Production in China, long considered a cost efficient business practice for suppliers serving the commercial vehicle industry, is getting more expensive and more difficult, executives from three suppliers said during a panel discussion at Heavy Duty Aftermarket Dialogue on Jan. 16 in Grapevine, Texas.
Does this mean production will shift away from China?
“The business model of production moving to China to support the North American market has fundamentally changed,” said Jeff Porter, president and CEO of Velvac. Velvac manufacturers mirror heads, air brake and valve components, vision systems and more for the commercial vehicle market.
Over the last four or five years, Velvac has been aiming to move much of its supply back to North America, Porter said. Recent events and supply chain constraints have only supported that mission as the right move.
“China has been a difficult place to do business in the last three years,” said Kent Jones, SAF-Holland’s president of the Americas. “It’s really changing some of the assumptions that we have had about globalization in previous decades. So as manufacturers in this industry, you really have to rethink how you can support that network.”
For SAF-Holland, Jones said the company wants to maintain its domestic economy, and is reevaluating its supply positions that were once single-sourced from China. Those positions were “highly disrupted” by the COVID-19 pandemic-induced supply chain challenges, including shipping container delays and tariff fees placed on products, he said.
Rob Phillips, founder and CEO of Phillips Connect and CEO of Phillips Industries, said the total cost is an important factor to evaluate.
He said Phillips continues to invest in Mexico at this time due to previous success in the country and the benefit of being in closer proximity to the U.S. The company is in the process of constructing a telematics facility in Mexico.
Porter agrees that the key factors for successful business are currently pointing to Mexico, those factors being:
- production capacity
- proximity to customers
- proximity to the supply base
Velvac has tripled its footprint in Mexico and the U.S. over the last five years, and Porter said they’ve seen success.
“I think that has allowed us to be more cost competitive, more responsive to our customers, and to have better control,” Porter said.
Porter notes that 15 to 20 years the supply base for the commercial vehicle industry wasn’t available there, but that he has noticed a maturation since then.