Automotive Supply Chain Management In Slovakia - Icabr.com

Automotive Supply Chain Management in Slovakia
Vladimír Švač - Slovak Investment and Trade Development Agency, Bratislava,
Slovakia, e-mail: vladimir.svac@sario.sk
Andrea Lešková - Innovation Center of Automotive Industry, Faculty of Mechanical
Engineering, Technical University of Košice, Slovakia, e-mail: andrea.leskova@tuke.sk
Abstract
The presented article focuses on structure of supply chain in the Slovak Republic in the
Central Europe. There are some actual trends in automotive and supply industry, which are
influencing evolution of supply chain structure. One of the key factors in automotive and
supply industry is innovation. This factor is known as a competitive advantage not only in
industry firms but in state economics too. We provide here success story in supply sector in
Slovakia and good outlook for next development.
Key words: supply chain management, automotive industry
Introduction
The development of automotive industry and supply sector in Slovakia began with the
establishment of production plant of car German producer Volkswagen in Slovakia in 1991.
Volkswagen began manufacturing cars like VW Passat, and then VW Golf, VW Polo, Seat
Ibiza in former Bratislava automobile plant. These days cars like VW Touareg, Porsche
Cayenne, Audi Q7 and Skoda Octavia are produced in Bratislava plant. Volkswagen has
other Slovak production plant in the town called Martin where it produces gearboxes and its
components.
Slovakia has successfully managed the transformation process to new European
standards in automotive industry, adapted to car producer requirements and built strong
supplier base. This supplier base composes not only of foreign automotive players but
domestic firms as well. Good results of transformation process in the automotive industry
were driving motive for establishing other two production plants of two car producers: PSA
Peugeot Citroen and Kia Motors. Presence of three car producers in Slovakia created
interesting supplier chain structure, which is located near to OEM plants. Slovakia became
interesting location for production and assembly of cars, modules, systems and components.
Slovakia has very good geographic position. „Slovakia has strategic geographic position
between West and East Europe region“, Andreas Tostmann from Volkswagen Slovakia.
Interesting automotive supplier is GetragFord Transmission, which is established in the East
of Slovakia near to city Košice. Production in this plant is focused on dual clutch
transmissions and motorcycle transmissions.
All automotive car producers and suppliers in Slovakia present the newest technologies,
production methods and close cooperation. Automotive industry influences other industry
sectors and production.
Trends in Automotive Supply Chain Management
In a book written by Amy Zuckerman (Zuckermann, 2002) we can read that demand of
an increasingly competitive global economy has everyone talking about supply chain and
how to manage it better. Driven by customer demand for efficient, quickly service and the
need to reduce inventory costs, the concept of managing the entire supply chain – from raw
materials to delivery of finished product to the customer – revolutionizes the way major

manufacturers, transporters and logistics companies are doing business. Subsequently, she
writes that companies today cannot ignore supply chain management and expect to survive.
Nowadays, supply chain thinking is common operating practice for all major companies
worldwide.
In yearly publication Auto Annual Report 2008 published by German Verband der
Automobilindustrie are written several interesting remarks about actual trends in automotive
supply industry (VDA, 2008):
• Supplier companies are becoming more important in cooperation between
manufacturers-suppliers and supplier-supplier relationship.
• The changes in the structure of the value-added system lead to a new quality of
cooperation accompanied by altered allocation of roles, increasing challenges due to
a shortage of resources and increased capital needs in the process of globalization.
• Both sides, manufacturers and suppliers, have realized that innovation and premium
quality are the prerequisites for winning customer trust and ensuring market success.
• A major part of automobile development work is now already falling in supply
companies, suppliers will more participate on product design and development and
innovation activities of new products in the future, thus further increasing their share
of added value in the vehicle.
• Flexibility and innovative strength are among the most important competitive
advantages in international business.
A list of global trends is built-up based on research of authors Boghani and Brown
(2000), who divided trends into 5 basic groups:
• Socio-Demographic Trends
• Longer life expectancy – the older driver the more safety features are required
• Changing lifestyle – expecting more than just transportation
• Generation X (young), Y (future) – growing expectations on computers, multimedia
• Increasing traffic density – more time spent in vehicles
• Legislative Trends
• Increase in regulations globally – fuel economy, environmental factors, safety
• Regional harmonization of legislation
• Technology Trends
• Electronics leading technological advances
• Tremendous explosion in communication and computer technology
• Miniaturization of products
• Industry Trends
• Services emerging as dominating differentiator
• Global acquisition/merger
• Vehicle market mature in Europe and North America, growing elsewhere
• Globalization occurring fast – market, engineering, sourcing
• Shorter product life cycles – reduction in lead times
• New competitors emerging – software, service providers
• Consumer Preference Trends
• Price, quality, performance service and maintenance, safety, comfort and
convenience, fuel economy, environment
• Priorities often depend on region

• Subject to change; e.g., global warming may cause that fuel economy and
environment to become priorities
Wolters and Enders (2001) have own point of view on development trends in automotive:
• Exploiting the opportunities for growth (geographic expansion in the markets in
Eastern Europe, South America, Asia)
• Reducing unit costs and increasing profitability
• Protecting the home markets
• Balancing economic fluctuations and exchange rate risks
• Gaining market share through local production
• Suppliers follow their customers
• Overcapacities and financial risks
Global automotive industry consist of three dominant groups of car manufacturers and
suppliers (Gerhardt, K. (2007):
• Large US-American supplier corporations, who have grown on global scale
alongside the „big three“
• The Japanese suppliers who are tightly integrated into the Japanese keiretsu (it
means „chain“) system.
• Mostly medium-sized German automotive suppliers, who work closely together with
the German car manufacturers
These three groups are presenting three main groups of car producers and their main
global suppliers:
• GM, Ford, Chrysler – Visteon, Delphi, Johnson Controls, Lear, TRW, Goodyear,
DuPont, Arvin Meritor, Dana, Federal Mogul.
• VW, BMW, Mercedes, Audi, Opel, Ford – Bosch, Continental/Siemens VDO,
Schaeffler, Brose, Freudenberg, Behr, Mahle, Benteler, Hella, ZF.
• Toyota, Suzuki, Nissan, Mazda, Honda – Hitachi, Bridgestone, Denso, Matsushita,
Toyoda Gosei, JTEKT, Calsonic Kansei, Sumitomo, Takata, Aisin Seiki.
According to special edition 2008/2009 of German magazine Automobil Produktion
(Global Ranking Top 100 Automotive Suppliers 2008), development of global automotive
supplier structure is represented by three dominant world supplier regions (Verlag Moderne
Industry, Automobil Produktion Magazine, 2008): 31 Japanese suppliers, 27 US-suppliers,
25 German suppliers, 6 French suppliers, 3 UK suppliers, 2 Italian suppliers, 1 Canadian
supplier, 1 Swiss supplier, 1 Swedish supplier, 1 Spanish supplier, 1 US/German supplier, 1
US/Swedish supplier.
Consulting company Oliver Wyman created study named “Car innovation 2015. A
comprehensive study on innovation in the automotive industry (2007)”. This study analyzes
the complete framework of automotive innovations: societal and governmental influence,
technology trends, the voice of the customer, innovation economics, innovation management
and strategies. Study brings some results of the Oliver Wyman research. We choose some
of them:
• All auto executives whom Oliver Wyman interviewed in the course of the study were
convinced that innovation was one of the most important success factors for
maintaining a strong competitive position in the auto market.

• Both OEMs and car suppliers do not always meet the needs of the end customer.
Most car drivers want sound, reliable products at reasonable prices. The total cost of
ownership will remain the most important buying factor.
• OEMs and suppliers will have to significantly improve efficiency in all R&D processes
to keep costs under control.
• Cost improvement measures, such as off-shoring of engineering, complexityreduction
programs, standardization and modularization, optimization of new product
development, lean processes or the development of low-cost cars will help the
industry control some of the cost increases produced by the growing number of
functions.
Strong emphasis on innovation and product development is visible in the publication of
Kováč, M. (2007). He says that innovation will be most important factor in the future and
mainly in automotive industry in SMEs. Focus of innovation will be more on eco-innovation,
cost reduction, specific requirements of customers, safety innovation, alternative fuels, ICT
and electronics.
Supply Chain Structure in Slovakia
Supplier structure of Slovak automotive environment belongs to the Central Europe
automotive industry with strong connecting to Western European car producers and
suppliers. Czech Republic, Poland and Hungary are next three Central Europe countries
where are established car production plants.
Slovakia needed replace fail of heavy industry and armament industry after economic
transformation process. Slovak economic and industry analyzes showed that automotive
industry was only new opportunity for utilization of traditional machinery industry for next
economic development. Slovakia offered good conditions for foreign direct investors, mainly
in automotive industry. In the present, Slovakia is automotive industry country with 1 st place
in the world in 2007 – car production per 1000 inhabitants=105.7 cars. Car production in
Slovakia in 2007 was 571 071 cars, car production in Slovakia in 2008 was 575 776 cars.
There are more than 75,000 employs in 2007, more than 200 suppliers, good established
local R&D network and universities in Slovakia. Automotive industry brought on Slovakia
economic growth, high-tech technologies, new production methods and management of
manufacturing culture in companies, more innovation and increasing of productivity and
quality in all industrials sectors. Automotive industry influenced other industry sectors such
as: machinery, chemistry, electronics and electrotechnics, transport, civil engineering and
service development. Automotive industry with its supplier sector has key share on total
industry production and it is key industry for growth of the Slovak economy. Slovak
government supports investments into research and development and it emphasis
importance of high-tech and innovation technologies. Here are built modern and high
productive production capacities, quality human resource (availability of technicians,
engineers, researchers and scientists), political stability, Euro currency, innovation policy and
next important factors for foreign investors. On Picture 1 is map of Slovakia and locations of
foreign car producers. Slovak supply chain was adapted to conditions and requirements of
three different cultures of car producers (German, French and Korean).

PSA Peugeot Citroen
Slovakia in Trnava
Kia Motors Slovakia
in Zilina
Volkswagen
Slovakia in
Bratislava
Pic 1 Map of car producer locations in Slovakia
Structure of supply chain is composed by 1-Tier, 2-Tier, 3-Tier suppliers and other small
and medium enterprises or organizations and institutes in Slovakia. Examples of 1-Tier and
2-Tier suppliers working in Slovakia are in next pictures (Pic. 2, Pic. 3). Suppliers are divided
into five basic groups:
• Electrical systems suppliers
• Interior equipment suppliers
• Propulsion suppliers
• Body suppliers
• Running gear suppliers
1-Tier SUPPLIERS
Electrical
systems
Cables, bus systems,
embedded systems
Delphi
Kromberg &
Schuster
Leoni
Sewon-Ecs
Sews-E
Siemens
VW Elektricke
systemy
Yazaki
Interior
equipment
Cockpit, seats, dashboard,
air conditioning
Faurecia
Grupo Antolin
Hella Behr
Johnson
Controls
Lear
Corporation
Magna-Slovteca
Visteon
Propulsion Body Running
gear
Power train, exhaust
systems, engines
AVC
Faurecia
Getrag Ford
Transmissions
Slovakia
Matador inalfa
Tower
Automotive
Body, roof, glass, doors,
lighting etc.
Brose
Dura
Edscha
RF
Hella Slovteca
Magna
Matador inalfa
Plasic Omnium
Suspension, brakes,
axles, steering, tires
Contitech
FTE
Matador
Pic. 2 Scheme of the automotive 1-Tier suppliers in Slovakia
Source: Automotive Industry Association of the Slovak Republic (AIA SR)

2-Tier SUPPLIERS
Electrical
systems
Cables, sensors,
semi conductors, control
units etc.
CRT
Hefra
Küster
Molex
Sluzba VDI
Teleflex
Interior
equipment
Cockpit, seats,
dash-board, air
conditioning
Adtool
C.E.P Scherdel
Eismann
Gumotex
Hanil
Heiland
Krasplast
Matador Inalfa
Technické Sklo
Vural
Propulsion Body Running
gear
Power train,
exhaust systems,
engines
Dana
DOR
Matador Inalfa
Miba Sinter
Ribe
PFS
Rubena
Sachs
ZF
ZSNP
Body, roof, glass,
doors, lighting etc.
Bourbon Fabi
Gumárne -
Enco
HBPO
SaarGummi
US Steel
Suspension,
brakes, axles, steering,
tires
Continental
Matador
Continental
Teves
Fragokov
Knott
VAP Prešov
T-Gum
Pic. 3 Scheme of the automotive 2-Tier suppliers in Slovakia
Source: Automotive Industry Association of the Slovak Republic (AIA SR)
Jurgens, U. (2003) in his publication writes that engineering services companies play an
increasingly important role in the network of actors involved in new product development.
Most engineering services companies specialize in either product or process engineering,
and in either the propulsion system or the body-interior parts of the car. In view of the
shortening of time-to-market requirements and in order to compensate competence gaps of
suppliers, engineering service firms often become third partners in the cooperation between
suppliers and OEMs for new product development. On Picture 4 we can see old version of
structure of supply chain in Slovakia. On Picture 5, we can see new structure of supply chain
in Slovakia with new established types of suppliers.
Traditional Supply Chain in Slovakia in 90. years
OEM – Car Producer
1.-Tier
Supplier
1.-Tier
Supplier
1.-Tier
Supplier
2.-Tier
Supplier
2.-Tier
Supplier
2.-Tier
Supplier
2.-Tier
Supplier
3.-Tier
Supplier
3.-Tier
Supplier
3.-Tier
Supplier
3.-Tier
Supplier
3.-Tier
Supplier
3.-Tier
Supplier
3.-Tier
Supplier
Pic. 4 Scheme of traditional supply chain Slovakia in 90.years

Traditional Supply Chain in early 90. years in Slovakia:
1-Tier suppliers – foreign companies with own production or assembly capacities
establish near to OEM (mainly global world players)
2-Tier suppliers – foreign companies with own production or assembly plants establish
near to 1-Tier suppliers (global or regional players)
3-Tier Suppliers – local home companies (manufacturing capacities for small simple
automotive parts, raw material suppliers) which fulfil mainly quality and volume conditions of
2-Tier suppliers, some supplies for 1-Tier suppliers.
New Structure of Supply Chain in Slovakia
OEM – Car Producers
1-Tier System Supplier
with establishing Local Engineering or
Development Centre
1-Tier System Supplier
with own establishing local production or assembly
and JIT capacities (seat systems, interior systems,
chassis systems, gearbox systems)
2-Tier Supplier
with own establishing local
production or assembly and
JIT capacities
(Module and Component
Supplier)
Integrated
Engineering Service
Supplier (broad range of
services)
Software Service
Supplier (e.g. CAD
systems)
Local R&D and
Scientific Institutions
and Organizations
2-Tier Supplier
with own establishing
Local Development Centre
3-Tier Supplier
(Parts and Component
Supplier, Raw material
Supplier, e.g. plastic parts,
metal parts, aluminum
parts)
AutoCluster (network of
SME, faculties, local R&D
institutions, government
agencies, public bodies and
other)
Consultants
(Project management, TQM,
production systems
optimalization etc.)
Small Engineering Firms and
University departments
Supplier (specialized services,
design, Rapid Prototyping etc.)
Technology
Supplier (e.g. supplier of
automatization, robotics
systems)
Pic. 5 Scheme of new structure of supply chain in Slovakia
There are various types of suppliers in new structure of supply chain in Slovakia. Actual
and the main emphasis are on innovation of product, processes, R&D activities, engineering
services. Suppliers and organizations, which are able to supply services in production
process optimalization, services in cost reduction and engineering services will have strong
competitive advantage in region of Central Europe. One of good example of this emphasis is
universities and its faculties or departments. Chosen services:
• Designing of production processes and systems
• Designing and building R&D Centers and testing laboratories, testing stands
• Study programs prepared according to car producers and suppliers requirements
• Diploma and PhD. thesis
• Research reports, market research
• Rapid Prototyping

• Simple testing activities, experiments
• Car design a car models
Case study of 1-Tier Supplier
Example of successful automotive supplier investor (seat systems supplier) in Slovakia
is American company Johnson Controls International. 1-Tier System Supplier, Johnson
Controls International, has establishing 5 own production and assembly plants in Slovakia:
• Plant Lozorno – the main customer is Volkswagen Slovakia in Bratislava, production:
car seats assembly in correspondence with Just-in-Time system
• Plant Martin – cover seats production
• Plant Námestovo – the main customers are GM, Daimler, Kia, PSA, production:
plastic parts, door panels for interior, instrument panel assembly
• Plant Žilina – the main customer is Kia Motors Slovakia, production: assembly and
JIT deliveries of car seats and interiors: overhead system, door panels, central
consoles
• Plant Lučenec – the main customers are VW (Geel, Zwickau), Renault, Kia Motors
Slovakia, production: foam parts injection, seating parts, head rests
• Johnson Controls Bratislava Business Centre - The Business Centre provides
leadership and deliver core business process capabilities in finance, purchasing,
information technology and human resources to support all East European
Customers.
Johnson Controls built one of the biggest technology centers in the Slovak Republic for
developing automotive seats components, systems and modules. Opened in 2004 the
130,000 square feet technology center extended the engineering network to include the
Eastern European growth markets and responded to customers’ growing presence there. In
Trenčin, 500 employees design automotive components, systems and modules while using
state-of-the-art technologies and development tools. The technology center houses prototype
facilities as well as product testing capabilities and works closely with Johnson Controls
technology centers in Germany and Johnson Controls customers all over Europe.
US Company Johnson Controls successfully launched cooperation with three technical
universities in Slovakia. The first step of cooperation is based on Johnson Controls
promotion and at universities and preparation of diploma thesis for engineering students.
Johnson Controls Engineering Center is looking for the best engineering graduates. Johnson
Controls cooperate on development projects with universities mainly in seat system area. It is
next good step in company for growth in Slovakia. This type of cooperation between 1-Tier
system supplier and universities (or R&D organizations) is key element of building strong
automotive supply chain based on local talents and creating new knowledge.
Conclusions
This success story of foreign supplier evolution in Central Europe gives opportunity for
next growth after financial crisis. Slovak supply chain progress is interesting and excellent.
We can suppose that this evolution of supply chain after financial crisis can brings new
similar success stories of growing building of engineering or technology centers with huge
potential of domestic Slovak research and development environment. By the words of
prominent automotive specialist in Slovakia, Mr. Jozef Uhrík (President of Automotive
Industry Association of the Slovak Republic), we can expect this next development: “Slovakia
will always have advantage of good geographic location. We need to achieve that Slovak
production plants will become research-development-production plants. We have managed
production processes in Slovakia, but now we must do more. It relates on suppliers, because

supplier will have more participation on product development. There is prediction that in 2015
automotive suppliers will responsible in app.75% for research, development and production
of automotive products and components.”
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