MOTION AND MOBILITY

ZF Sourcing in Mexico Elizabeth Umberson Materials Management, ZF North America

ZF North America

Agenda

2

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Agenda

3

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

ZF Group Key Figures 2014

ZF-Konzern The ZF Group im–Überblick An Overview 2014 Sales

> $ 39 billion

Employees (end of year) **

134,000

Capital expenditure

$ 1.3 billion

R&D expenditure

$ 1.1 billion

230 locations in 40 countries

**Without employees of the Rubber & Plastics business unit and without AIBC employees. Data reflects acquisition of ZF TRW (formerly TRW Automotive).

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Key Figures Locations ZF in North America Sales*

$ 4.9 billion

Employees

29,900

Capital expenditure*

$ 334 million

Locations in: Canada ▪ Mexico ▪ USA

*Table data does not reflect acquisition of ZF TRW (formerly TRW Automotive).

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Agenda

6

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Why Mexico? Achieve better localization and local content rates

Customer request

Opportunity for ZF cost saving

Total Cost of Ownership (TCO) must be considered when making localization decisions. 7

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Localization According to ZF Economically linked  Countries that share a

common currency (e.g. EURO within EU, Andorra non EU with EURO) and/or  Are linked with treaties

to reduce tariffs, quotas and other trade restrictions e.g. NAFTA

Geographically close  Share a part of their

territory on the same continent

1. LC* North America NAFTA Members

2. LC South America MERCOSUR Members

3. LC Europe European Union without overseas countries and territories and adding selected countries with trade agreements with the EU

4. LC Russia Selected countries with trade agreements with the Russian Federation ignoring the Common Economic Zone Russia - Ukraine

5. LC China P.R. China with Hong Kong

6. LC Asia ASEAN member states and select Asian countries with trade agreements

7. LC Australia/ Pacific Members of the South Pacific Regional Trade and Economic Co-operation Agreement

8. LC Southern Africa Members of the Southern African Customs Union

*Localization clusters 8

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Localization North America North America localization cluster 1st priority – local for local 2nd priority – local for region 3rd priority – local for global (after demonstration of performance) Decrease imports into region

Reduce currency risk

Value Creation

Reduce costs

Find global stars

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Agenda

10

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

ZF + ZF TRW Locations in Mexico Mexico Chihuahua Cienega de Flores El Marques El Salto Guadalajara Juarez Mexico City Reynosa Saltillo Santa Rosa Toluca Toluca

ZF Location

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ZF TRW Location

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

ZF Purchasing Activities  Plant activities

– Sourcing for plant-specific components with existing supply base – Working with suppliers on product-related changes and/or improvements – Measuring, communicating and improving supplier performance  Corporate activities

– Defining commodity strategy – Achievement of material cost – New supplier identification and development – Escalation point for plant With the existing structure, can ZF effectively work on forward sourcing in Mexico? 12

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Agenda

13

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Mexico Sourcing – ZF Initiative One

Task

Process

As part of a global best cost sourcing study, Mexico was 1 of 4 selected countries to find potential suppliers for running and new commercial vehicle transmission business.

Commodity managers from ZF’s Commercial Vehicle Division defined approximately 370 parts in 11 commodity groups compatible

German employees did the initial selection then traveled to Mexico for a three-month period to visit suppliers

52 suppliers identified, 24 suppliers visited and 21 selected for RFQ Only 30% were returned, all with similar or higher prices to current European suppliers

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Mexico Sourcing – ZF Initiative Two

Task

Process Team formed with German- and U.S.-based employees

Investigate Mexico supply base to find potential new suppliers to increase localization rate in Mexico and reduce cost for a NAFTA-produced passenger car automatic transmission.

List developed using existing suppliers from other divisions, industry sources and recommendations from Mexico-based purchasing personnel (~400 suppliers) List pared down to match supplier capabilities to technical requirements (~50 suppliers) Further refinement to list (18 suppliers)

Visited 12 suppliers; supported by Mexico-based buyer Quotation process with 7 suppliers; 3 being further evaluated 15

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Agenda

16

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Lessons Learned

Low response rate without local presence

Mexican suppliers no longer interested in benchmark studies

Challenging to manage outside of Mexico

“No quotes” frequent based on amount of investment needed at the supplier

First offers rarely competitive

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Lessons Learned (continued) Sourcing gaps exist in some key areas for Tier 1 automotive, including:  High quality steel, especially

special bar quality (SBQ) for gears, shafts and safety-critical components  Fine blanking  Cold forging  Hot forging for larger parts

(commercial vehicle components)  Aluminum forging

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Materials Management, ZF North America, ZF Sourcing in Mexico

 High pressure die casting for

complex components and multi-cavity components  Progressive stamping that

requires multiple stations

© ZF Friedrichshafen AG, 2015

Agenda

19

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

ZF Implements Global Procurement Office (GPO) in Mexico Case Studies

Market Intelligence • • • • •

Cross-divisional approach Analysis of supplier base Analysis of infrastructure, prices, etc. Supplier search (fairs, associations, etc.) Potential analysis

• Detailed analysis of supplier base for specified commodities • Assess overall feasibility of supplier (technological, commercial, soft facts) for global demand • Receive indicative quotation • Document deviations and restraints

Projects • Support for localization activities in Mexico • Corporate support for ramp ups and projects • Assist ZF’s Mexico plants to improve in certain areas, including e-commerce, contract compliance, etc.

Supplier Management • • • •

Supplier approval (new suppliers) Supplier selection (support awarding) Supplier evaluation (in APQP-phase) Supplier development and training

In order to support ZF’s growing supplier demands in Mexico, a local presence and local language is necessary. 20

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Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Status of ZF GPO in Mexico The ZF GPO in Mexico was initiated in May 2015 Co-located at existing ZF plant to provide infrastructure and reduce cost

Five employees to start, including:  Two buyers  One supplier quality engineer  Two supply chain planners Qualification level of applicants was very high

Seven projects have been started (not all sourcing projects)

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2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Agenda

22

1.

About ZF

2.

Why Mexico? Why Localization?

3.

ZF and ZF TRW in Mexico

4.

Forward Sourcing: Two Studies

5.

Lessons Learned

6.

Next Steps

7.

Key Takeaways

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Key Takeaways ■

The automotive market is dynamic; local presence for market intelligence is helpful

■

23

■

Companies need to be ready to start APQP activities quickly, once a source is identified

■

Finding new sources in Mexico requires local sources for proper communication and follow up

Mexico suppliers are selective about responding to quotation requests; regular visits to follow up technical reviews and check progress are needed

2015-08-04

Materials Management, ZF North America, ZF Sourcing in Mexico

© ZF Friedrichshafen AG, 2015

Thank you

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24 2015-08-04 Materials Management, ZF North America, ZF Sourcing in Mexico © ZF Friedrichshafen AG, 2015 ZF Friedrichshafen AG reserves all rights regarding the shown technical information including the right to file industrial property right applications and the industrial property rights resulting from these in Germany and abroad.