In the interview, Andersson talks about efforts to centralize parts purchasing with the formation of 112 “Global Creativity Teams” and says suppliers around the world love working for GM – except in the U.S.
Andersson, along with GM’s Brooks Stover, also discuss supplier contributions to the Hummer H3 SUV. (See related story: Suppliers Help Differentiate H3)
An interview withMotor Co.’s Tony Brown appears July 5, Group’s Peter Rosenfeld on July 6, Motor Co. Ltd.’s Larry Jutte on July 7 and Toyota Motor Corp.’s Simon Nagata on July 8. Stories from the interviews appear in the July issue of Ward's AutoWorld.
Ward’s: As GM steps up global sourcing of parts from low-cost markets, how do you ensure quality is up to snuff?
Andersson: Wherever our suppliers are, you can more or less see an 80%-plus improvement over the last four years. Globally, today, we’re at 31 PPM (defective parts per million), and typically we have had a 50% reduction over time on spills. If you have suppliers in China, Korea, Mexico, Brazil, Germany, U.S., you can say the quality is the same.
I talk to a lot of employees when I’m out traveling in Korea and China. They have a mindset – they know it is not natural for us to buy parts from these countries. So the motivation from the people on the floor is much higher because they have been trained. If they put a bad part in the box, that may be their last shipment, and they will lose their job. In Europe and the U.S., I say that’s one of the things we are lacking; that everyone has the same engagement to quality every day, every hour.
Sometimes, the farther away the suppliers are, the better the quality is. The farther away, the better the delivery is. Is that true in every case? No. But typically we do not buy parts from suppliers that are not qualified. And we may be too stringent on that.
Ward’s: We’ve heard a Big Three auto maker is seeking bids for instrument panels produced in China. Do you want to say if it is GM?
Bo Andersson says GM’s U.S. suppliers “are not prepared to play in the Olympic games.”
Andersson: No, we are not studying it. What we find, mainly in Korea and China, they have the best machines. They are spending much more money than our European and U.S. suppliers on equipment. They buy the best.
Ward’s: Do you think maybe that’s because their machines were old and now they are replacing them?
Andersson: Most of these companies are startup companies, so they start right. It’s like renovating a house vs. building new. That’s another competitive advantage they have vs. here where we have had suppliers for like 50 or 100 years. They have old machine lines. I think that’s another factor on quality.
Ward’s: How do you know when your purchasing agents are doing a good job? How do buyers earn bonuses and promotions?
Andersson: The first thing for me is integrity. If people don’t have integrity, that means they say things that are not right; they play games. We don’t tolerate that. We have really strengthened the criteria (for evaluating purchasing agents). And we have also separated (fired) people for that reason.
Second, what we see is our best manager/buyers have an engineering background. Third, in this job they need to work hard. Last one is results. But if you take integrity, knowledge, working hard, they typically get results. What we have seen the last two years, we have had more people coming over from engineering and manufacturing that really like these jobs because they have more freedom.
Ward’s: By having more purchasing agents with engineering backgrounds, what type of results do you hope to gain from that? Better materials? Better contracts? Better relationships?
Andersson: We’ve made a major improvement over the last three years in purchasing and engineering working together on a global basis. Both parties understand what it takes to be the best in the world from the part’s standpoint regarding initial quality, durability, reliability.
Second, we talk to suppliers as a third partner. The supplier, engineer and buyer have the same language, the same understanding and the same goals. We also use engineers coming in, working for us for one year as part of their developmental training. Typically, I say they are of more benefit to us as a department than when they are back in engineering. The other thing we’ve done in the last couple months is formed ‘creativity teams’ for purchasing. (See related story: GM Centralizes Parts Purchasing)
Ward’s: We understand GM andhave integrated their purchasing departments in attempting to bring health-care costs under control. Have you been on a crash course to learn about health care – PPOs, HMOs?
Andersson: No, what we did a couple years back, we gave health care a purchasing professional who was one of our most senior purchasing executives. Woody Williams, who used to be in purchasing for 25 years (executive director-health care initiatives), is responsible for GM health care. He was heading up Asia/Pacific purchasing.
Ward’s: How is GM managing its relationships with suppliers as they go through bankruptcy? Many suppliers are struggling, including your key suppliersand .
Andersson: The biggest disappointment I have with the media and to some degree the industry experts is, we have been global (purchasing) for more or less 12 years. We have 11 different supply bases. We have a supply base in Canada, and we buy roughly $10 billion in Canada. We are the largest buyer in Canada by all categories. In the U.S., we buy $41 billion (worth of parts). We buy $12 billion (worth of parts) in Michigan. We are the largest buyer in the U.S., the largest buyer in Michigan.
In Mexico, we are the largest buyer, with $10 billion. We are 33% of the Mexican supply industry. In Brazil, we buy for roughly $3 billion, and we are 25% of the supply base. In Europe, Western Europe – Sweden, Germany, Spain – we are a very large piece of that. We are a large buyer in India. We are the largest buyer in Australia.
We are not the largest buyer in Korea, but we are the largest exporter out of Korea, exporting roughly $1.5 billion (worth of parts). It makes us the largest component exporter, or buyer, out of Korea. We are a big player in Japan; we have 40 Japanese suppliers, and we are a large player in China.
If I now go backwards, Chinese suppliers love us, Korean suppliers love us, Indian suppliers love us, Australian suppliers are in the middle. European suppliers like us very much because we have had good success with the (Opel) Zafira and Astra. Polish suppliers love us, Turkish suppliers love us. We are the largest buyer in the Ukraine, and we are one of the large buyers in Romania. Brazilian suppliers like us, Mexican suppliers love us, Canadian suppliers like us. Many U.S. suppliers dislike us.
Ward’s: Why is that?
Andersson: They are not prepared to play in the Olympic games. I’ve said to my own people – they watch basketball, football, whatever – they understand these are global competitive games. But when it comes to automotive suppliers, they think we owe them something. We owe (it to) them to buy in the U.S. And I say we don’t. I personally have a very low profile and small ego. But when I go to Korea, they treat me very special. The government of (South) Korea thinks I’m a very important guy. They care about my life, and they want me to live long.
In the U.S. it’s different. I talked to one of your (Ward’s) competitors yesterday, and they said, ‘Bo, people like you, respect you. They just have a hard time separating what your job is.’ If I was an undertaker, people should be able to separate me vs. my job. In this job, it is very different. I have great neighbors, and none of them are suppliers. They say, ‘Bo, we hear a lot of bad stuff about you. You’re a decent guy, an honest guy, good family guy. What do they miss?’ They miss what the job is. My job is to buy the best. Shareholders should love me.
Ward’s: So everywhere you go in the world, suppliers think you owe them something. What do you owe them?
Andersson: What we owe suppliers is, we deal with integrity. We have high standards on integrity. We owe suppliers that we are open to buy from them. Look at some of our Japanese competitors…they own their suppliers. In some cases they own 70% of the supply base’s assets. Suppliers cannot even go in to sell something. We owe that we give everyone an equal opportunity. We owe that we give everyone fair treatment. No one has special treatment. We owe them clear expectations. We owe them clear feedback, and we owe them that the best-performing suppliers are able to grow their business.
Ward’s: On bankruptcy, you mentioned recently in Hamilton, Ontario, that in some cases GM has stepped in to pay certain Tier 2 suppliers because the bankrupt Tier 1 suppliers were not keeping up with their debts. Is that going to continue?
Andersson: It’s case by case. As I said in Canada, we have been doing this the last three years – this is not a new thing. Look at the bankruptcy rate – the last five years it’s roughly the same as we have today. I’m measured based on total material performance. That includes the money I spend on professional fees and bankruptcy costs as well. The more bankruptcies I have, the more I need the rest (of GM’s suppliers) to perform. So I think it is a fair measurement. I don’t see a big upheaval in bankruptcies from a numbers standpoint. The difference this year is the four (bankruptcies) have been larger. (See related story: OEMs Won’t Coddle Bankrupt Suppliers)
Ward’s: In negotiating prices, would the same expectation of a price cut be there for a supplier that is in bankruptcy?
Andersson: In reality they are protected by the courts, so we typically don’t have any productivity expectations of suppliers in bankruptcy. On the other hand, the suppliers that have been in bankruptcy for two years, they typically are not suppliers (to us) anymore. People say, you go in bankruptcy and you clean up your past. I don’t think that’s very good advice. We typically don’t source business to companies in bankruptcy. If you’re in bankruptcy for two years, you don’t get any new business for two years. When you are out, it’s more or less getting out of jail, right? Why should you hire a guy who has been in jail for two years?
Ward’s:has a new deal with Ford, with some component plants returning to Ford. Does that make any of the Visteon operations more attractive as a supplier?
Andersson:has been a good supplier for us, and I guess is a good supplier for Ford. Which means we will continue to grow Visteon’s business. They are one of the most healthy suppliers now, and it’s good for us.
Ward’s: Usually you have long-term contracts that protect you from some of the increases in raw-material prices. But at some point they have to expire. Can you talk about the future of material prices?
Andersson: In the U.S., steel is competitive. In Poland and Hungary, steel still is not competitive. In Korea, it is very competitive. On raw materials, we say, ‘where do we buy it best?’ We buy polypropylene from Singapore.
Second thing is how much you buy. Typically what happens is you buy less. We get very good at saying, ‘OK, if aluminum goes up, let’s try to reduce aluminum usage. Or let’s try to switch from aluminum to something else.’ On steel, we have been much better at reducing our scrap and reusing scrap.
Ward’s: GM having realigned purchasing, engineering and global manufacturing with one chief engineer, one vehicle line executive, one release engineer per platform, can you talk about how that affects suppliers? How do they fit into the new environment?
Andersson: In reality, it’s a matter of taking what is proactive today and doing it in the future. Look at one of our new global platforms; the center of activity is run out of Europe. This now means the suppliers get opportunity to quote from 1.5 million vehicles that are, in this case, handled centrally vs. in the past coordinated. A seat-frame supplier, for instance, will now have to deal with one or two or three designs on seat frames and get the critical mass.
From the perspective of global design, the important thing is the global release. For us, doing a coordination and having separate releases has not worked. The key element that starts here is the global design and global release. On seat frames, that release responsibility always resides in Germany for all the midsize cars. Always.
Ward’s: Which reduces the complexity you talked about?
Ward’s: Is the strategy still moving forward in having Tier 1 integrators coordinating GM interiors?
Andersson: We see we need to grow much more in the component level. So what you will see going forward is much more of a mix of us going into the component set, standardizing things like seat frames, seat structures, head rests, air vents. We will still rely on suppliers doing the coordination, but we are taking the lead. We are becoming the parent again.
Ward’s: When was that decided?
Andersson: Roughly six months ago.(See related story: GM Scales Back Interior Integrator Strategy)
Ward’s: What was the reason for that decision?
Andersson: We didn’t achieve what we expected to achieve. We also saw that instead of doing a lot of these parts in-house, the suppliers just outsourced them and typically had a markup fee that made them uncompetitive. And most interesting, I spoke with a Tier 2 supplier yesterday, and we see a lot of the creativity in interiors is coming from the Tier 2s, Tier 3s. We want to have that direct contact. We realized we needed to have the knowledge on the component basis, to understand everything about it. Third, we will continue to work with our best interior integrators to have more balanced roles.
Ward’s: So is it correct to say that strategy is no longer active?
Andersson: I think we will use a piece of it, but just throwing it over the fence and saying, ‘You are smarter than we are. You take care of it,’ that’s dead.
Ward’s: You talk about reducing the number of suppliers you work with. Is there an area where attrition is more likely to happen?
Andersson: I don’t think I’ve been hung up on the number of suppliers. I have two kids. If I had 20 kids, I wouldn’t nurture them as well as I do with two. We have 3,500 suppliers. I don’t think that is an optimal number, but instead of starting with a number of suppliers, we talk about the number of parts. We try to commonize the parts, and we try to give people critical mass.
Look at Gentex (Corp.), a perfect example of a supplier I like. They make 50,000 mirrors a day. They build our mirrors on the same line as they build mirrors for, Mercedes, Porsche, VW, Lamborghini, Ferrari. I like that because now they have critical mass. They work on what they call generic automation, meaning you build on an assembly line without fixtures and jigs. If the Mercedes mirror is 20% larger, it still goes down the same line. It’s just some plastic parts that are adjusted because it’s a bigger piece.
I think my view on suppliers is we cannot manage 3,500 suppliers. We cannot communicate with 3,500 suppliers, and it’s very much driven based on our buy of 160,000 part numbers. We want suppliers to have critical mass. Many of our best-performing suppliers are rather small suppliers. Being a former athlete, there are very few people in the world who are the best in the world in 10 different things. If I want to have a gold medal, maybe I should go back and train in some of these branches and try to get it. It’s much easier to do that than to be the best of the world in 3-km or 5-km or 100-m (running).