The wildcat strike at an Indian parts plant that shut two assembly plants in North America this fall brought to mind an old Czech contact, Ladislav Glogar.
Glogar has a firsthand philosophy about long supply chains. He calls it the “cost of distance.”
In Glogar's modest president's office at Czech supplier Autopal sro in Novy Jicin in 2004, I first heard him mention “cost of distance,” much like a banker might say “cost of money.” And coming from a man who was once elected by fellow workers to head a parts-making collective back in the Soviet era, the phrase caught my ear.
I was also puzzled. Surely Glogar had picked the wrong side of the debate. Novy Jicin was a speck of a town east of Prague — 200 miles and a two-mile customs lineup from the German border.
To woo German supplier business, shouldn't he argue “one-fifth the rate of German labor” rather than “distance hurts”?
But Glogar knew his real foe was even-cheaper Chinese and Indian suppliers. Czech labor costs might be a fifth of German workers, but Asian wages were a tenth.
Glogar is a gifted storyteller.
He let the Asians talk raw savings. Sure, Glogar started with direct costs: Buying Asian means higher logistics costs, more parts in the pipeline and bigger safety stockpiles. But then he would spin a scary story, helping a purchasing agent imagine telling an angry CEO how the cheap Asian supplier the agent had picked had idled the whole company.
Warming up, Glogar would explain that the real cost of distance wasn't routine shipping or inventory but the inevitable breakdowns — like when a part doesn't work and engineers must rush to the supplier to troubleshoot a new design or process.
So shove the engineers out the door and let them buy toothbrushes en route. That afternoon, they're either brainstorming at a nearby supplier or sitting on the first of three flights to Pune, India, Glogar would say.
And when good parts start flowing again, he would add, you scrap a day's supply from the local just-in-time supplier or everything in the pipeline plus the safety stock — then air-freight parts while the pipeline refills.
“Ouch,” Glogar would whisper.
No, his patter didn't smash Asian parts makers. They're booming in China, India and other global low-wage markets.
But Glogar and others turned that cost-of-distance logic into new business. These days Glogar represents the Moravian-Silesian automotive cluster, a supplier association he organized in the central Czech Republic.
So he didn't argue the wrong side in 2004. Distance is now the region's asset, not a liability. When the European Union expanded, Novy Jicin became ground zero in the eastward stampede of European auto assembly, with 13 assembly plants within 250 miles.
Glogar's arguments are universal. They're the logic of local suppliers everywhere: Detroit, Tokyo, Paris, Turin, Seoul, Stuttgart.
Ironically, as developing-country suppliers sell more parts to growing local manufacturers, they use Glogar's arguments against more distant competitors.
And that's good because cost-of-distance logic promotes sound decision making. It encourages risk assessment, not just lowest-cost solutions.
The Glogars of the world don't always win. Often, low-cost parts savings still outweigh the security of local suppliers. And manufacturers have boosted risk-management strategies, from double sourcing to alternative logistics.
The lessons from the India strike?
Global procurement and logistics executives are updating their contingency plans. And Glogar is polishing a fresh scary story.
Snyder, a senior writer at Automotive News, worked at Automotive News Europe for seven years.
