partners
20 Consultants
USA
CHINA
2 Partners
20 Consultants
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With recent automotive studies we inject highly valuable know-how from day one in each client project
Overview on recent automotive studies (selection)
Powertrainstudy (2007)
China study(2006)
Low cost car study (2007)
REGIONS TECHNOLOGIES MARKET STRUCTURE
STR-90008-481-02-02-E.ppt 33
Automotivesupplier study(2007/2008)
Electronicsstudy(2006/2007)
• Developments in Powertraintechnologies
• Strategies how to meet the newemission regulations
• Supplier benchmarking
• Identification of Top/lowperformers
• Success factors for suppliers
• Key trends/ challenges inautomotive E/E
• Implications for OEMs andsuppliers
• Development of the Russianautomotive market
• Implications for OEMs andsuppliers
Russia study(2005/2006)
• Assessment of automotivetechnologies/ capability
• Opportunities for sourcing fromChina
• Trends in low cost car (LCC)segment and implications
• Implications for R&D of Lowcost cars
8/10/2019 Roland Berger Supplier Procurement Study 2008 20080101
http://slidepdf.com/reader/full/roland-berger-supplier-procurement-study-2008-20080101 34/34
Authors of the automotive suppliers procurement study
Marcus Berret
Partner
Leader of the global
automotive supplier team> 12 years of internationalconsulting experience
STR-90008-481-02-02-E.ppt 34
Dr. Marcus Hoffmann
Senior Project Manager
+49 89 9230-8060
marcus_hoffmann@
de.rolandberger.com
+49 89 9230-8737
Leader of the automotiveprocurement team
6 years of internationalconsulting experience