Driving Change in the New Detroit Three Supplier Relations

This morning I'd like to welcome John Campi, Chrysler's former CPO (and before that CPO of Home Depot), to Spend Matters. I asked John and a few other experts in the automotive community to contribute their thoughts on what it will take to turn Detroit purchasing around. John's column will kick off the series. We'll feature a new contribution each week throughout the late summer and early autumn. Please join me in welcoming John to Spend Matters.

While we could all debate the handling of the US Auto Industry by the government, one cannot deny that we have a unique opportunity to reconstruct this great institution on a more competitive set of principles. Clearly we have had decades to observe best practices from the many transplant competitors that have entered the US market. And this very well might be our last chance to correct some of the fatal flaws that have been embedded in the Detroit Three (formerly the Big Three) for most of the 20th Century. The relationship between supplier and OEM is critical to the ultimate success of all auto companies. However, within the Detroit Three, we see a history of contentious actions on the part of both the OEMs and their supply base.

One does not have to work at finding a better solution. There are many examples available by a quick study of the World Class OEMs of today. Toyota, Honda, and several others have a completely differentiated relationship with their supply base. These differences are driven by compelling distinctions in the core strategy of the companies. Toyota has the most vertical integration in the US and Honda has a different approach to options and complexity that enables a more stable relationship with their supply base. These fundamental strategic differences are at the core of why their supplier relations can be maintained in an environment of true collaboration and not contention.

While it may not be possible to change the core strategy to enable a transplant like environment, it is possible to examine the elements of contention that are minimized by the conduct of these companies. Toyota has been able to maintain a very close working relationship with their supply base, not just because many are Japanese, but because their approach to collaboration and sharing of information is fundamentally different. They engage their key suppliers from the inception of the development process, not after the design has been completed.

In Honda's case, their approach is to simplify the manufacturing and assembly operations while continuing to provide for diversity of consumer preferences. This "de-complexing" of the manufacturing and assembly operations provides quantum leap improvement in supply chain processes at both the OEM and the supply base thereby providing substantially reduced costs. Options are added at the dealer instead of in the factory where schedule adherence becomes critical for just-in-time operations. Suppliers can build larger runs of custom product that is then shipped into the OEMs distribution channel rather than adding the complexity at the assembly operation.

An example of how this removal of complexity from the process would work can be demonstrated by the wiring harness complexity between a typical US assembled vehicle and Honda. The US vehicle is designed with roughly 100 variations of wiring harness packages -- all of which must be forecast and brought to the assembly line in sequence in a just-in-time environment -- while the Honda vehicle may have only one harness for any option configuration desired. The options are then added at the dealer for the Honda product. This represents a very different model with very high collaboration between the OE (Honda), the suppliers and the dealerships.

The New Detroit has the opportunity to address these issues. Suppliers, many devastated by recent bankruptcies must be engaged very differently than in the past. It is not all about piece price -- it is about collaboration and driving the lowest total cost throughout the supply chain. Carlos Cordon and Thomas Vollmann, in their new book "The Power of Two" have made a compelling argument for the collaboration necessary for successful supplier relationships. This work should be the New Detroit Three Supplier Relationship guide. Building the necessary trust and integrity into the network for the Detroit Three is the largest single issue to confront in the rebuilding of a World class supply chain network.

Spend Matters would like to thank John Campi for sharing his thoughts.

Jason Busch

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