Television fitness gurus Denise Austin and Susan Powter have nothing on the purchasing bosses of the domestic Big Three automakers. These men have been leading an industry-wide aerobics class for years, and suppliers will be feeling the burn even more in 1996.
While it may be difficult to imagineMotor Co.'s Carlos Mazzorin, Corp.'s Harold Kutner and Corp.'s Thomas Stallkamp wearing skimpy Spandex outfits, their combined push to eliminate fat in the automotive supply chain is sure to make vendors sweat. But like any good exercise program, there promises to be significant gain in return for the pain.
A supplier surviving the workout can expect to benefit from each automaker's global expansion. Increasing volumes and long-term contracts, say the purchasing chiefs, will compensate suppliers for the additional costs associated with more design and engineering responsibility.
Like the chest pains that trigger reform in an overweight couch potato, worldwide competition drives the hard line that OEMS are taking with suppliers. And while the efforts are not likely to end any time soon, Messrs. Mazzorin, Stallkamp and Kutner insist that their focus is on reducing supplier costs and complexity in the system, not profit margins. Another market issue effecting suppliers as they head into the new year is a more car-smart and value-conscious group of vehicle buyers concerned about what is being called the affordability crisis. This is leading automakers to look even closer at cost-cutting methods.
"We don't tell our customers that we have to raise our price because raw materials went up," says Mr. Mazzorin emphatically. "The customer will tell you to stick it in your ear, my friend."
Mr. Stallkamp echoes Mr. Mazzorin's comment on affordability, adding that the issue forcedto make December 1995 some vehicle features like antilock braking systems optional on low-end vehicles (see Pipeline, page 95).
"The customers are more sophisticated than they've ever been," says Mr. Kutner. "I think their expectations about quality are probably higher than they've ever been. And I think cost -- the affordability of vehicles -- is another issue."
Rising vehicle prices and stockholder concern about automaker profitability puts pressure on the purchasing executives to control the cost of material and parts. Suppliers complain that the sometimes heavy-handed tactics of OEM procurement departments target their profit margins. Not so, say the Big Three.
"I'm not after the margins of the supplier," says Mr. Mazzorin. "If you take the total budget -- tier to tier all the way to the OEM -- if you can't find 20%, then I better change my name. I believe we're going to do it together." Mr. Mazzorin refers to's recent edict to suppliers requiring 5% cost cuts each year for the next four years. He clarifies that the waste can come from Ford's side of the ledger as well as the supplier column.
While perceived differently in the field, Chrysler's SCORE (supplier cost reduction) program also requires suppliers to return 5% of their annual sales to the automaker in SCORE suggestion savings. Chrysler's 1996 goal is $1 billion in SCORE program savings, says Mr. Stallkamp.
"Let's look for the waste and get it out of your system," says Mr. Stallkamp. "We don't want it to come out of your margin. We want you to be profitable. Some of the ways you can do that without reducing price is helping us use your part more efficiently or bringing the transportation cost down."
"We're trying to reduce complexity," explains GM's Mr. Kutner. "Complexity drives variation. Variation drives cost and it can lead to poor quality.
"We still think there's a lot of waste in the system," he adds. "Our global sourcing process works on cost reductions. Raw materials go up and down, but our focus has got to be on cost. When you can get suppliers focused on cost, the price issues seem to disappear."
GM's vice president of worldwide purchasing says competition around the globe forces GM to be demanding of its suppliers. "The competitive issue is driving us to have very high expectations," Mr. Kutner explains. "Our supplier community's ability to compete in technology, cost and quality is going to drive a relationship issue that may not be the same as other OEM manufacturers."
Yet while Ford and Chrysler strive to shrink their supply bases, Mr. Kutner says he thinks that is a "poor" strategy and that GM will not close the door on anyone. "When you're rationalizing your supply base, you're telling your (parts) buyers to send people away," he says. "And when suppliers are knocking on your door saying `here's my technology,' it's a conflict in the minds of the buyers. The question is, if you're driven by what's best for the customer, are you listening to the supply base to give the customers the best?"
Rationalization, when it comes about as a result of suppliers taking on system engineering responsibility, is acceptable, Mr. Kutner explains. "As systems become more modular, there will be some rationalization taking place," he says. "But we are not going to tell our organization to get to 300 or 200 or some number of suppliers, because again we do not want to turn away people who are offering us technology."
Although Chrysler appears to lead the league in delegating system integration work to suppliers, there may be limitless opportunities for similar contracts at GM. "There's no set answer to what suppliers are going to engineer and what they're not going to engineer for us," Mr. Kutner explains. "A lot of it is going to depend on the sophistication of the supply base and the capability of suppliers to do vehicle integration as well as vehicle validation."
Mr. Stallkamp says Chrysler will always stamp its own sheet metal and supply its own engines, transmissions and electronics. Suppliers are having the most success delivering seat and interior systems and suspension/axle assemblies. Integrated braking and fuel systems are expected to be Chrysler's next breakthrough.
As more development responsibility shifts their way, suppliers are concerned about recouping the higher costs associated with that sort of work.
"Obviously there's going to be some cost involved in the transfer of responsibility from the OEM to the supplier," admits Mr. Kutner. "We would probably expect the amortization of engineering or development costs in the piece price. I would expect that with the volumes we're offering that we'll be able to thin that cost out significantly, versus just paying an up-front engineering charge for one system."
Mr. Stallkamp says Chrysler's target-costing strategy (versus the quote-bidding process) allows for engineering, research and development. "We work with the supplier on trying to spread that out over as large a volume, as large a time period as possible," he explains. "That's why commitments are very extremely important to us going out in the future."
While acknowledging the trend, Mr. Kutner downplays increasing supplier involvement in system development. "It's been around for probably 75 years," he says. "We have many, many things in the cars, especially on the electrical side, that have been totally designed by suppliers for as long as I can remember. There's nothing strategically different about using your suppliers to do design work. Over time will suppliers be doing more design? Probably."
Mr. Mazzorin says releasing design responsibility is not easy to accomplish. "You don't change overnight," he states. "Not the process or the mindset. For a long time we designed everything. Now we say `you do it.' Then the people who were doing it (at Ford) come and say maybe you shouldn't do it that way. We've got to correct that."
QS-9000, the automakers' first attempt to standardize supplier quality requirements, should make delegating development responsibility easier because it affects every aspect of a supplier's business, including product development. Each of the Big Three purchasing executives say they expect QS-9000 to help the industry produce higher quality parts and, ultimately, vehicles. Although suppliers are not required to be compliant until 1997, Messrs. Stallkamp and Kutner say they are seeing results already.
There always seems to be dissension among the supplier ranks when an automaker changes the way it does business. When J. Ignacio Lopez de Arriortua changed the rules for GM's purchasing in the early '90s there was a revolt. Even as he was being called "immoral" in certain circles, the changes probably were necessary and helped GM get to its current position, which analysts say is improving. As Ford changes its culture for Ford 2000, suppliers are reported to be in a lather.
Mr. Mazzorin says the "white water," Ford's unofficial term for supplier griping, came as much from his company's internal changes as from a poor attitude toward vendors.
The first change was going to a global purchasing strategy. "That's a big change from anything we've done in the past," he says. "And we have a group dedicated to that, which we've never had. We had raw materials, but we never had a group to buy them like we've put together. Now it has the supplier quality function as well. Now you've got everything under one umbrella. While we were doing all this, we had to deliver the business. We launched DN 101, DN 96,, Fiesta, Escort, Scorpio all in the same period. Are you going to have white water? Yes."
Chrysler's Mr. Stallkamp has a vision for the result of the supplier exercise program he leads. It includes supplier engineers working even more closely with his company on product development. "He'll be here managing the program instead of sitting out here in his car waiting to take someone to lunch," he says.