Purchasing Chiefs Speak Out

The U.S. Big Three purchasing chiefs talk with WAW about several hot topics, including global sourcing, online purchasing, parts commonization and the future of the so-called 10-day car. Participating were Carlos Mazzorin, group vice president of global purchasing and South America for Ford Motor Co.; Thomas Sidlik, executive vice president-Chrysler procurement and supply and general manager of Jeep operations for DaimlerChrysler Corp.; and Bo Andersson, executive in charge of worldwide purchasing for General Motors Corp. This was Mr. Andersson's first media interview since starting the job last September. Editor Drew Winter and Senior Editor Tom Murphy interviewed the three separately but asked essentially the same questions. Answers have been edited for space. Watch for more complete texts of the interviews on our website, www.wardsauto.com, in early July.

Q - Can you point to product lines that you have been able to achieve greater levels of global sourcing in, say, in the past couple years?

Andersson - You can look at the global supply base and clearly see the benefits from products like air bags, steering systems and generators. We buy some of that stuff in Japan, and for us it is not a disadvantage if the suppliers can manufacture it in Japan, like an HVAC (heating, ventilation and air-conditioning) system and catalytic converters. It is rather small things, rather expensive things that are rather high value, and going through some type of global standards, maybe an emission standard or electrical standard. So I think that is where we see the benefits. They are also products that are very high in knowledge management. We bought some electronic units that Siemens developed in Regensburg, Germany, and they used the pilot plant in Regensburg and then copied that plant in Mexico.

Mazzorin - The Focus and the LS that we just launched was an example of global sourcing. There are some commodities that are small enough that are really global commodities. You can buy it in Japan, and ship it all over the world. There are 15 suppliers (for Ford) with 50% of the buy all over the world. That means that I can really buy globally, or produce regionally and I can monitor regionally, but manage the commodity globally. So can you really get economies of scale? Yes, you can get a lot of economies of scale in product development. It is economy of scale because you have to engineer only once, you don't have to engineer in many different places. So yes, we are doing it. In every new program there is more of that being done.

Sidlik - We don't, for instance, say we're going to buy this commodity only out of Stuttgart or only out of Auburn Hills and then ship it around the world. For instance, we take Johnson Controls seats and say we're going to use their seats and we're going to ship them to South Africa. We have a local Johnson Controls. That's what we're talkingabout. We have two different things - physically, where do you buy the component but then what's your strategy, and our strategies are global.

Q - How far do you think global sourcing can go before distances and logistics become a problem? Everybody wants to build a 10- or 15-day car to be quicker to respond to customer orders. If you're sourcing radios from the Philippines can you get them to an assembly plant half-way around the world in that short timeframe?

Andersson - I don't think it's clear to say the suppliers need to be close, but you need to say, 'How often do I need the material?' And it could be a supplier close by, it could be other types of solutions. The big change of the past couple of years is that our suppliers are buying much more globally now. If I were buying door trim in Germany, and I was buying it from a German supplier, something happened when we came into a bottleneck situation. He had 40 suppliers across Europe that started to be a bottleneck. So even if he was 15 minutes away, he was depending on a lever from Italy, he was depending on some fabric from Turkey or whatever.

We are really looking for the suppliers that consistently can give us the same performance. Many suppliers give us very good performance, some have a couple spikes per year, and that drives us nuts. When you really look at the root cause, it is more and more their supply base, their second tier, their third tier ... They are sourcing much more globally, but maybe they don't have all the capability to handle the supply base. So even if you have the Tier 1 (supplier) close by, you need to understand where your Tier 2 and Tier 3s are.

Sidlik - Every manufacturer can do a 10- or 15-day car right now. In the springtime when everyone wants their cars, it's tough to do. In the time when economic downturns happen, when plants are closed, it's tough to do. The fact of the matter is our inventory is very low in our assembly plants - it's about a day and a half. We are just about all electronically communicating with our supply base - it's not that difficult to do. Transportation costs are coming down. A 5-day car to California might be a little more difficult than a 5-day car to Wyandotte (MI). But I mean, philosophically, the systems are all in place to do that. Ten-day cars and 15-day cars happen more often than you might think. But to do it over and over again would require demand and production to be stabilized. What do you do when you have 120 people per hour wanting their 5-day car when the production capability is 60 per hour? What do you do in that case? ... How do you get the balance between customer demand and your plants being open? Now, if everybody wanted black cars, and you were in a sold-out condition, you can do that. Take the Model T - it had a low price and high demand. I wouldn't doubt that might have been a 15-day car because they were all black, and they were all one model. You didn't have a choice, but everybody wanted one. Now you have product proliferation and demand curves that change. The real struggle, I would say, is more on the customer end than the hardware end.

Q - Could even a 10-day car be irrelevant for a consumer who wants it RIGHT NOW?

Sidlik - For the majority of American consumers, the 3.5 million or so that we sell to, I think that's a much more relevant question. When I'm ready to buy a car, for whatever reason, I don't want to waste a lot of time doing it. I'd like to go into the showroom and buy it or go onto the Internet and say, 'Oh, there is one like it at the local dealer or one town away.' That's a lot more relevant, and that gets into how good we are at forecasting customer demand, to the extent we can forecast customer demand of packages together at the right prices. Ninety-percent plus of new cars in this country are dealer-sold off the lot.

Q - What's the big difference between how purchasing will be conducted online over the next few years compared to how purchasing is done today?

Mazzorin - If you stay with what we call non-production material, do I need to buy all that non-production material or can I buy the service from someone else? Maybe Covisint will do that for us, but that could be a stretch. A lot of the functions that we do today will all change. When I give the Tier 1 supplier my requirements, he is going to get them. He is going to store them and give them to the Tier 2 supplier. He is going to store them and give them to the third. By the time the fourth tier gets them, the time that passed was hideous. Can you imagine if everyone sees it at the same time? What will happen if you transport that to quality, if I could know every time something is occurring that is giving me a blip in the quality of the product? I am the supplier, and I can see it at the same time. I can react rapidly. The transformation is so huge that we cannot see it yet, but I believe that it will absolutely transform the way we do business. It will cut costs dramatically. So in the next two to three years - hopefully I'm still in the business - I will be changing my story many times on how dramatic the changes are.

Q - You have five automakers creating Covisint now for online purchasing, plus several suppliers are joining. Will all these companies buy the same type of mops, the same type of business cards?

Mazzorin - The decision has not been made. The suppliers could benefit from that arrangement. The suppliers could go there (Covisint), we could go there - we'll all get the best deal because Covisint will get the best deal. That is the empowerment of Covisint.

Andersson - Covisint is a toolbox - it is not a tool, but it gives you speed. Many of our small suppliers are giving us a big advantage, and I think for them, Covisint can give them the large suppliers' scale benefits on price and on raw materials. Long-term, I also think that there will be some harmonization regarding standards and specifications. If you take today, we have not always been clear about standardizing steel ourselves. Think about glass and other stuff like that.

I spent a lot of time the first couple of months here talking to suppliers, asking them what they think about purchasing and what we do. The bottom line is that many people are happy with our steel re-sale (GM buying steel on behalf of suppliers) because it takes a lot of the administrative burden out. 'We don't need to haggle with you about what the price of steel is. We get the steel, it's the right quality.'

Q - How do you reassure suppliers when you talk about electronic purchasing that it won't become Lopez.com as just another way to whipsaw suppliers?

Andersson - The only way you can reassure people is in execution. Our behavior in how we do this will reassure people. Maybe we will make some mistakes, but I think that the execution strategies are sound.

Q - As the second European to head purchasing for GM, do you feel a lot of baggage from the Lopez era?

Andersson - I think that it is clear that it has created a lot of bad feelings ... I think what we did at that time was needed. Today, I think we are more balanced. You need to be price-competitive. It is true, in certain areas price will be the pure element we make a decision on. In others, it will not.