Ward's recently spoke with Bo Andersson,Corp. vice president for worldwide purchasing, as part of its annual interviews with the Big Three purchasing departments.
An interview withMotor Co.’s Tony Brown appears June 24 and with the Group’s Steve Walukas June 25. Excerpts from all three appear in the July issue of Ward's AutoWorld.
Ward's: Has GM had any steel shortages due to the tariff dispute?
|GM purchasing chief Bo Andersson says he believes top suppliers are offering GM their best technology.|
Andersson: We typically have 3- to 4-year contracts on steel. Secondly, for 85% of our stampers, we give them steel through resale. So in reality, most of our suppliers are getting steel from our suppliers at the same rate as us. Thirdly, in 2004, roughly 40% of our steel is up for negotiation, so 60% of our steel will continue into the end of 2005.
We feel we have more leverage with the supply base today than we had a year ago. The markets have changed, capacity is more open. We are a global organization, so we have people in 40 countries. The tariff today is 24% on the steel we use. If you look on an average, transportation is maybe $50 a ton. There are different things you can do – 99% of our steel is coming from the U.S., and most of our (steel) suppliers we are happy with – not all.
Ward's: So you’ll sign new contracts for virtually all the steel you buy between now and 2005. The market is such that prices are up for everyone else who’s buying steel. When you end up signing new contracts, you don’t think your rates are going to go up, because you have the leverage?
Andersson: Because we’re doing different things. Again, steel is a raw material but there are different things you can work on to improve the cost of steel as well. If you had asked me a year ago, I was more nervous a year ago than I am today. But I think we’re sitting with different facts and sitting with a situation where we feel we have a good strategy. And I think the biggest element here is that our supply base really likes the steel resale program because it takes one haggling point out of it.
Ward's: You’ve been able to keep the prices down for the suppliers to some extent?
Andersson: I think during the last year it had been a big plus for the supply base to be in the GM steel resale program. It’s one way where we differentiate a little bit with our main competitors, especially the Japanese. I’m a board member of NUMMI (New United Motor Mfg. Inc., Fremont, CA), so I know what the Japanese have gone through regarding steel. We always look for our golden nuggets, and we have been working very hard with two of our steel makers to make their business as beneficial as possible.
Ward's:had to airlift steel from Japan here to the U.S. Did GM at any point throughout the last year or so, as the steel issue has been hot, go through any issues that extreme?
Ward's: On the repurchase program, is the participation now higher than it was two or three years ago?
Ward's: When the prices were lower, suppliers were buying more on their own. Now that they’re higher, they are (joining the program)?
Andersson: Yes. Also, we’re doing a better job. We can always improve. In general, we have got good feedback on how we handle our steel resale program. With the situation of the last 15 months, typically we improved the focus on it and put in more people on it.
Ward's: So the steel you are purchasing is domestic currently. By 2005 when you have renegotiated steel contracts, do you think it still will be domestically purchased at that point?
Andersson: Yes. We’re doing some creative things with the domestic steel industry. It’s clear today if you look at per-ton, the most competitive steel is still in (South) Korea. It’s public data, plus Korea has the best price-per ton on electro-galvanized steel, which is the biggest type we use. Last month it was trading around $400 per ton vs. the U.S. price today conservatively is around $525, $535 per ton.
Ward's: Does GM’s connection with Daewoo give you greater inroads with South Korean steel producers?
Andersson: We have strengthened our relationship with Posco since they are the main steel supplier to Korea. But if you just think about a tariff environment, it doesn’t make any sense to move in steel from Korea. You need to add in $100 in tariff, then another $60 on transportation. However, for us, one of the things we say to our supply base is since we buy in 40 countries around the world, and since we meet twice a week with all our people worldwide, we know what the best cost worldwide is.
In our benchmarking we always say, this is your level and this is what we want you to achieve. Where you achieve it, we don’t really care. I’m amazed how misquoted I’ve been internally and externally the last year about saying that Bo wants to buy from certain countries. I say, ‘I don’t care.’ But the beauty we have is since we know what the best cost in the world is, that’s our reference point. I say to my own people, if you look at their own private shopping behaviors, they buy the camera at Best Buy and water at Costco and beer at Costco.
Most people do very well when they shop for themselves. I want people to think as much when they shop for the company, and now I want them to think worldwide. Where is it best to buy seatbelts worldwide, where is it best to buy tires worldwide?. We know this. So we challenge the supply base, like on steel, ‘This is where we’d like you to be. Can you be there?’
Ward's: So you’ve been misunderstood to some extent?
Andersson: I think all of the Big 3 have been very much focused on this, that it’s not competitive in the U.S. And I disagree with that. We have many suppliers that are very competitive. On the other hand we have many that are not.
Ward's: GM is producing more in China and building a supplier base there. You mentioned last year you were impressed with the supply base set up for Daewoo (Daewoo Auto & Technology Co. Ltd.), that a lot of those suppliers were in China?
Andersson: What we were surprised with is a lot of Daewoo suppliers had their Tier 2s in China. You take an interior supplier for Daewoo, they were buying a lot of their components from Chinese suppliers. Speaking about Daewoo, I think we’ve had an extremely good year. Today, we have restructured the supply base, and all suppliers besides one is financially healthy, since our volumes are up and we have increased some of the exports, mainly from Korea to Japan and from Korea to Europe.
The reason for that is Daewoo’s strength is small cars – much smaller cars than we use here.has benefited very much from the Daewoo supply base, buying from Korea to Japan. Second, Europe has benefited because they do typically the same type of vehicles like the (Opel) Corsa, the same type of size as many of the Daewoo products.
Ward's: Covisint has a new CEO. What are the key challenges you’d like to see him address?
Andersson: When you look on what (former CEO) Bruce Swift and the team have done, it’s focusing much more on non-controversial cooperation between suppliers and OEMs. I think the whole element of focusing more messaging and that type of stuff is sound. I’m not going in and saying what I think they do great or what they could do better. But I think directionally they are in a better position today vs. us and vs. the suppliers. I see that as a plus, and they’ve rightsized their activities.
Ward's: Can you quantify how much purchasing you hope to move through the Covisint portal this year?
Andersson: For us, since we’ve had a competitive process for 10 years, so the benefit maybe wasn’t as large as for our competitors. I don’t speak for DaimlerChrysler (AG), but for them, they have benefited a lot. Why? Because they had separate plants buying certain things. So now they put it all together. We have already done that for 10 years. Second, we didn’t have a competitive sourcing process. Leading in to your question, it’s a very mixed bag on how much is going through. We see certain areas where it fits very well. Others don’t fit that well. Talking rough numbers, we do about 20% of our purchasing over Covisint in one way or another.
The tools have changed, so based on having more experience with it, our buyers can do bid events from our own computers without going back and using Covisint’s full services. A year ago, we couldn’t do that. I want to play it up. Covisint, from our standpoint, has a niche in there, and we think that messaging and connecting the industry with industry standards may be the biggest benefit for the industry and for them.
Ward's: The vision you laid out a few years ago for GM coordinating the global purchasing for all the alliance partners – Subaru,, , , now Daewoo. Is that operation fully up and running yet?
Andersson: I think the last year has gone extremely well. What we did was focused 1_ years ago on certain areas. Two weeks ago, we were buying batteries together. Not only buying batteries but standardizing the batteries we use. We have been very successful on starters, alternators, wiper systems, infotainment, radio, antennae, speakers. For the consumer, it really doesn’t mean anything. If you take a 2-by-2 in. speaker, we have been very successful taking in Subaru, taking in Suzuki,. You talk to the supplier that now is selling 20 million 2-by-2-in. speakers – for them it’s a huge benefit.
Ward's: How do you make sure you have enough brand differentiation when you’re buying speakers for all those brands? Are there certain products that you don’t want to buy that way because what Cadillac needs is different than what Daewoo needs?
Andersson: If you take infotainment, it’s very much marketing driven. Take an Escalade – the marketing organization has very high, clear expectations on whatever sound they want in an Escalade. Typically, in all Escalades you see Bose systems. Take a low-level Chevy or an Opel Corsa in Europe or Suzuki – that’s base infotainment. Today, in engineering, purchasing, we do all the strategies together. That’s the major difference vs. a year ago. Jim Queen (vice president-engineering North America) and I are meeting on a weekly basis, and we meet with what they call the system management teams.
If people want to have the highest brand quality tires, our job is to buy the best, not debating if people are right or wrong. The trick then is that people need to afford them. We can buy whatever. Where we sometimes have had problem is people want to have the best, but they couldn’t afford it. So my message for our organization: If they can afford it, OK, give it to them.
Ward's: What type of reaction are you getting from suppliers on this notion of buying starters or batteries across all of these various companies?
Andersson: I think the suppliers are generally very positive. Sometimes, where we stretch ourselves is how can we move faster. One thing is making the decision that you go from X batteries to six, whatever. Going back to the alliance partners, if you don’t drive the standardization, there are very little benefits. But if you can offer the suppliers, say, ‘You get 14 million of these,’ and they are going to look the same. You’re going to ship them in the same box, you label them the same, the quality requirements are the same.’ That’s a huge benefit for the supply base.
People think we want to buy from low-cost countries. I met a supplier last week that is doing ignition coils for us, a Japanese supplier. Their main operation is in Tennessee. I say, ‘Why don’t you move it to Mexico?’ No, dumb statement by me. It’s running 24-7, 365 (days), it’s five people. Wrong statement. I say, ‘But you know some of your competitors do it in Mexico.’ And that’s why Jim Queen and I are digging into all these areas. We find that more and more. Every area is different. The most cost effective suppliers we have typically have 105% capacity utilization.
Ward's: Are you doing any of this purchasing for GM and the alliance partners over the Covisint portal yet?
Andersson: Clearly that’s how we run it, but it’s different case by case. If you ask me, do we buy…all of our tires all at once for all of the joint venture partners, the answer is yes. Do we buy all of the precious metals for all our joint venture alliance partners at the same time, yes. If I take seats, it’s very different because vehicles are in different stages.
Ward's: We talked last year about decontenting – GM’s decision to take certain components optional, for instance, antilock brakes. Over the last year, have any other components or features been taken optional that had been standard in the past?
Andersson: I stay away from that question. Typically it’s a Bob Lutz/Jim Queen decision on what is the right content. I’m not aware of anything they’re doing now.
Ward's: GM is outsourcing much of its interior development on future vehicles to LearCorp., Johnson Controls Inc and Magna’sAutomotive. How is that progressing?
Andersson: We started this for one reason: We were not able to have enough harmony. Too many people in the kitchen, and we ended up with a different type of gloss level and different type of materials on door trim and instrument panels. What we started with was current programs, and for us the model works. We feel we have better coordination of our interior materials. Second, we see on the new vehicles we have launched like the Grand Prix and Hummer H2 and even the CTS, the press is saying GM is getting it together.
One thing that John Calabrese (executive director-interiors) and Vicky Morter (executive director-chemical purchasing) did when we started this was to put our GM engineers at the supplier sites. GM engineers moved to, to and Magna. For us in general it works as intended. Last, we are keeping roughly 25% of interiors ourselves inhouse. That’s another honesty check that we are keeping the competency inhouse.
Ward's: The employees that have gone to work from GM to suppliers, are they employees of those suppliers now?
Andersson: They are GM employees.
Ward's: Can you talk about what happened withrecently, the story about GM and Intier purchasing employees losing their jobs?
Andersson: I think it was a bad story, but it’s behind us. After that, we increased our checks and balances, and I think Intier did the same. It’s all about leadership, and checking that what actually should happen, happened. For me, it’s history. We did a very sincere thing internally. We got all the buyers and managers and directors together and showed the case, refocused what we expect. We asked the buyers and managers, as well, to check if they had any other cases like this. They came back three days later…to my knowledge there is no other case. We audited all the interior suppliers because we didn’t want to single out anyone. We did full-blown audits on all interior suppliers.
Ward's: I’m under the impression these employees found a way to charge more to GM than was originally agreed to. Is that essentially what happened?
Andersson: It’s a complicated thing, but in our view GM was disadvantaged at the cost of the supplier. How it happened and what motives, I don’t really know. But in reality, it’s rather simple. We paid higher prices, and the worst thing is the way it was done. It was systematic marking up of engineering changes.
Ward's: Are you rethinking any of the supply agreements in light of this? Is it necessary to have a new policy in place?
Andersson: I think in this case Magna has done everything we’ve asked them to do. It’s a large company, sh-- happens.
Ward's: There was a survey conducted by John Henke of Planning Perspectives Inc. You may have heard the Big Three didn’t do so well. I’d be curious to hear what you think about why the Big Three have become so unpopular with their suppliers given that the suppliers get so much business from them.
Andersson: We’re meeting him today at 10 a.m., so I’m eager to learn more. We take it very seriously, so we are doing our own survey with our 50 most important suppliers. And we do it face to face or on the phone, really dragging out everything we need to know. My view based on the statistics is that there are very few people answering the (Henke) surveys. Second, the level of people answering the survey is typically lower level people at the organization.
The biggest issues we are getting back on our own survey – this is talking to real people, talking to vice presidents, CEOs of our most important suppliers – is really that we can do better on technology process, getting new technology. We can also do better on how we compensate people for being fast movers with new technology. In some cases, they pointed out we want them to take too much risk, so that’s something we’re fixing. I’d rather do the findings myself and correct it. We encourage our suppliers to tell us the truth. We can handle it. Two years ago, we had issues that suppliers were not paid in time. I said, ‘Give me all the facts.’ I dug into it myself, and we fixed it.
The concerning thing I have, to be honest, is based on our estimates, 90% of the profits for the U.S. supply base is coming from the Big Three. And 10% is coming from the non-Big Three. So something is broken here. I checked after the survey came out to say, ‘How much business does our top 20 suppliers do with the Japanese.’ And it’s between 1% and 4%.
Ward's: So are you getting the appropriate level of technology from your suppliers? We’re hearing, and this Henke survey confirmed a certain level of suppliers saying, ‘I’m not going to show my best technology to the Big Three.’
Andersson: Personally I don’t believe that. If they don’t, maybe they don’t have the right suppliers to us. If you take the big suppliers, I don’t believe that. We even see a trend that some of the most importantMotor Corp. suppliers are showing us and giving us technology. We recently gave business to Toyota’s largest seat supplier, Araco (partially because of new technology offerings).
Ward's: John Henke is convinced there is a disconnect between you and Tony Brown (Motor Co. vice president-global purchasing) and those down in the trenches buying the parts, working with the suppliers on a daily basis. Because of this disconnect, is that where this sentiment comes from?
Andersson: That is a concerning point for me because I’m getting criticized very much internally because I’m too hands on. Talk to suppliers, and they’ll say I spend a lot of time in supplier plants. I work personally on supplier parts, on quality and warranty and launch. Yes, I’ve stayed away from all price negotiations because I don’t select suppliers, I don’t negotiate prices, but take what we think we’ve been giving the supply base at all levels for the last two years. If you’re a large supplier, in the top 20, they have an excecutive champion. I’m the executive champion for Lear that coordinates the whole thing. If buyers treat Lear unfairly, I’d expect to hear about it every day. Now, I’ve given Lear a chance to talk with me without getting ripped by the buyer, because I’m the official GM representative to Lear.
When I talk to my guy doing our survey this morning, he said that people think…sometimes a deal is never a deal. With us, having incentives in the marketplace selling our vehicles and having price retention (negative pricing) of 3.5%, you are lucky to get the deal with 1% productivity four years ago. It’s a little naive to think that stands today. There are suppliers saying, ‘Though I got this business, say, in 1999, you agreed to long-term contracts with 1% reduction from year to year.’ Bad, but we have cases like this. When we go back and say, ‘Things have changed today based on the world economy, this is really priced at this.’ Suppliers don’t like that, right?
So what we have learned is we have something that we called lifetime contracts before. We took them away because it was locking in too much in blood. They said, ‘I’m sure we’re going to haggle about this for the next five years.’ So we just took it away. It became a very legal contract in the U.S. where suppliers had this part for life and this was the price. On the other hand, how many of our suppliers have lost the business. Very very few. I only know about one. That’s why I’m meeting with Henke today, to understand it better. I think he has a helluva lot of questions. We only ask 10 questions.
I don’t know how to explain this (survey results). If our (vehicle) prices have been going down 9% the last three years in the marketplace, that’s what we call price retention. There seems to be little understanding in the supply base what is the driver of cost reduction. It’s not that we want to be mean to suppliers. It’s the whole reality of it. I don’t think it’s a good way to tackle issues through surveys.
Ward's: So how are your suppliers doing?
Andersson: This weekend, we were having 10 plants running production. I have a phone call every day at 6 o’clock with my executive director checking on how we supported the 28 vehicle assembly plants. We build out 5,000 vehicles a day. We have 25 powertrain plants and 26 metal-fabrication plants. My view of the supply base: They’re doing a fantastic job.
During the weekend I always have two concerns. Are we going to run out of parts on Saturday, or are we going to be short of parts on Monday. Having been building for maybe the last 18 weekends, we’ve had no supplier issues. When I look on my scorecard on a North American basis, some days I don’t like the numbers. But parts delivered to station on time? Actually, it’s 99.97%. That means the supply base is working as a machine. If I take PPM (defective parts per million) for six months, we’re running today at 39 PPM. Spills, major disruptions to the plant? We’re running 50% better than last year.
I feel much more relaxed today than I was a year ago because I have less surprises. I think we have clear expectations. Second, we have said we will help you. I got criticized by some of my superiors last year because I spend every Saturday-Sunday in the supply base during summer. Some people said Bo has nothing to do because his wife is in Sweden. I don’t think that was really true, but last year we launched the GMT800 (fullsize pickup architecture) midcycle enhancement. What I learned being out, looking firsthand, is there are a lot of issues that typically are not addressed. My plan is not to spend every Saturday-Sunday in the supply base this year, because I don’t need to. But maybe I need to spend it on cost.
Ward's: What was your response to our story about Ford insourcing engineering. I don’t get the sense that GM is moving in the same direction. Was there a time when you felt that GM was going too far with outsourcing, which is the conclusion that Ford came to?
Andersson: We have one chief engineer per vehicle program. That takes care of a lot of stuff. We have strong VLEs (vehicle line executives) and one chief engineer per vehicle program. It was an interesting, well-written article. Ford seems to have a set of problems. Insourcing and outsourcing is not on the top of our minds right now. I don’t think we have these issues. I think neither me nor Jim Queen believe in big sweeping changes. In general, all chassis work is done internal in GM. That’s like black and white direction.
We said on interiors, ‘Let’s try something different.’ But we’ve been very clear why we want to try something different. The first reason was harmony, perceived quality, getting the responsibility in one set of hands. Before we had strong door trim engineering. You got a beautiful door trim. And we think it’s very hard to balance out. Do you take cost out of the carpet or a sun visor or do you put it into the seat.
What we try to do is say, ‘Why did we do this stuff?’ Because we have a problem allocating money, we have problem getting harmony. But I think the key message I got out of the Ford thing is that this doesn’t mean that Jim Queen and myself and Bob Lutz are not involved. We’re maybe more involved than people want us to be. And that’s what I’ve said to Lutz. Typically, it’s not the supply base capability. It’s our capability of telling them what in the hell do we need. The clearer you are what you need, the better job the supply base will do. Take the Escalade interior, it’s a much better interior than we had before. But we were very clear, this is what we need.
Ward's: You say how pleased you are with your suppliers meeting your requirements. Is that a result of your insistence on using hard data that is indisputable?
Andersson: I think so. We have spent a lot of time internally to make sure that engineering, purchasing, quality, manufacturing are all on one page. All the quality data two years ago was a mess because suppliers got different feedback. Today, all the data is inputed by manufacturing. If you are a supplier and you get a spill, you say to the plant, ‘I want to come down and look at the part.’ All of the cost data is inputed.
Kevin Williams, who was the star in my organization, was promoted to the vice president of quality for North America. That’s great, but now I need to find another horse. The interesting thing is that you have to have very good people that are very clear and consistent. Kevin was great at this. He stayed one course, he drove them to the next level. I think he, on both quality and launch, energized the supply base, said ‘What can we do different?’ It means the next challenge we have to tackle is how do we do the same thing in the cost-cutting end. I think it’s coming.
– with Brian Corbett