GM's Harold Kutner:--'There's nothing in this game for free.'

Q - Is the next great frontier in terms of savings in the supply chain still in the area of logistics?

A - I think probably the next frontier is a result of e-commerce types of initiatives. The way we market vehicles, and the instant gratification from the e-commerce customer in the next century is going to drive a different paradigm into the supplier ranks. What I'm talking about is suppliers sensing and responding (to customer needs) versus the ability to supply based on pushing a lot of inventory into an assembly plant. So the next frontier is going to take a lot of inventory out of the system. It's the full system from the raw material right through to the dealer.

Q - To take out inventory, doesn't it require level demand on the part of GM toward its suppliers?

A - No. If you look at companies like Amazon.com, I don't think they have level demand, but they know how to satisfy the customers. If you look at how Dell builds computers today, I think it's not level demand, it's the anticipation and having a supply base that's capable to meet its customer requirements. So this whole idea of forecasting and understanding what's going on in the marketplace is going to be a new learning process for the supply base.

Q - You made history last year with your contracts for long-term sourcing of steel. Is this the way that you are heading for all your material sourcing in the future?

A - I don't think you can say that we are going to do that in any commodity or system across the board. I can tell you that there are going to be some steel players in continents that were never there before, which to us is a big win because we are providing big opportunities for companies to grow. With aluminum, the idea there is to obviously stabilize the price.

Q - Last year, you said you noticed a drop of 40% to 60% in PPM (defective parts per million) for your suppliers, and for this year I see it's about 85%? How did you get such a big jump?

A - The improvement has been good in terms of PPM, and that's one of the reasons we could move from measuring defects, which is an awful measurement, to our risk and reward warranty process. I think that because General Motors is global in our purchasing and has expanded our supply base from outside of the Midwest, suppliers have seen business lost or won based on quality performance.

Q - How is risk and reward working out?

A - It's the most exciting program we've ever implemented. We can quantify that we've had tremendous warranty improvement through the supply base as a result.

Q - Regarding Current Savings (the controversial policy whereby suppliers pay for their cost reductions at the beginning of a contract), we hear from some supplier executives that GM is laying off. Is that true?

A - We still have Current Savings programs, but certainly not to the degree that we were operating in 1998. And basically it started because Supplier A, who was supplying to us, said, "If you give me this business and I improve the technology on my current business, I'll drop the cost of the current parts by 4%." Supplier B, who's an outside supplier, says, "I can't compete with that when you guys are making decisions on net present value." So what happened was, Supplier B says, "Here's a check for $5 million, and that will equalize me in the playing field with your current supplier." And since we are open to new suppliers in our business dealings because of the technology mainly, it started to become a practice where somebody would say, "I'll give you $5 million for this business," and then the thing spread a little further than it should have. To be perfectly honest, I didn't like it myself.

Q - Why not?

A - Because I didn't think that even by leveling the playing field, that was a good way of doing business. Our business is to provide value to our customers. Now, you guys keep coming from a format that we are in business to satisfy the supply base. We need a growing successful supply base but our role is to provide value for the customer, be it quality, technology or cost.

Q - Are Delphi and Visteon being more aggressive in terms of prices?

A - I think they are more aggressive, just like Valeo, Bosch and Magna are more aggressive. The whole supply base is more aggressive.

Q - You say the purchasing policy with regard to Delphi since 1992 has been to treat them as an outside supplier. But doesn't that policy have to change if Delphi's goal is to get more business outside of GM?

A - I think Delphi's strategy is they'd like to maintain the level of business they have with General Motors and certainly if they can grow it, they'd like to do that.

Q - Can suppliers now get information from GM on-line? Ford brags about its on-line communication with its suppliers. Do you have a system like that?

A - We do, but it's a major disappointment. We are nowhere near where we should be relative to that, and I have people working on that. We've got to give suppliers everything from schedules to what's going on in the marketplace, what's hot and what's not, so they can have a better process of planning and supporting for our needs. Probably by the middle of June, we would be fully integrated in supplier communications on the Internet.

Q - Are suppliers keeping up with your demand?

A - We've got a lot of suppliers working seven days a week, and we've got a lot of suppliers who are working 20 hours a day. They are pushing the system, and our job is to make sure we don't push it past the point where they can provide us the quality quotas that we need. We watch our quality indicators, and we are not seeing any degradation.

Q - Will GM, like Ford, be passing along more tooling costs to suppliers?

A - Our position is that there is nothing in this game for free, and we need that tooling for the purpose of service parts in the aftermarket. We own the tooling, so it gives us the right to move the tooling if we are not satisfied with the performance of the supplier. But the real reason is that we want to own the tooling for service parts production.