Ward’s recently spoke with Bo Andersson, General Motors Corp. vice president for worldwide purchasing, as part of its annual interviews with U.S. purchasing executives. In the interview, he discusses the supplier-contributed technology on the Cadillac XLR, as well as general purchasing issues.

An interview with Ford Motor Co.’s Tony Brown appears July 1, Chrysler Group’s Peter Rosenfeld July 2, Toyota Motor Corp.’s Simon Nagata July 6 and Honda Motor Co. Ltd.’s Larry Jutte July 7. Excerpts from all five appear in the July issue of Ward’s AutoWorld.

Ward’s: How are GM’s supplier relations?

Andersson: There still is a perception that we don’t value technology, the perception that suppliers don’t think that GM is interested in paying extra for technology. I say, yes, we are for the right applications for the right value. On the Cadillac XLR, you see it is a technology homerun. If we can do it on XLR, why can we not do it to a certain degree in other vehicles? Based on the programs we have in development now, we do much more of it.

Ward’s: This perception that GM is difficult to work with – where does that come from?

Andersson: I think it comes from our past. Even if we are trying to break new ground, it will take some time. I say take the examples that are good and highlight the suppliers that help us do this good stuff. And over time the perception will go away.

Ward’s: GM has been handing off interior development to Tier 1 integrators such as Lear, JCI and Magna. Does a single-sourced interior work best in a low-volume vehicle like Cadillac XLR or in the next GMT900 fullsize pickup program?

GM’s Bo Andersson is striving to commonize more parts.

Andersson: I think it’s hard to answer. JCI has done a very good job on our Opel Astra. It was one of the first programs in Europe with a supplier-integrated interior. Look at the best in GM today – I think that is the best interior in production that has been in the hands of an integrator. It’s very clear that Venture Industries did a very good job on the H2 based on what they were given. I think Collins & Aikman did a good job on the XLR. The key benefits we are looking for is really … driving the harmony.

Ward’s: Is the Astra interior as good as some of Cadillac’s current interiors?

Andersson: I don’t want to go there. I will say that of the interiors that have been integrated that JCI sticks out with our Astra development. I think it’s dangerous for me to compare that to other vehicles.

Ward’s: You talked about GM’s reputation among suppliers. Sometimes an auto maker earns its reputation among suppliers by how the auto maker reacts to a problem with a component during a launch. How does GM deal with problems with suppliers today?

Andersson: We have roughly 2,000 suppliers in North America. And it seems like suppliers that do very little work with us are most eager to talk about us. And it seems like the suppliers we keep very busy with new work don’t even have time to respond on surveys, etc. That’s a general statement.

Ward’s: At the Automotive Interiors conference, GM’s Dave Rand talked about the company’s push for cutting-edge, benchmark interiors around the world that we will see soon. As you want to improve the quality of your interiors, these things take money. How do you add all that perceived value and quality while still keeping the price down?

Andersson: First, it’s a matter of balance, where you spend the money. It’s clear to us consumers are saying they spend more time in the vehicle and people have more likes and dislikes for the interior. Second, we are looking at where we can standardize interior parts. A seat heater is not a very big spend, but it’s still an element. Today, we are working with our suppliers to get to one seat heater. Lumbar support is not a very big spend, but we are working with our suppliers to get to two lumbar support technologies and parts.

Ward’s: How many seat heaters and lumbar supports do you have now?

Andersson: Too many. Look at the front seat structure, it is something we can commonize on a global basis. Today, we have too many front-seat structures. You take headrests. These are areas where we are trying to do the best and using our scale and using the scale of suppliers, maybe we reuse parts they use for others, and take that and spend it on more functionality and features and perceived quality such as better (material) grades, lower gloss levels, more real wood.

Ward’s: You mentioned how GM is willing to pay for technology. When suppliers say they can’t give it to you for any less, how do you differentiate between those suppliers that you’re sure can give it to you for less and those that can’t?

Andersson: In the last two years, we have become much more interested in suppliers’ cost structure. A small group of suppliers have been reluctant to show us their cost structure, but the majority is saying it’s a fair game. ‘We understand your needs, we understand you want us to have it this way, and maybe we work together in improving the cost.’

If you take interiors, that’s a very clear trend. We will never get common front-seat structures between competitors if we don’t have transparency and if we don’t have openness. We’ve also seen, based on design, that it’s much better to show people a piece of leather and say, ‘This is what we’re looking for,’ than have a 4-page specification and have them figure out for themselves what type of leather we like, what gloss level we like.

But there will always be a tradeoff. From design, they set the stage that this is what they’re looking for. I’m not the guy who decides, no we cannot afford that. My job is to go to the supply base to find the best supplier that can do that technology as good as possible.

Ward’s: How many front-seat structures do you think you currently have?

Andersson: I know the number, but I don’t want to tell. It’s a big number.

Ward’s: And obviously you see a substantial amount of savings potentially?

Andersson: Both for us and the suppliers. That’s a win-win, right?

Ward’s: How often do you have TechWorld (a private event at Warren Tech Center for suppliers to display advanced technology)?

Andersson: Three times a year.

Ward’s: Five to six suppliers each time?

Andersson: Yes. And we have typically one or two times in Europe as well. But this is the big one. We have been running TechWorld for a couple years. In the beginning, we had problems making decisions. Suppliers were somewhat disappointed that they showed us a lot of capability and they didn’t get new orders. So what we try to do the last 1_ years, we typically tell suppliers in advance this is what is on the horizon, this is what is important to us now. We have a dialogue. They focus their elements toward that. Before, we had trouble making decisions.

Today, we bring through our GM people and cross-functional teams and the VLE (vehicle line executive) teams. We have our SMT (system management team), engineering, purchasing go through as a team. Then after the first day we do a poll (of GM staffers) to ask, ‘What stuff did you like most?’ We give that feedback to the supplier. Within a week or two, we typically make decisions and tell suppliers this is one we will do. We have one supplier that has a record so far. They showed us 15 different technologies and ideas, and within a week we made a decision on nine of them. Fifteen ideas that ended up in either nine production or development contracts.

Ward’s: And in some cases, do those result in GM actually purchasing intellectual property from those suppliers?

Andersson: That is in the minority of these cases. But if it is something we think that has big value across GM worldwide and (the idea comes from) typically smaller suppliers, we say we are willing to pay for that, but we want to own that design ourselves. For larger suppliers, that’s not what we commonly do. And the whole reason is, we want to have an opportunity to do this application worldwide.

Ward’s: How does China look right now as a region for sourcing?

Andersson: The first challenge we have is the Chinese consumer. The Chinese consumer has much, much higher expectations than a U.S. consumer. Look at the Buick Regal. We recently announced we have sold 500,000 Buick Regals in China. Talk about the interior perceived quality – if you look at a Buick Regal sold in China, it’s a couple notches higher than a Buick Regal sold in the U.S.

Ward’s: Same suppliers or different suppliers?

Andersson: Typically the same suppliers, but different expectations. It’s not unusual today to see a Buick Regal (in China) that has three TV monitors – two in each headrest for the rear passengers and one in the front just below the radio. The transaction price is $38,000, and the expectations on the interior in China are very high. We have our own design studio that has modified the Buick Regal in China to the requirements in the market. And we are doing very well – 500,000 units is not bad.

Ward’s: What kind of customer in China buys a Regal with three video screens?

Andersson: People who have been doing well. This is upper-middle class. There are 66 million people in China who have Internet connections and 250 million families with cable TV with worldwide coverage. Every time I visit China, I see that every guy I meet has a laptop that is much faster than my laptop.

The biggest thing is cost. The Chinese supply base is not cost competitive today. Even if labor cost is very low, raw material is an issue. Cost in general is an issue. Quality has not been an issue the last couple years. The quality standard is very high – typically running at 25 ppm (defective parts per million). It’s a good supply base.

We have three types of suppliers in China. We have the suppliers that are old-fashioned Chinese suppliers. They have a very hard time being competitive for many different reasons – old equipment, old plants. A second category is the large U.S./European suppliers that have world-class manufacturing facilities. These people are importing 70% of material from, for instance, Germany.

The third category of suppliers – many times Japanese – have world-class machinery equipment in China in greenfield facilities in the countryside with local material. They are very competitive, but they are not that many. If they have capacity, they have it for the domestic market. So everyone who thinks we want to export a lot from China – not as long as the market grows as it does because all suppliers are more or less busy with domestic demand.

Ward’s: You said recently what keeps you awake at night is the $2 billion in parts you must source from elsewhere in the world to China to keep the production lines running. Has that number changed much?

Andersson: No.

Ward’s: Are you getting the kind of response you want from your suppliers to be on the ground in China, setting up facilities to be feeding GM plants?

Andersson: As you know, it is a requirement to have a joint venture with a Chinese company, so I think we get the response we want from the supply base. However, most suppliers are that busy to do their day jobs to keep the plants running vs. developing the structure for the future. And we are helping our suppliers with supply-development resources and stuff like that.

Ward’s: A couple years back, a hot topic at GM was de-contenting, trying to save cost by, for instance, making antilock brakes optional instead of standard. How has that evolved over the past few years in terms of de-contenting being a long-term strategy?

Andersson: What we did two years ago – and it was a 1-year program – I call it “right-contenting.” That was the proper strategy at that time. After running that program, we have not done anything more with it.

But we constantly look at ourselves and the competition and say, ‘Do we have the right content?’ Clearly, we in some areas were overspecifying (parts), maybe in the wrong areas.

Ward’s: Beyond ABS (antilock brakes), can you specify other areas where, as you say, you are overspecifying?

Andersson: I think that was the one that stuck out most in small cars. Today, it’s not a big drive for it. We will spend more money on interiors. We will spend more money on electronics and high-tech features. But in other areas, the consumer doesn’t care that much. The trick is to find the right balance for the right vehicle.

Ward’s: GM amended its terms and conditions for supplier contracts a year ago. Since then, suppliers continue to grumble about these stricter terms. Will GM change its terms and conditions if suppliers continue to complain or are these terms and conditions here to stay?

Andersson: Maybe we didn’t do a good job explaining what the change was. I take that as my responsibility. Second, for most suppliers, the new terms and conditions are effective in 2006 for ’07 programs, so it is not a big issue. Third is the element of trust. We have suppliers we deal with on a very open basis. Trust is never an issue. Then we have other suppliers, and we may have mixed experience on both sides. And then some suppliers are very legalistic in their way of doing business.

Ward’s: The Original Equipment Suppliers Assn. said it drafted its own terms and conditions, which it considers to be more attractive for suppliers. It says it has submitted them to Ford and your office. Have you had a chance to review them, and are there any aspects of its terms and conditions that you think would work well for GM?

Andersson: Are you married?

Ward’s: Yes.

Andersson: Say you and I had a term sheet for our wife for what we think is important to keep both of us happy. I’m not sure I’d want to have yours, and I’m not sure you’d want to have mine. That’s the same way we feel about OESA. Our situations are very different, and our needs are very different, and we think we have terms and conditions that work with our suppliers that we understand and they understand.

Ward’s: How are you doing with your development of minority suppliers?

Andersson: Very well. People are surprised what kind of systems minority suppliers deliver. Take Bridgewater (Interiors LLC) as a good example. They deliver complete seats to Cadillac DeVille. These seats have been No.1 and 2 in J.D. Power studies the past few years.

When people think about minority suppliers, they might think of a mud flap or functional black plastic. We have today minority suppliers that do complete seats, like Bridgewater. We have Vitec, which does complete fuel tanks. We have NYX (Inc.) that is doing a very big piece of the interior on (Chevrolet) Colorado and (GMC) Canyon (pickups).

From a number standpoint, today we buy roughly $4.2 billion in direct materials from our minority supply base. The trend line you see is more midsize to larger minority suppliers that are successful with us. In general, I’m very happy, and there are three success factors with minority suppliers: management, management and management.

Ward’s: You spend a fair amount of time rating supplier performance based on a series of metrics. How are your suppliers doing?

Andersson: Very few athletes are good on 10 different branches when they compete. That’s the trend I see with suppliers. We measure delivery, quality, launches and commercial performance. I was criticized, ‘Bo is all about metrics.’ So the last six months, we developed the ‘soft metrics’ as well. The hard metrics is the starting point, and we measure the supply base. Now we measure people on both.

Ward’s: Do you use these same metrics to rate GM as a performer?

Andersson: We just started this the last six months and it gives you a healthy dialogue. We want constant feedback. Some suppliers are better than others at saying no. If you say no the right way, with the right facts, we say, ‘Thank you very much.’ But it’s a big step forward. Eight times a year, we meet with our top 250 suppliers, our most important suppliers. They must cover 80% of what we buy. We started two years ago with formal meetings where we called them to GM locations for 2-hour sit-down meetings.

Before Christmas I was thinking, can we do this in a different way? So the beginning of the year we started with phone conversations. Jim Queen (vice president-North America Engineering) and I were making the presentations. Suppliers were able to ask questions online. It was a great turnout the first time we did it. The second time, 850 people were online although we had technical issues. We added buyers and executives as well.

The feedback from the suppliers is it’s a great way (to communicate) because it’s much faster. Smart suppliers added up to 10 people to the phone line in their conference room. Many of the CEOs who before didn’t want to spend four hours or six hours for a GM meeting, they’re now on the phone for 45 minutes.

Ward’s: How common is it when you’re switching, say GMT800 to GMT900 (fullsize pickups and SUVs), for the suppliers that have not met quality targets to be replaced when the new program comes in?

Andersson: Less than 10% to 15% across GM.

Ward’s: Would you expect that figure to change?

Andersson: I would hope it goes down. We are investing a lot of my time, our people’s time and development resources to develop these suppliers. We are all about performance.

Ward’s: UAW employees at Delphi, Visteon and American Axle have accepted significant pay cuts with adoption of 2-tier wages. Does that new cost structure make those suppliers more attractive to you for future business?

Andersson: I think it’s a good news story because it helps the U.S. manufacturing base be more competitive. Labor cost is still not a very big piece of our business. In most of the parts we buy, labor cost is between 10% and 20%. In some unique cases, it may be 40%, but it’s a small piece in relative terms.

We buy $12 billion (worth of parts) in Michigan. When I have nothing else to do, I visit these suppliers. Even within miles, there’s a huge difference (in facilities), even with the same union. Some of the managers have a hard time showing me their plant. Other ones know exactly the name of every operator.

Ward’s: Suppliers have complained with regard to developing markets, especially China, that the Big Three have shopped some of their intellectual property. Can you comment?

Andersson: First, I’ve asked the supply base, and the last time I asked them was in May. We don’t know about any cases. In the cases where we buy high-tech stuff, we more or less ask suppliers, ‘Don’t give us any (blue) prints.’ My last experience, we were buying oxygen sensors from a high-tech supplier. We said, ‘We don’t even want to know what’s inside these. Because, if you’re concerned, don’t even tell us.’

Ward’s: Do you see supplier parks becoming more widespread?

Andersson: For us, no.

Ward’s: Why not?

Andersson: Good question. For us as a volume producer, we see we have a lot of benefits and the suppliers have a lot of benefits, and they use their full capacity. We typically work with our suppliers and say, how can we best use their capacity today? Many suppliers in Michigan in particular are operating at 65% capacity utilization.

Ward’s: So why add to the overcapacity issue with supplier parks?

Andersson: Some of our competitors may have other issues they want to solve by building a park, but that’s not my business. Some of our best suppliers are high-volume producers in lean facilities, and they reuse the same equipment they bought 10 years ago

Ward’s: And they might be a long way from your vehicle assembly plant?

Andersson: Sometimes, but not always. But we typically are good on logistics. And I’d rather use the scale they have of the manufacturing capability. We also see that opening up a new plant is not that easy.

(See related story: Supply Lines: Purchasing Chiefs Speak Out)