Over the weekend, my wife (Lisa Reisman) and I brainstormed about new ways GM should think about reducing purchasing costs. Here's what we came up with. Lisa has advised about half a dozen of GM's suppliers over the years, so this advice is based as much on her experience working with GM's irate supply community as it is an outsider looking-in. Here's our list:
1) Force and compensate GM design teams to minimize the number of parts by designing more subassemblies and assemblies as opposed to components. To make this effort most effective, these teams should work with their suppliers on a continuous and collaborative basis, year in and year out. GM should also put specific target SKU rationalization efforts on the purchased part side front and center.
2) Drop the infamous "5-5-4-4-3" margin give-back programs. The process is archaic and leaves money on the table. Instead, reward fewer suppliers with more contracts for introducing yearly cost-reduction design ideas, joint-cost take-out etc.
3) Follow Toyota's lead: rationalize, rationalize, and rationalize the supply base. And seek to build more aggressive visibility into supplier financial and operational performance to reduce -- or at least maintain at current levels -- the overall supply risk to the organization.
4) Seek to scrap/eliminate all UAW contracts which force GM to use old technology (e.g. union assembled front end modules) instead of newer technologies which require less labor.
5) Put top purchasing executives and directors into Lean Production training. And change the compensation system to reward those that identify and implement cost savings ideas with a piece of the action!
Lisa Reisman is Managing Director of Aptium Global, a direct materials sourcing advisory firm that works with small and middle size manufacturers to reduce costs on a Pay-As-You-Save(tm) basis. She is also Spend Matters' middle markets and automotive guru.