The purchasing chiefs of North America's largest auto makers face the unwieldy task of getting quality parts to their assembly plants.
From day to day, complications arise: Labor unrest at a supplier plant, fires, inclement weather and shipping accidents all can raise the likelihood that parts won't arrive on time — or at all.
But through the daily machinations of supply-chain management, the purchasing chiefs must keep their focus on the end product — the car, truck, minivan or SUV that will land in a driveway somewhere and hopefully meet the daily needs and desires of a discriminating consumer.
Ward's invited each North American OEM purchasing chief to select a recently launched vehicle and talk about the sourcing challenges and the suppliers involved.
Corp., Motor Co., DaimlerChrysler Corp., Toyota Motor Corp. and Motor Co. Ltd. eagerly accepted. Nissan Motor Co. Ltd. declined to participate due to recent changes in the company's purchasing organization.
In addition to talking about product, the procurement executives also responded to the pressing questions of the day, from the outlook for sourcing from China to the impact of the United Auto Workers' new 2-tier wage structure for many supplier plants.
Suppliers Rise to XLR Challenge
AsCorp. was developing the Cadillac XLR luxury roadster, the company chose an unlikely benchmark: the Lexus SC 430 roadster.
Perhaps the more obvious competitor would be the more sporty Mercedes-Benz SL, which has dominated the luxury roadster market for decades.
But GM management — including Vice Chairman-Product Development Bob Lutz and GM North America President Gary Cowger — instead chose the much-newer Lexus because of its bullet-proof reputation for quality.
“You look at perceived quality and at fit-and-finish as a benchmark,” says Bo Andersson, GM's vice president-Worldwide Purchasing, Production Control & Logistics. “We wanted to have this vehicle fully loaded with high-tech stuff.”
GM set out to assemble a team of suppliers equipped with cutting-edge technology and capable of meeting rigorous quality standards. Andersson is convinced the No.1 auto maker succeeded.
Supplier partners include Denso Corp. (DVD navigation system), Siemens VDO Automotive (keyless entry), Delphi Corp. (adaptive cruise control, Magnetic Ride Control, Magnesteer and Stabilitrak), Nippon Seiki (head-up display), Lear Corp. (climate control seats) and Car Top Systems (CTS) GmbH (retractable hardtop).
Andersson admits GM set the bar high for suppliers to test their capabilities. “If we can do it on the XLR, then we can do it on other vehicles,” he says.
The XLR, which launched in summer 2003, comes from GM's Bowling Green, KY, assembly plant — home of the Corvette. Although XLR and Corvette are derived from a common architecture, they share a limited number of parts.
“Most of the parts on XLR are unique,” Andersson claims. “The whole element was to use the plant and to develop the vehicle from existing components, but make it best in class.”
He reserves high praise for Collins & Aikman Corp., which acted as interior integrator and currently is struggling financially. The supplier paid close attention to detail, devoting considerable resources to ensure the map pocket opens and closes smoothly and that the fit-and-finish of the eucalyptus wood trim is world class.
“This was a stretch for C&A, and it was a stretch for us because the perceived quality levels for this vehicle are much higher than many other vehicles,” Andersson says.
The XLR is only the fifth GM vehicle to launch with a supplier-integrated interior since the auto maker announced three years ago it would hand over interior integrator responsibilities to suppliers such as Johnson Controls Inc., Lear and Magna Intier Automotive.
JCI, for instance, handled the interior for the new Opel Astra, which is selling well in Europe, while Venture Industries Inc. was the interior integrator for the lower-volume Hummer H2. Andersson gives JCI and Venture high marks for their work on the programs, but says the Astra is particularly noteworthy.
“Look at the best of GM today, and I think that (Astra) is the best interior in production that has been in the hands of an integrator,” he says.
As with every vehicle program, GM learned many lessons on the XLR, and some of that knowledge is being applied as the Corvette prepares for launch later this year.
For instance, Andersson recalls one Sunday when the team realized that the folding hardtop was causing black marks on the sun visors. That was in addition to rainwater being dumped in the trunk by the folding hardtop.
But CTS, as well as other involved suppliers, were responsive. “There were five suppliers I was hanging out with a couple weekends,” Andersson recalls. “We worked like a small family. Even if we had tough challenges and tough times, we tried to stay out of emotions.” And many of those suppliers now have contracts for the new Corvette.
Meanwhile, Lutz and Cowger were difficult to please. “They were obsessed that we not release the vehicle to market until it's perfect,” Andersson says.
— with Brian Corbett
GM purchasing — by the numbers
- $83 billion global direct purchasing budget (excluding alliance auto makers)
- 149 “spills” at North American supplier plants in 2001, 31 so far in 2004
- 3,600 suppliers globally for direct material
- $7.2 billion spent with minority-owned Tier 1 and Tier 2 suppliers
F-150 Set Tough Benchmark
AsMotor Co. was developing the latest version of its successful F-150 fullsize pickup, it looked over its shoulder and saw the competition bearing down hard.
Group was getting rave reviews for the Hemi V-8 that powers its Dodge Ram, and Motor Co. Ltd. was winning kudos for its new Titan pickup. And Ford knew both General Motors Corp. and Motor Corp. were putting plenty of muscle into their upcoming fullsize offerings.
The No.2 auto maker decided the revamped F-150 would set a new benchmark for interior refinement. The seats would be firm, the instrumentation stylish and the materials of the highest quality. Noise levels would be minimized by a new 3-valve 5.4L V-8 and better underhood damping.
It is no stretch to say the new F-150's cabin rivals that of a luxury car from the standpoint of material quality, styling and noise levels. High-quality craftsmanship and materials in a pickup don't come cheap. Ford's purchasing chief says it was only possible because of the hard work of dedicated suppliers that were engaged earlier than usual in the program.
“This vehicle has more features in it, and some of those features cost more,” says Tony Brown, vice president-Global Purchasing. “Certainly by working collaboratively, we're able to more cost-effectively do these types of things.”
Brown declines to say whether the new F-150's interior costs much more than that of the previous generation. “What I would say is the level of investment that we made in the interior we think is appropriate given the marketplace,” he says.
Brown credits several suppliers for their contributions: Visteon Corp. (center console and instrument panel), Dura Automotive Systems (on-floor shifter), Johnson Controls Inc. (overhead storage console), TRW Automotive (restraints) and Lear Corp. (carpet/insulation and door trim panels). Ford also gets its F-150 seats from two suppliers: Lear and Bridgewater Interiors LLC, a minority-owned joint venture between JCI and Detroit's Epsilon LLC.
Ford did retain a bare-bones version for traditional buyers who expect nothing more than a utilitarian hauler. “There are five different interiors, so we differentiated ourselves based on the type of consumer so we can keep things that are lower-cost for that end of the market and then move all the way up,” says Matthew O'Leary, chief engineer of the F-150. “I'd say we've taken the upper end even higher.”
Brown expects the F-150 to set the standard for interiors for future Ford vehicles, and he suggests some components will be commonized with other programs. “At that point it becomes affordable to start to put features like this into vehicles, given the volumes that we'll become capable of as we move across multiple generations,” he says.
The '05 Super Duty F-Series lineup is one place where the new interior strategy has shown up.
Suppliers were active in component design and development for the F-150, and Brown encouraged suppliers to raise issues when identified, so the team could craft a solution. He also met with CEOs from the top suppliers on the program and emphasized a “no shortcuts” philosophy.
Beyond interiors, he says a host of suppliers helped differentiate the F-150.
Meridian Automotive did the front and rear bumpers that contribute directly to F-150's 9,500-lb. (4,310 kg) towing capacity. AndCorp. supplies the fully boxed, hydroformed frame, which is nine times stiffer torsionally than the previous F-150.
The tailgate is significantly easier to lift and lower, thanks to a torsion bar supplied by Stabilus GmbH, which Ford calls a segment first. Tenneco Automotive's exhaust system contributes to the quietness of the F-150.
The pickup has front and rear disc brakes (supplied by RobertGmbH), although GM's next-generation fullsize pickups will have less-expensive drum brakes at the rear.
Brown says Ford is open to a supplier that may suggest drum brakes, but that no consumer research is suggesting F-150 buyers want anything other than 4-wheel disc brakes.
— with John D. Stoll
Ford purchasing — by the numbers
- $90 billion annual global purchasing budget, including $70 billion for production materials
- 2,000 production suppliers worldwide shipping 130,000 parts
- U.S. Warranty Spend: 14% Improvement 2003 v. 2002, 27% Improvement 2003 v. 2001
- Ford's Team Value Management program expanded to 80% of production buy
Purchasing Chiefs — Supply Lines
Ward's interviewed the North American purchasing chiefs separately in May and June and posed many of the same questions to each. Participating were GM's Bo Andersson, Ford's Tony Brown, DC's Peter Rosenfeld and wardsauto.com.'s Larry Jutte. From , Ward's spoke with both Andy Lund and Osamu “Simon” Nagata, vice president-purchasing. For more complete coverage and transcripts of the interviews, see
How does China look right now as a region for sourcing?
Rosenfeld: China is not quite yet the powerhouse in terms of exports for vehicle components, yet there is some movement from components from China here. Their infrastructure isn't at the point where it's even supporting its own industry completely yet. I sort of liken it to Korea maybe 15 or so years ago. Everybody wanted to get stuff Korean, components from Korea, but it wasn't quite there. The trajectory for China is dramatic, and I would expect within five years we'll start seeing quite a bit of componetry coming from China into NAFTA, if not Europe as well.
With Beijing hosting the Olympics, we understand the Beijing Jeep plant will be taken over for construction of athletic fields, and you'll get a new Jeep plant in Beijing. Will there be a new sourcing arrangement for the new plant?
Rosenfeld: I am going to China the week of July 17 to discuss these issues and how we manage our activities in China. Not only, but DaimlerChrysler as well. So I can't give you the specifics now. But we do expect in China for some of our global partners to support us there as well.
Nagata: Toyota is trying to establish a very good supply base in China. My colleagues working in purchasing are responsible for developing Chinese local suppliers, whether owned by Chinese, American or Japanese companies. I'm not forcing our suppliers to go to China. It's purely up to the suppliers, but I share my personal concern. We prefer a shorter supply chain within NAFTA hopefully. Several problems already have been experienced. In the case of electronic parts suppliers, they have several Tier 2 suppliers in Southeast Asia, including China, but the supply chain is getting longer and longer. One example is the lead time from order to delivery of components. Place an order with a Tier 2 supplier in Southeast Asia, and the delivery sometimes takes several months. Sometimes there are mistakes. There is some risk for Tier 1 suppliers. The longer their supply chain becomes, the more problems they may face.
Brown: It's a good market, frankly. We are aggressively pursuing emerging market sourcing, not just China, but Eastern Europe, (and) other places in the Asia/Pacific region. Look at the F-150, where you've got to figure out how to more cost-effectively deliver the feature set. Some of those things can be done more cost effectively than where they're being done today.
But the vast majority of our sourcing is not from that region. As we increase our manufacturing footprint in the region — specifically China, where we've increased our manufacturing capacity for vehicles and we're about to increase manufacturing capacity for engines as well — the effect is that the local supply base will develop more rapidly than it might otherwise develop. We will develop that supply base to support our local manufacturing, and the effect will be that we will also look at where it makes sense for export opportunity, both for North America and back to Europe. But we have to make certain that under no circumstances do we compromise quality.
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.
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.
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.
Jutte: We have no strategy to bring more parts from any other part of the world, specifically. I do know of suppliers of ours that are sourcing Tier 2 and 3 components from China, Thailand, Malaysia, the Philippines, maybe doing final assembly here. Maybe it's their own company that they've decided to globally source something in one location because of the tooling cost and so forth and ship it globally. We're fine with that, as long as they're taking the responsibility to control all of those things. They have to control their own destiny. If they are doing significant business in that way, it could be a risk. We will understand that. And through our new model review process, we will find that out. In some cases, we may go to those locations and check the actual situation, confirm the stability, capability of the supplier, even though it's a Tier 2 component. We don't care. We want to guarantee that product to our customer.
Are you saying in many cases it might be more appropriate for a Tier 1 or 2 supplier to source from China rather than Honda buying direct material — headlamps or other modules — from places like China?
Jutte: That is up to each and every supplier we work with. That's their business, and we try to stay out of the business of running their business. What we do expect them to do is clearly be able to manage their supply chain, and their suppliers should be global best as well, which will make them global best. It's hard to be global best if all the components coming into your facility are global worst.
UAW employees at Delphi, Visteon andhave 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?
Nagata: It's hard to tell, whether there is a direct correlation between overall competitiveness and cost. When we select suppliers, we evaluate many factors: piece price, tooling cost, our logistics costs and quality level. So I don't know to what extent that agreement will help these suppliers to improve overall competitiveness.
Brown: Given that they (Delphi and Visteon) have the technology and the quality and now they're more cost effective — absolutely. We are positively (motivated) to help them to be more competitive, because the more competitive they are, the more competitive we are. The new labor agreement, in my opinion, bodes well for all of us.
Andersson: 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%. 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.
Jutte: Whether Delphi or Visteon or China or Thailand, everyone has a different wage structure. But that's just one component of the cost of doing business. If cost was the only factor, this job would be easy. They wouldn't even need me. We evaluate based on quality, cost, delivery and development capability. You may have the best price, but that doesn't mean you have the best quality or the best development capability or the best financials. If you have the best price, but your financials are heading toward red, we won't go there. We are diligent about not doing business with people who can't manage their own business. We do business with Delphi today. The Acura TL has a Delphi battery in it. Visteon makes instrument-panel gauges for the Accord. Both companies are globally competitive in some of those aspects (quality, cost, delivery and development).
But they already supply Honda, so they've cleared some hurdles. If they continue to deliver acceptable quality and can now do the same job for a fraction of the price, doesn't that make them more attractive?
Jutte: No. You said acceptable quality. Our quality standards every year are getting tougher. And our delivery requirements are getting tougher. They may have cleared a hurdle for one aspect of doing business with Honda, but that doesn't mean they've cleared all the hurdles on winning more business with us. They've proved to us they are a player. They have every capability, if they choose to engage their whole team to win business with us. They have business with us today. I can't tell you if they'll have business with us tomorrow.
We've heard about GM and Ford amending their terms and conditions regarding supplier contracts. Has Chrysler Group amended its terms and conditions?
Rosenfeld: No, we don't have a plan to amend our terms and conditions significantly. They tend to evolve. I think one of the reasons you don't hear much about Chrysler compared to GM and Ford is because we are sincere in managing our relationships one at a time. If we have an issue with a specific partner, we try to work that out with that partner. Yes, we do have terms and conditions on every purchase order and we try to manage using those. But if there are specific issues because of a complicated relationship, we work them through. For example, at Toledo (new Jeep plant, see p.33), we won't be able to use standard terms and conditions for that, so we'll work our way through that. Each relationship is unique. If you talk to some of our suppliers, hopefully what they will tell you is, ‘Yeah, I understand what the requirements are from the Chrysler Group and I am working to try to resolve the issues I have.’
Suppliers have complained with regard to developing markets, especially China, that the Big Three have shopped some of their intellectual property. Can you comment?
Brown: We don't do that, period. It's bad business. There is no one inside that is shopping someone else's IP. And if someone is, which I believe no one is, and I find that they are, then we'll fix that because that's not fair.
Has Ford run into any intellectual property issues in developing markets?
Brown: Actually, you don't have to go to China to find people counterfeiting our parts. We can probably walk down the street and find someone that's got F-150 knockoff parts that aren't our parts. You can't control it.
Jeep Revives Rolling Chassis
The Chrysler Group and a handful of key suppliers hatched a unique partnership a few years ago to assemble and paint complete bodies for a vehicle — the Dodge M80 compact pickup — slated to be assembled at a greenfield plant in Windsor, Ont., Canada.
Although the vehicle program was canceled in spring 2003, Chrysler remained committed to the manufacturing arrangement.
Today, it appears Chrysler is moving ahead with that philosophy as it prepares for a new assembly plant in Toledo, OH, on the site of its Stickney Avenue Jeep facility. The new plant is expected to open in 2006 and will build at least two models for Jeep.
Peter Rosenfeld, executive vice president-procurement and supply, says the Stickney Avenue facility will demonstrate a whole new approach to supplier relations.
“We have a very good idea of who the final supplier candidates are for that project,” Rosenfeld tells Ward's.
This summer, Chrysler expects to have signed contracts with suppliers to handle key areas of vehicle manufacturing, namely the paint shop and body shop, Rosenfeld says. He refers to the arrangement as a “supplier park,” where suppliers would own more assets than at a traditional OEM-run manufacturing operation.
In addition, Chrysler plans to use a “rolling chassis,” in which one supplier would integrate brake, wheel, chassis and exhaust components. The entire under-body then would be delivered to the vehicle assembly plant, where it would be mated with the body.
Frame producer Dana Corp. supplied the rolling chassis beginning in 1998 for the Dodge Dakota, produced in Brazil. But Chrysler has since stopped producing Dakotas in Brazil. Rosenfeld would not say whether Dana will supply the rolling chassis for the upcoming Jeep.
Many issues remain unsettled as Chrysler attempts to craft a new supplier philosophy for Stickney Avenue: Who owns the components on a rolling chassis, and who will manage the unwieldy logistics chain for those components? Will employees in the paint shop and body shop work for the supplier or for Chrysler?
It also is not entirely clear whether suppliers in this new relationship will be located under the same roof as vehicle assembly, or whether there will be an adjacent complex. He is confident the new relationship will “forge new ground here” and will demonstrate Chrysler's significant commitment to the Toledo area at a time when low-cost labor overseas appears so alluring.
“Chrysler is showing that it is, wherever possible, making a commitment to North America and the U.S. specifically,” he says.
Rosenfeld refers to Chrysler's recent sale of component plants in Huntsville, AL, (to Siemens VDO Automotive); Dayton, OH (to
— with Kevin Kelly
Chrysler Group purchasing — by the numbers
- $36 billion annual buy
- 850 top parent suppliers, 2,000-plus supplier manufacturing locations
- $6 billion worth of business re-sourced away from struggling suppliers since 1998
- $3 billion worth of goods and services sourced from minority suppliers in 2003
Sienna Brought New Logistics
Toyota Motor Corp. prides itself on the steady relationships it builds with suppliers to minimize disruptions during production.
But when a vehicle program draws to a close and its replacement nears launch, some of those relationships change dramatically as the Japanese OEM remains wedded to the idea of continuous improvement.
The '04 Sienna minivan is a good example. The vehicle may not be dazzling stylistically, but behind the scenes Toyota and its suppliers were coping with a raft of changes from the prior model.
First, Toyota would move minivan assembly from Georgetown, KY, to the Princeton, IN, plant constructed for the 1999 launch of the first-generation Tundra pickup.
Most Sienna suppliers, however, were clustered in the Georgetown area. Those suppliers that did not set up new facilities near Princeton would have to ship their components from Georgetown — a trip that takes more than three hours.
And although many suppliers carried over from the prior Sienna, some were new. For instance, Johnson Controls Inc. produced seats for the previous model. The new contract, however, went to Total Systems Interiors America, a joint venture between Lear Corp. and Japan's Takashimaya Nippatsu Kogyo Co. Ltd.
Despite many engineering challenges, Andy Lund, program manager-development and planning operations at Toyota Technical Center in Ann Arbor, MI, says TISA has performed admirably.
Lund says he likes Chrysler Group's new second-row minivan seats, which fold flat in the floor, but that Toyota did not want to sacrifice all-wheel drive on Sienna. Chrysler dropped AWD because the new seating configuration interfered with the drivetrain.
The new Sienna, however, may have yielded a solution: Lund says a hybrid-electric powertrain, which doesn't need a traditional driveshaft, would make possible the flat-folding second row and AWD combination. Lund says the hybrid configuration is a possibility for Sienna.
Another new supplier to Sienna is Vuteq, of Normal, IL, which assembles the minivan's instrument panel. On the previous-generation vehicle, Toyota workers built the module on-line at the Georgetown assembly facility. For the '04 Sienna, IP components are shipped to Vuteq, which acts as an outsourced assembler for Toyota.
Although cost savings were a factor, Lund says Toyota made the switch for ergonomic and quality-control reasons. Vuteq devised a more worker-friendly process — by placing the IP on a moving stand — than was employed by Toyota workers at Georgetown.
Toyota also outsourced the modular headliner assembly to JCI, which set up a just-in-time assembly plant nearby.
— with Katherine Zachary
Toyota purchasing — by the numbers
- $12 billion North American manufacturing spend on parts, materials and logistics
- 500 suppliers in North America
- $650 million spent in 2003 with minority business enterprises
- $1 billion combined Tier 1 and Tier 2 minority purchasing target for 2005
Exam Day for Honda Suppliers
Plant yourself in the front seat of a Honda Motor Co. Ltd. vehicle — from an entry-level Civic to a sporty '04 Acura TL — and it's hard to find fault with the interior.
Quality materials, benchmark fit-and-finish and clean design are Honda's calling cards, but the auto maker does it with suppliers' help. Honda uses a rigorous model it devised five years ago to find qualified interior suppliers, says Larry Jutte, senior vice president-procurement.
The review process consists of five steps, and the assessment entails hundreds of checkpoints to make sure a design meets Honda's validation requirements for production, tooling, testing and training, Jutte says.
“If you don't make the grade, then you fail that review process,” he says. “And then you have a rematch, and if you fail that you have another rematch.” If a supplier is struggling, Honda assigns engineers to help.
Jutte describes the process while seated in the driver's seat of the new TL. He runs his finger along the dashboard, along the top of the glovebox door. “Look at this fit here and that crucial line,” Jutte says of the point where the glovebox closes against the dashboard. “The supplier and our team worked together and ended up redesigning the process months before the mass-production launch to make sure we could keep this tolerance on this radius here.”
The glovebox supplier ultimately installed a work station with a cooling fixture to ensure the tolerance could be maintained.
As he studies the seam, Jutte realizes it's not right: With the glovebox closed, the seam along the door is not uniform. It's wider at one end of the door than at the other. Jutte is troubled and says he will investigate.
“I'm going to find out when this car was made,” he says. “Is that within tolerance? I don't know. Do I like the way it looks? No. It should be seamless.”
Despite the seam on that particular model, Jutte says the design aspects of the TL glovebox will be applied to other Honda and Acura vehicles.
Elsewhere on the TL, Jutte singles out a handful of suppliers for outstanding contributions: Magna Donnelly (body-color exterior mirrors), Panasonic (DVD-Audio surround-sound) and Stanley Electric Sales of America (headlamps). Honda is so pleased with Stanley that its “global best” Accord headlamps are shipped from Ohio to Japan.
— with Katherine Zachary
Honda purchasing — by the numbers
- $12.6 billion North American purchasing budget (autos and motorcycles)
- 620 suppliers in North America, including 520 in the U.S.
Auto-Tech Hosts Purchasing Confab
Have a few questions of your own for the Big Three purchasing executives? The 17th annual Auto-Tech conference at Detroit's Cobo Center will feature a panel discussion on global purchasing practices at 8 a.m. Wednesday, Sept. 1. Participating will be GM's Bo Andersson, Ford's Tony Brown and Thomas Sidlik, executive vice president-global procurement & supply at DaimlerChrysler Corp. The session will include questions from the audience. The Automotive Industry Action Group is organizing the conference.