Friday Rant: The Auto Supply Chain Pendulum

Over the past two years here on Spend Matters, we have ranted and waxed at length over GM's, Ford's and Chrysler's short-sighted disregard for their supply chain -- before, during and following the bail-out proceedings. It would appear that they're finally getting the message. But in an ironic twist, there is also evidence that Japanese auto producers have stepped up supplier intimidation this past year.

The Financial Times reported on a survey this week, "published on Monday by Planning Perspectives, a Michigan-based consultancy, [which] shows that Toyota and Honda still enjoy the widest respect among suppliers,[and] General Motors and especially Ford Motor have significantly narrowed the gap." FT says "The rankings cover such variables as carmakers' communications with suppliers; help provided to bring down costs and improve quality; and willingness to reward efficient suppliers with extra business."

That's the overview. But in digging deeper into the numbers, FT also claims "while the three Detroit carmakers' record has improved markedly in recent years, their Japanese rivals have moved in the opposite direction, with 14 per cent of Honda's suppliers having reported feeling threatened, almost double last year's number." If "Detroit carmakers' financial woes have forced them to pay more attention to their suppliers even as their Japanese rivals push harder for price and other concessions" as the survey reports, it's important to also note that "[suppliers'] woes were exacerbated by carmakers, especially the troubled Detroit Three, pushing for price and other concessions ... More than a fifth of respondents said that GM, Ford and Chrysler rely on ... threats of changing suppliers or other forms of retaliation ... to force price cuts."

In a previous article from April 18th titled GM purchasing head acts to mend fences, FT states "Bob Socia has tried to improve the Detroit carmaker's long-maligned relationship with its 20,000 suppliers since he took over as global purchasing chief last July." Some of the more significant changes Socia implemented quickly included "split[ting] cost savings from new ideas equally between the carmaker and the supplier.[and] To help improve suppliers' cash flow, payments are made weekly instead of monthly." And to wit -- lest I not include some fluff -- "Improved supplier relationships have become part of every purchasing employee's job evaluation." (I'd love to see how that's measured.)

Time was up for GM. And as the April FT article points out, even though Socia "spent most of his career in GM's purchasing department ... as a result of the court-supervised restructuring, Bob literally had a brand-new playing field. He had the opportunity to do things differently." So while GM got a fleet of tug boats to help turn their ship around, and Ford smelled the supplier collaboration roses a bit sooner, it would seem that they both have a long way to go. Heck, improving failed relations with 20,000 suppliers doesn't happen overnight. But let's hope that Honda's uptick from 7 to 14 percent of suppliers "feeling threatened" is just that -- a "feeling". Because kicking the dog is misplaced, dysfunctional aggression in all aspects of life and business.

So, like it or not, we can hope that all car makers are now conscious that they're in partnership with their suppliers -- even if they still need more relationship counseling. Or supply chain Prozac. Or something ...

William Busch

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