As the South African automotive industry has struggled with a chronically underdeveloped local supplier base, leading to higher logistics cost and poorer manufacturing productivity, both industry and government in the country are making efforts to improve the supply chain’s efficiencies by developing supplier parks and logistics centres based near plants and ports, particularly in the country’s Eastern Cape.
But following much investment, questions remain over how quickly the spaces will be used as production volumes remain off by around 40% of 2007 peak levels, and 30% from last year.
Several supplier parks and logistics zones have been developed, particularly at the municipality level in South Africa. In Port Elizabeth, home to GM and VW’s assembly plants, as well as a Ford engine plant, the Coega Project includes the new deep water Port of Ngqura adjacent to Port Elizabeth, as well as the Nelson Mandela Bay Logistics Park (NMBLP) near VW’s plant in Uitenhage, and a second zone close to the new port that can be developed as manufacturing or logistics areas.
The Coega Project is run by the Coega Development Corporation, which is wholly owned by the South African government.
According to Dave Powels, managing director of VW South Africa, five European suppliers have put up factories during the past year in the NMBLP, which includes Faurecia Interior Systems, Grupo Antolin and Benteler. Logistics providers UTI, MSC and Schnellecke have also set up operations here to help carry out just-in-time logistics, sequencing, milk runs and other logistics services.
In the second zone, near the Port of Ngqura, while there has been speculation about potential investment from a Chinese or Indian OEM, GM is already developing a new, $30m Pan-African logistics centre for spare parts, set to begin operations in July 2010. According to Sean Bricknell, logistics manager, the centre will consolidate the operations that currently work out of four facilities, and will deliver parts to 142 dealers in South Africa, as well as to ten African countries.
The new Port of Ngquara has the deepest draught in Africa, and will focus mainly on containers, leaving Port Elizabeth to concentrate on processing finished vehicles, according to Gustav Meyer, of the Coega Development Corporation. He admitted, however, that despite good infrastructure and logistics systems to local manufacturing, the pricing and cargo fees from the state-owned port and rail operator, Transnet, make the port less competitive. “Therefore we are working on improving the port’s efficiency,” he said.
A second zone has been developed about 150km from Port Elizabeth in East London, where Mercedes-Benz South Africa is based. This zone also includes a supplier park, where suppliers such as Johnson Control, TI Automotive and Fehrer are based, serving a range of OEMs. UTI has also set up its operations here for logistics, serving mainly Mercedes.
According to Nangamso Mabindla, from the East London IDZ, the zone has space for another OEM, and is now looking to encourage a contract manufacturer, based on the Magna Steyr model in Austria, to develop assembly at the plant. It hopes in this way that it might encourage a manufacturer to share the benefits across multiple OEMs to create higher volumes and economies of scale.
The lack of high volumes has contributed to higher production and logistics cost in South Africa, and such supplier parks and planned infrastructure could go some way toward encouraging both tier suppliers and OEMs to work more closely together, particularly in reducing logistics cost. Dr Johan van Zyl, CEO of Toyota Motors South Africa, said that only 17% of the components it uses were those shared by other OEMs, a proportion that he would like to see increased to improve supply and logistics costs.
The concentration of suppliers provides a natural opportunity to LSPs such as UTI to combine operations, something that is already doing elsewhere in South Africa, including combined volumes for VW and GM out of Johannesburg.
However, for South Africa to develop further, it will require its supply base to do more than set up warehouses for quick delivery close to a plant, and in particular it needs lower tier suppliers to start manufacturing in South Africa, as pointed out by both Powels and van Zyl. Parks such as those close to the Ports of Ngqura and East London include duty free bonded areas, which is good news for the quick processing of imported material, but perhaps less encouraging for rooting the supply base deeper in South Africa.