If you’re a parts supplier to General Motors, you have two choices: bid for business as it comes up or open your books and factories to skip the bidding process.
According to Automotive News, the latter option is part of GM’s One Cost Model launched in 2013, allowing the automaker to analyse a supplier’s internal cost data to identify cost-cutting opportunities. In exchange, suppliers can receive exclusive parts contracts that can last the lifecycle of a model and GM will not put that particular piece of business up for bid.
This all requires a significant amount of trust from suppliers, a commodity which has been lacking at GM since the ’90s.
Purchasing chief Steve Kiefer, formerly an executive at Delphi, told AN that GM won’t use the information to force suppliers to match or beat the company’s “China price”. In some contracts, annual price-downs, resulting in price cuts of 1 to 4 percent, will be skipped. Instead, GM will use the data to “identify waste and continuous improvement opportunities,” Kim Brycz, executive director of global product purchasing, told AN.
Bidding is effectively replaced with annual cost analyses. GM is also including suppliers earlier in vehicle programs with both parties reaping rewards: suppliers can optimize parts earlier on and GM can pay less for the same part.
GM wants to teach other businesses how to not waste money?
Oh, classic reply sir (or madam), classic reply!
This is nothing new in the automotive industry. When I worked at the Tier II level from 2007-2010, our customers would increasingly want us to be “open book”, especially on quotes. Most of the time they would request detailed cost breakdowns with each quote, but we would always decline.
If I was one of these suppliers, I’d tell them no.
I work for a large business that is trying to do this with its suppliers, including extending terms out as far as 270 days. A few of our key suppliers have said no, and they won’t even participate in a bidding war for the work they currently do for us.
If the suppliers took a long view of their relationships with their customers, they’d realize they have more power than it seems. They might lose some business short-term, but it may eventually return.
GM wants their suppliers to be open and honest when GM doesn’t even know the meanings of these two words. What a bunch of low lifes. GM needs to take a dirt nap.
“Purchasing chief Steve Kiefer, formerly an executive at Delphi, told AN that GM won’t use the information to force suppliers to match or beat the company’s “China price” ”
Ha Ha Ha
Ha HA HA HAHA HAHAHAHA!!!
HAHAHAHAHAHAHAHAAAAA!!!!!!!!!!!!!!!!!!!!
GM is going to be the first automaker to sell vehicles with 80% to 100% Chinese parts content in ‘Murica!
Thanks for the bailout!
Agreed.
Are you absolutely sure it won’t be Volvo? Since they’re chinese.
Wasn’t this how Lopez started his cost reductions? Oh, wait, GM added a “trust-me” clause… this must be totally different.
Dead on.
The very idea of telling your customer (GM) exactly what your margins are seems like a really bad idea. What good is it to have “exclusive contacts” if the margins are abysmally low.
+100
GM can’t effectively manage its own business, but it feels like it has the knowledge and wisdom to tell others?
My company went through a similar approach where the supply chain department wanted to develop a should-cost model for civil construction projects (mass earthworks and grading plus other stuff). I, as one of corporate engineers, kept telling them that we are in no position to tell a contractor what something “should-cost”. Competitive bids tell what something should-cost, not some procurement lackey looking to achieve a cost-reduction that is tied to their bonus….
GM- the inventors of cost cutting and de-contenting. They have turned it into a form of art.
I wouldn’t trust GM with that information if I were a supplier. I’m reminded of how Walmart does this with anybody who wants to place merchandise in their stores, then demands they discontinue all their US manufacturing as a condition of doing business with them, even to the point of directly midwifing the transfer of the supplier’s manufacturing operations to a Chinese sweatshop at wages 50%+ lower than other Chinese sweatshops.
In the auto arena, just as ponchoman suggested, GM and Ford have a history of Finance-driven management that squeezes suppliers until their fingers touch their palm, a history that Japanese makers (except Nissan under Renault ownership) simply don’t have.
I remember a survey of U.S. auto industry suppliers several years ago. Suppliers graded Japanese US operations as the most trusted companies with whom they had the best working relationships and the most mutual trust, and GM & Ford lined the bottom of the bird cage. Some suppliers went so far as to say that given the choice, if they were asked to provide the same part, they would deliver the Japanese makers the better part — and these were US suppliers.
One historic low point came when the Explorer (aka Flipper) was the nation’s best-selling SUV. Ford lowballed the supplier of the vehicle’s frame so badly, the supplier declared that Ford’s take-it-or-leave-it price would make them take a loss on every frame they made and openly renounced the business.
More recently, The Strange Case of the Disappearing Features throughout the model run of the ’09 and subsequent years of the last-gen Malibu showed that bankruptcy and reorganization didn’t clean out GM’s deadwood nearly enough. I’m eternally mystified how some of my esteemed B&B fellows can watch this sh!tshow and continually blame the assembly line workers for all of it. It’s a way deeper disease than that.
I am in no way being a smart aleck; I’m genuinely curious. What were some of the features that disappeared?
Here ya go:
https://www.thetruthaboutcars.com/2010/05/chevy-decontents-key-models-for-2011-fans-not-amused/
I do remember the side repeaters disappearing around that time. The Saturn Aura had them too. I thought they looked very upscale and was sad to see them go.
Well said, it is not the assembly line workers’ fault if the material and design are junk to begin with.
Didn’t I see this movie before?
I have always thought that the more productive supplier relationship was one of the important reasons why the Japanese were able to make such reliable cars while they were expanding during the 70s 80s and 90s.
Ironic I should just now be re-reading the 2nd edition of The Machine That Changed the World. Just finished their discussion of Japanese assembler/supplier relationships that strove for operational openness and sharing of profits despite the steady reduction of parts pricing, instead of the adversarial relationships of mass assemblers/suppliers.
Machine is a great book.
What I find absolutely astounding is that this sort of behavior doesn’t even make sense on a human level. I can’t understand why these morons hiding behind what they obviously think is a powerful corporation think that this will end well. I hate to break it to you, GM… but your Chinese suppliers will ship you broken pieces of crap for the “one price” you want to pay, and won’t think a second thought about it. You will get screwed, and no reputable Tier 1/2 will want to deal with you because you are effectively asking them to set themselves on a path that will, with 100% mathematical certainty, end in bankruptcy for them.
I will never spend money I earned to buy a product from GM.
Wow. Just…wow. I can’t possibly see how this could end well, for the suppliers, for GM…or for the customer who ultimately ends up with a new car full of lowest-bidder components that break just outside of warranty.
Used to work at a Tier II supplier…
This is complete hogwash and anyone that has worked with GM, Johnson Control, Faurecia, Lear or Magna knows this. I got out of the supplier business years ago, and this one brought back some bad memories…
Companies were being forced out of business by following the open-book-approach, and the fact that our competitors went under first was the reason my company held on for as long as it did. just a few highlights:
– We were forced into using Chinese tooling on numerous occasions, and the cost of re-engineering the problematic tooling always cancelled out the benefit in the long term. The Chinese tooling manufacturers were getting better, but we were on our own when issues arose. We had injection molds from USA, Germany and Portugal that were nearly perfect every time so long as the designs were dialed in before kicking them off. The Chinese ones would be quickly manufactured, slowly shipped on a boat and re-engineered after they arrived in the states and failed miserably upon first shots.
– These larger companies truly believe that suppliers should only make money on piece prices. This means the only time money should come in would be the limited prototyping volumes ($$$) and and production component volumes ($). The mantra is that companies should not make money on tooling, fixtures, process development or engineering.
– This then resulted in bad behaviors: Tool shops had to supply a real quote and an inflated quote. Send the inflated one to the customer (GM in this case) to prove “transparency”, and the real one the accounting department to issue a PO to a tool shop. It was shady to say the least, but companies have to keep the lights on while GM’s launches the new vehicle and ramps up. A delayed launch could put companies on the ropes until started rolling in again.
The only company we dealt with that was actually interested in our long-term sustainability was Honda. They were very tough to get a contract with, and you had to start on a low-volume product line like the Odyssey before you could even look at a Civic/Accord.
The books were open to begin with – not because they wanted to see your margins. They wanted to make sure your company was going to remain viable so that they wouldn’t see issues in the future. Mutual success was the topic of most meetings.
Very interesting.
That is very interesting indeed! Yes, a supplier in good shape would be beneficial to keep quality parts flowing from them. I have to think that a lot of recalls we see are because of supplier issues, which in turn only do damage to the brand. Thanks for sharing.
The best program I remember was Chrysler’s SCORE. They seemed to genuinely want win-win; but then came Daimler…
So many suppliers have been forced out of business that the bulk of the ones still standing sell to multiple companies, not just GM, and aren’t about to give GM info on its competition. This is an audaciously stupid idea from GM. If they want that much control/inside data, let them buy back Delphi and make their own parts again.
Pay zero attention to the fact that Honda does the same thing now and this is the end result of that consolidation?
Honda makes the same demand? I can see them getting away with that with their Japanese suppliers, but I doubt they’re getting anywhere with American suppliers of their US factories, unless they’re US divisions of the Japanese suppliers.
Anyone claiming that Honda does the same as GM vis-a-vis supplier is ignorant, at best, and willfully lying, at worst.
The responses, year after year, of Tier 1 and Tier 2 suppliers, are the closest thing to universal as things get in the component fabrication and supply business, and any sane supplier having the choice would rather work with Honda, by a country mile (or ocean’s width’s distance) than GM, for many reasons, not the least of which is that Honda lends support to improve efficiency and quality to suppliers (using competent Honda engineers) PRIMARILY TO IMPROVE HONDA VEHICLE QUALITY, NOT SHAVE THE SUPPLIER’S PRICE DOWN TO FRACTIONS OF PENNIES, unlike GM, which essentially wants lowest cost bids above all else.
I’d love to hear Tresmonos weigh in on this.
Open your books to GM ?
I’ve seen a few contracts from big companies and suppliers. I liked one where anything WE learn from you that isn’t marked “confidential” and countersigned by us isn’t, BUT anything you learn from us IS “confidential” unless countersigned by US that it isn’t. An amazing one way valve for technology theft, er, tranfer.
This bomb was buried in the definitions section.
Likewise, I had a conversation with a headlight supplier. One of the Big Three stopped buying the reflectors he sold. They hired his head man at 3x salary and stole his whole process. He had to hire patent and trademark attorneys to fight what was a clear theft of his proprietary information. The Big One just figured it was easier to steal and fight than pay for the process.
Fox…Henhouse
Dear TTAC,
More posts like this please. It reminds me of the old TTAC where I could get a glimpse inside the auto industry. I have also enjoyed following the travails of GM since back in the old Robert Farago days.
Perhaps I am mis-remembering but it seems to me that Sears started doing something very much like this many years ago.
I’m sure it worked out very well for them.