Three months ago, suppliers panicked upon learning General Motors Corp. had a new get-tough policy allowing parts makers to easily be “de-sourced” from long-term contracts.
Suppliers heard through word-of-mouth and media reports, rather than from GM. Bo Andersson, GM vice president-worldwide purchasing, apologizes.
“We didn't do a good job communicating what the change was and what the impact was,” Andersson tells Ward's. “So I had a conference call with all the top 200 suppliers to explain what it was.”
GM amended its “terms and conditions” clause to require quicker action from suppliers found to be non-competitive, based on market conditions, with their prices for long-term contracts signed after Oct. 1, 2003, for programs beginning production in 2007. The program is not retroactive.
GM can inform the supplier it has 30 days to become competitive, likely through price cuts, or face de-sourcing. The previous 18 months suppliers had to respond on matters of price was deemed excessive.
The new policy gives GM leverage in the event a supplier's performance wanes. “We still have opportunities when we award a product in year one and start production in year four. Sometimes, they (suppliers) become uncompetitive (during that time).”
The provision is designed so GM ensures, to some extent, that one supplier does not charge GM more than it charges another OEM for a similar component.
