It has been a turbulent few years for the world’s biggest car manufacturer. Beset by huge healthcare liabilities, overcapacity, falling market share, supplier bankruptcy and the seemingly inexorable rise of Japanese rival Toyota, General Motors has been forced to take radical action to try to turn its fortunes around.
Much of that burden has fallen on its global purchasing and supply chain organisation. Under the leadership of Swedish-born CPO Bo Andersson, a 20-year veteran at the company, it has sought to slash its annual purchasing bill while also improve quality. By 2005, its cost-cutting zeal had taken its toll. According to an annual survey of North American automotive suppliers by consultancy PPI (see Lessons from America ), GM’s standing among its supply base had hit rock bottom, with just 3 per cent of suppliers rating their relationship as “good to very good”.
In the past two years, however, GM’s index score has increased by 53 per cent overall, with the improvement particularly dramatic among its largest suppliers, where it is up by 184 per cent. As the man spearheading this transformation, Andersson must be doing something right. And in April he was promoted to the position of group vice-president, making him one of the company’s top 14 executives.
What prompted you to launch a programme at the end of 2005 to improve GM’s supplier relationships?
The first thing to say is that I don’t view it as a programme, I view it as a continuation of the work we’ve been doing for the last six years since I took this job. What we did was an evaluation of what was working and what was not. We were doing very well on the hard metrics – our four priorities of delivery, quality, programme launches and what we call productivity. We used to get 95 per cent of our parts delivered to station five years ago; today, we are running at 99.8 per cent. We used to run around 1,000 parts per million defects; today we are running at 25 PPM. We used to launch 10 vehicle programmes a year; today, we launch 25 a year. And from a productivity standpoint, we have been running at around 3-4 per cent on an ongoing basis – that’s $2-3 billion [off the annual purchasing bill], depending on how you count it.
But it seems that we were falling short on the soft metrics – communication, teamwork, making ourselves available, going and visiting suppliers’ plants, spending more time with suppliers that need more help and giving more rope to the guys that perform well. Our supply base really gives us a lot of credit for the consistency in our expectations, the consistency in our metrics. However, they felt that we needed to do more to help them and that’s what this initiative tied into.
What are its objectives?
First, we needed to step up the performance in both the hard and soft metrics. Second, we really wanted to work with the suppliers and see if spending more time with them had a definite impact on the results. The spread between our best and worst-performing suppliers had widened. Third, we said it was more important to go out and meet more suppliers in their operations rather than have office meetings. That’s the issue I’m still working on with my staff. It’s much more comfortable for purchasing people to meet suppliers in the office. What we have been trying to do over the past three years is have as many meetings as possible on the production floor. I want every buyer to have a good understanding of the part, the production process that is needed to make that part and the cost structure of the ingoing components, whether that’s labour, materials or whatever. We’ve seen that when buyers and suppliers have the same understanding of what it takes to make the parts for us, we have a much better relationship.
So your focus has been working with suppliers to help them reduce their costs, rather than simply demanding price cuts as perhaps you did in the past?
I disagree that we did that in the past, but I agree that the market dynamics and the change in the supply base requires us to understand the cost structure more and to work with suppliers to reduce costs, versus just saying we are looking for productivity. It’s much tougher to run at 3-4 per cent in a market where a lot of stuff is against you. When we look at the last two and a half years, we have had challenges on rising raw material and energy costs. Aluminium prices today are twice as high as they used to be, steel prices are higher. If we can change from aluminium to steel, that means a big saving. If there are things we can eliminate, we share these savings with the supply base.
At the same time, there are opportunities for suppliers. At GM we have been growing faster than anyone else in emerging markets. Our production in China, Russia, Eastern Europe and South and Latin America is up 50-100 per cent. So we address these challenges, but we also said to suppliers: “If you work with us and we overcome these issues together, then you will get the benefit of the growth in those markets.”
Do you see this initiative as a short-term fix that will change with the business cycle or a more fundamental shift in company philosophy towards your supply base?
It’s not short term, it’s a long march. It’s performance-based, but it’s also based on the idea that the deeper you work with the supply base, the more transparency you have, the better results you will get. We have realised that if you create more synergies to the supply base – whether that’s scale, helping them with their purchasing or taking some of the specifications away that make us uncompetitive – there is much more to share. The big savings and the big breakthroughs take time to get. You need to stay on it and you need to be disciplined.
With which suppliers are you investing time and resources?
We have three main groups of suppliers. We have our large global suppliers – Lear, Johnson Controls, Magna, Bosch – that are very critical to us and with whom we have 50, 60, 70 years of working relationships. We help them less because they already have the management and resources in place to get the job done. But we have stressed the importance of transparency. These are big, global, great companies and transparency is not always easy for them.
The second group of suppliers we have spent a lot of time with is the smaller and mid-sized companies. We are very willing to help and they are very willing to get help. What we realised when working deeper with them is that the best-performing suppliers in this group have a strong focus on one or two areas, whether clutches, fuel management systems or tyres.
The third group is in emerging markets, where we want to develop local suppliers. We are a global company and this is a global approach. We already have strong supply bases in countries such as Mexico and Korea and now we are developing them in places like India, Romania and also Russia, where we are building a plant at the moment. And whatever the group of supplier, we always take care of our best-performing suppliers first, give them the first kick at the can.
But you have over 3,000 suppliers in total. Are you trying to work more collaboratively with all of them or just some?
We are working with all of them. The biggest focus for us is not on reducing the supply base, because we don’t believe in that. Our biggest opportunities are in reducing the complexity. We buy 160,000 part numbers every day and working with the supply base to standardise parts and use more standard solutions will help us much more than reducing the supply base. For example, we are using Toyota’s seat frame in our Chevy HHR. That’s good for us, it’s good for the supply base and it’s good for Toyota. I pay a higher piece price, but I pay no investment and I get a very, very good Toyota part. And we developed a six-speed transmission with Ford, which means we have the same supply base. This week alone the suppliers will benefit from 18,000 units of production of that transmission.
What other practical steps have you taken to improve your relations with suppliers?
We have a senior communications programme with our top 300 suppliers. We meet with them formally seven times a year – two face-to-face meetings and five phone calls. One of the points they made two and a half years ago was that they felt our 1,000 buyers weren’t walking the talk in the way I was. So immediately we connected all 1,000 buyers to the conference calls we had with suppliers, so they got the same message.
What we also did was to ask buyers’ managers to reconnect with their suppliers afterwards to see what they thought – what they took away from the call, what type of issues they had – to really drive this two-way communication in a more formal way. Because what I’ve seen is that if you leave it up to the individual it will not happen – or if it happens you will have variation between the best buyers and the worst buyers.
We’ve also strengthened our working relationship with engineering. Jim Queen, our global head of engineering, and I got our jobs at the same time and one of the things we decided six years ago was to work together, be honest, help each other out. We have common objectives, common metrics, and our teams of engineers and purchasing people meet every Tuesday to review all the data. We really encourage our suppliers to link their engineering and purchasing together, too, to take down the barriers between the functions.
Another thing is that we never miss the chance of celebration. We use our portal, GM SupplyPower, to highlight and recognise great performance. One thing that has surprised me is that creating this positive buzz, thanking suppliers for outstanding performance in very small areas, goes a long way.
Another complaint of GM suppliers has been that your buyers have taken their ideas and bid them out to competitors.
Suppliers have accused us of shopping their technology many times. I disagree with that. What Jim Queen and I have said to them is that instead of running around making a lot of noise, bring the issues to the top immediately; give us clear examples and we will deal with it accordingly. I think that’s been very successful. Any time we have had issues – and we have had one or two – we take corrective actions; we inform our people about what we do and what we don’t do and we use it as a learning example. At the same time, I say to suppliers: “If you think your solution is so unique that no one else has anything similar, if it’s not protected we don’t want to see it.”
How do you ensure that the behaviour of the buyers, engineers and other personnel at GM who interact with suppliers daily is in line with your objectives?
We measure our buyers, managers and executives based on the hard metrics and soft metrics I described earlier, and if people don’t perform on both, they are not here. It’s about being very honest, very clear, going the extra mile to really understand the issues and not being arrogant. That requires much more work, much more preparation, and that’s been the biggest revolution internally. To some degree you need to say to the buyers: “You are sitting with a lot of power, you may control $500 million to $1 billion of spend, and you need to handle that power right.”
Does GM have its own metrics in place to monitor the quality of supplier relationships?
Yes and no. If people perform and the company performs, typically the hard and soft metrics go hand in hand. Our brightest and most positively viewed executives, managers and buyers are typically the most skilled as well. They understand processes, they understand the products, they understand the technologies and they bring value to the party. The ones that are struggling typically don’t have these characteristics. The most important thing that I do is say: “What can we do better?” I never miss a chance to ask our suppliers what we can do
better, how we can solve any issues. But if you ask me if I have formal metrics on this, the answer is no, we don’t.
Do you talk about being a preferred customer or “customer of choice” among your suppliers?
No, absolutely not. We spend $110 billion a year and if that’s not enough, we are OK with that.
Is there a direct correlation between GM’s better business performance of late and your supplier relations initiative?
I see a big correlation between performance and how we work together. If we and the supply base perform together, everything is much easier. If you don’t perform and you don’t address the root cause of that poor performance, typically it’s a very slippery slope. I think that by spending more time with the supply base we have got better performance on our four key measures. There is absolutely a direct correlation between our warranty performance, our quality performance and on getting to market in time because 50 per cent of everything that goes into a vehicle from a development and manufacturing standpoint and 70 per cent of the variable cost is from the supply base. But GM’s overall success depends on many factors and supplier relations is one of them.
Despite the progress you’ve made, there is still a big gap between GM and the likes of Toyota and Honda in terms of how you are rated by suppliers. To what extent are you trying to emulate Japanese practices?
If I could start all over again, I would love to have a keiretsu supply base as Toyota does, because if you own your supply base it’s much easier. On the other hand, there are a lot of things that Toyota is doing that we can learn from, and there are things that we are doing that Toyota is picking up from us. We do that daily. But we are working in very different circumstances. We have a sailboat and they have a motorboat.
How can you ensure that the improvements you’ve made in supplier relations are sustainable?
I don’t think anyone can guarantee sustainability, but you can guarantee that we will die trying! I like my job much better today than I did three years ago. When you perform, you have more fun. And it’s much, much nicer to meet with suppliers who say: “I really appreciate that your people are spending more time in our plants.” They like the transparency, they like the teamwork in turning challenges into opportunities. The internal pride inside the buyer community is much higher today. We’ve proved a lot of people wrong – proved you can have best-in-class performance and still be highly respected.
FACT FILE: General Motors at a glance
• Founded in 1908
• Headquarters in Detroit, Michigan
• The world’s biggest auto maker and fifth biggest company by revenue
• 284,000 employees (4,000 in purchasing)
• Manufacturing operations in 33 countries
• Brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn and Vauxhall
• Top five markets: US, China, Canada, the UK and Germany
• 2006 sales: 9.1 million cars and trucks in 200 countries
• 2006 market share: 13.5 per cent globally, 23.8 per cent in US
• 2006 revenues: $207.3 billion
• 2006 net loss: $2 billion (down from $10.4 billion in 2005)
• Annual purchasing spend: $110 billion ($86 billion on direct materials)
Interview by Geraint John
