He Said, She Said … The Detroit Supplier Blame Game Rolls On

Like many of you, I've been around the procurement space for long enough to know that when either procurement organizations or their suppliers promise an about-face to the market, it often takes far longer than it should for the changing party to execute a 180 degree turn. A recent Purchasing article expanding on the scoop behind the Chrysler/Plastech show down from a few weeks ago suggests that Chrysler would rather point fingers than own up to its role in maintaining functional supplier relationships. According to the article, "The CEO of Chrysler Corp. said the much-publicized dispute with supplier Plastech Engineered Products started when the supplier tried to raise its prices."

But what the article -- and Chrysler -- are not telling you is that for much of the past twenty-four months, there has been upwards pricing pressure on the raw materials that go into plastic components and parts. While I'm not sure exactly the mix of materials that Plastech used in what it supplied to Chrysler and others, you can be sure that they had to eat many of the price increases from their suppliers in recent years without passing them along.

Perhaps more important, this latest saga illustrates what a dysfunctional buyer/supplier relationship should look like. Just like a failed marriage, the two parties would rather trade words in court -- or the public domain -- than work things out behind closed doors. Certainly, Chrysler might have been hit up with a price increase, but aren't there better ways of dealing with such a confrontation than going nuclear and causing both parties to lose face?

Consider how Chrysler might have offered to absorb a near-term increase but only under the terms that Plastech would contribute additional, dedicated R&D resources to Chrysler to absorb some of their engineering costs for new platforms. Or perhaps Chrysler might have offered to use its leverage in purchasing raw materials by forming a buying consortium for Plastech and its other suppliers to better negotiate resin and other prices (or at least to hedge pricing risks). Either of these options would have spared Chrysler from the costs of idling their facilities -- unless that was a goal (you never know) -- and the negative publicity from being hit with supply disruptions not to mention the perception in the rest of its supply base as being a bully.

Regardless of what Chrysler and the other Big 3 OEMs say, it's clear to me that they've only superficially studied how the Japanese build supplier relationships with both carrots and sticks -- and get the most out of their suppliers in the process. When it comes to complex supplier relationships, you can't continue to brandish a stick. That is, unless, of course, you have a true contingency plan in place or a BATNA (best alternative to negotiated agreement) ready to pull the trigger on just in case a supplier lets you down. Which by itself is a classic Japanese automotive procurement tactic, mind you! One wonders whether Chrysler and its neighbors will ever learn or if the foreclosure rate in Detroit -- which is the highest in the nation -- will just keep climbing. It's sad, really.

- Jason Busch

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