Volvo — Is Geely Taking Supplier Rationalization Too Far?

Now, I can't claim to be much of a Volvo person, especially given my typical political temperament. Yet some of my East coast family members -- and a transplanted Midwest sibling -- are long-time Volvo fanatics. For them, this post by the Strategic Sourceror calling attention to a recent Bloomberg article that the venerable boxy, boring and safe car company "may cut its supplier base by as much as 33 percent," according to the CPO, is something that might be worth paying attention to.

Granted, it may introduce a strange twist of irony for the inclusive Volvo types who champion welfare and entitlement for all that the company is looking to reduce the number of suppliers it works with (after all, it's only fair if everyone gets their share, now isn't it). But judge for yourself. The specifics under Geely's plan (Volvo's new Chinese owner) call for reducing the current 450 suppliers down to around 300. The result of this is that "the company's 20 largest suppliers, which provide it with almost 70 percent of its parts, stand to gain from the change, while smaller European suppliers will be slowly phased out."

Personally, I don't think supplier rationalization is at the heart of Volvo's cost problem. If you look at how the Japanese OEMs have been so successful at supplier development and spend allocation over the years, you see a key trend to concentrating spend with one supplier, but also working with and developing alternatives for the same parts and components as part of a core procurement and supply chain program. From a cost and quality standpoint, perhaps if Volvo spent as much time understanding the deep engineering, material and production cost drivers and cost structure of what it buys -- as well as those suppliers and potential suppliers who it works with -- I suspect the further rationalization program might prove unwarranted.

Jason Busch

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