This is the second installment of a Ward’s 7-part series stemming from interviews with the purchasing departments of GM,, , Toyota, and Nissan.
WARREN, MI – Having just returned from a 3-week whirlwind tour of purchasing operations on three continents, Bo Andersson is brimming with facts, figures and anecdotes to support his notion that parts sourcing must be a global endeavor, rather than one locally focused.
ButCorp.’s group vice president of global purchasing and supply chain also has discovered one of the least-expensive sources of car parts in the world is right here in the U.S. – Alabama.
Changing economic conditions, including rising costs of long-distance shipping and the weak dollar, have made North American sourcing more attractive as a low-cost option for certain components.
GM sources many parts from South Korean suppliers based in Alabama, particularly steering components, headlamps and gear shifters.
“On total landed cost for North American consumption, (Alabama) is our lowest-cost country today,” Andersson tells Ward’s.
He says GM also hopes to sign a new steel contract with ThyssenKrupp Steel USA LLC, which is building a new mill in Mobile.
Still, Andersson will remain steadfastly focused on global opportunities. He recently visited Brazil, South Korea and Europe, and it was no vacation, he says.
In Brazil, Andersson joined in a celebration honoring the region’s best local suppliers and reviewed the compact vehicle GM will launch in the region next year.
“We see certain areas in Latin America that are very successful for exporting,” he says, referring to pistons and steel wheels as particularly attractive for exporting from Brazil.
“We look at it every day – what to buy where,” he says.
In South Korea, Andersson met with the vice minister of finance to talk about economics and free-trade agreements South Korea is hoping to establish with China, the U.S. and Russia.
“I thanked him for his support and for having a very competitive Korean supply base,” Andersson says.
While there, Andersson also reviewed the status of GM’s next-generation small car, which is being developed and engineered for world markets by GM Daewoo Auto & Technology Co.
That vehicle is believed to be the next-generation Chevrolet Optra/Daewood Lacetti, which is expected to serve as the basis for GM’s next small car for the U.S., to be built in Lordstown, OH.
GM has purchasing outposts in 47 countries, and Andersson says the South Korean operation employs 750 people, second only to the U.S. contingent. GM has 1,700 suppliers in North America and 356 in South Korea, he says.
In Europe, the schedule was much the same, but he focused on GM’s next-generation midsize car.
And at all three destinations, Andersson spoke with suppliers and his GM purchasing teams about the particular challenges facing each region, as well as opportunities worth exploring.
Even with skyrocketing fuel prices, global sourcing for certain components still makes good sense, Andersson says.
He refers to a GM supplier in Taiwan that ships wheel covers to the U.S. The part, itself, is large and costs GM up to $15. But shipping it costs a mere $0.84 per unit. “It made sense to buy it from Taiwan in this case,” he says.
Ballooning prices of steel and other raw materials causes fits for Andersson and his purchasing counterparts at other auto makers. As recently as January, Andersson said he was pleased to see prices stabilizing for aluminum, lead, copper and nickel.
“What I said was valid at that time,” he says. “Yes, clearly raw materials are going up. Every OEM is having that challenge.”
Auto makers are hit especially hard if they purchase raw materials with dollars, rather than more valuable euros. “We see less of an impact in Europe,” he says.
GM has 25 steel suppliers and purchases up to 8 million tons (7.3 million t) each year, making the auto maker the largest consumer of steel in the industry.
Each contract varies in length, but most expire by the end of 2008, meaning extensive steel-contract negotiations are about to begin for GM.
Also on the contract front, GM signed an historic agreement with the United Auto Workers union last year that, among other things, allows the auto maker to in-source certain component manufacturing to its vehicle assembly plants.
For the UAW, the arrangement is a coup because the component work protects some of the jobs that would have been lost to reduced vehicle production.
But the new deal also raises a tough question: Can UAW members assemble parts as cost effectively as supplier workers?
“From GM’s perspective, we are very happy with the UAW’s new agreement,” Andersson says. “We are always looking for the best cost solution. If we can do it inside the plants, where we already have fixed costs, we have a building, we have the machinery equipment and we have the people, that’s the best thing to do.”
Andersson says he is confident UAW workers can be cost competitive with the supply base. “If they cannot, then our desire is to keep the business on the outside (with suppliers),” he says. “In many cases, I think they will be very competitive, and I think that’s a win-win-win.”
He admits, however, some suppliers will lose out on certain business with the new arrangement.
Within his purchasing organization, Andersson has hired Esam Alnasery as a sourcing advisor. Alnasery had been vice president-global development for Wal-Mart Stores, Inc.
“I think his biggest strength is supply-chain solutions,” Andersson says. “I view Wal-Mart maybe as the strongest on the supply-chain side. Esam has worked very closely with our logistics department and is still working there.”
Alnasery has been particularly instrumental in helping GM set up its own logistics department within the past year, after the auto maker decided to in-source the operation, Andersson says.