How Might GM Approach Cost Reduction in a Post Bankruptcy State?

Those close to the Detroit supply chain know that GM has tried hard in the past few years (until the recent dire situation) to enhance its reputation with suppliers. Based on my own experience interviewing suppliers, it's safe to say that from the mid nineties to at least 2006, GM had superficially cordial, but behind the scenes adversarial, relationships with many of its suppliers in best case situations. While in some cases, its supplier relationships have improved in recent years, GM is in a potentially golden drivers seat to redefine its basis of competition post-bankruptcy to further enhance this position by building even better relationships that will lead to further cost reduction. To do so, GM should take its stage cues from global competitors including Tata and the Japanese OEMs.

From Tata, GM should learn how to truly engage suppliers in creative and collaborative cost take-out ideas during program and platform design phases. In a podcast interview with a consultant that worked with Tata last year, I learned that "Tata Motors simply provided the output they expected and allowed suppliers to get creative with their designs, materials and prices. In other words, Tata described the 'goal' they wanted to achieve with a certain part and the suppliers took that and ran with it."

Outside of following this strategy, GM should also use what will hopefully become more flexible labor agreements with the UAW to rely on their suppliers to take on greater ownership of value-added supply chain processes including part assembly, kitting, etc. In the past, GM was often contractually forced to focus on piece-part purchases because of their UAW relationship that maximized the number of union employee hours rather than shareholder interests. In contrast, Japanese, Korean and German OEMs had the flexibility to have suppliers provide integrated components and assemblies. While it is unlikely the union will make across the board concessions in this area, I suspect that even union leadership will recognize GM will have to consider the need to become more competitive on a total cost basis by relying more on suppliers in this regard.

If GM pursues these two strategies -- and puts already-exhausted traditional strategic sourcing and negotiation programs on the back-burner -- it has a shot to seriously reduce supply chain costs, build better cars and drive better supplier relationships. If not, current Federal investments will look more like Federal automotive welfare and the downward cycle will continue.

Jason Busch

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