Automotive procurement organizations have been managing their suppliers in a systematic way for longer than their peers in most other industries. Companies like Toyota and Honda are regarded as among the very best in the world in terms of driving continuous improvement and forging close relationships with their most critical supply partners.
But the industry as a whole also has an inconsistent history in recent decades, often lurching from collaborative ties to aggressive cost cutting as vehicle sales and profit margins ebbed and flowed with the business tides.
Perhaps no automaker illustrates these swings better than General Motors, the former number one producer that is currently scaling back its global operations, most recently with the sale of its European arm.
GM is still infamous within the auto industry and beyond for the slash-and-burn tactics of its former purchasing chief José Ignacio Lopez in the 1990s. Lopez lopped more than $1 billion off GM’s cost base in just one year, but left a legacy of bitterness and mistrust in its supply base that the company is still trying to repair.
The publication last week of the 2017 OEM-Supplier Working Relations Index (WRI), an annual barometer of the U.S. auto industry, showed that GM’s latest efforts to build better relationships with its key suppliers are on the right track.
GM’s score in the survey of more than 650 supplier representatives shot up for the second year in a row, rising 16% to an index of 290 (out of a possible 500) and putting it in third place behind Toyota and Honda (see chart). This was on the back of a 12% rise in 2015-16.
GM’s Ups and Downs
What explains this dramatic improvement in how suppliers view their business dealings with GM? The short answer is that it’s no accident. And, as a result, it offers a useful guide to other procurement organizations seeking to build more collaborative and value-creating relationships with their own suppliers.
Five Actions That Have Elevated GM
GM’s latest rise in the WRI ranking started with the appointment of Steve Kiefer as its SVP of Global Purchasing & Supply Chain in 2014. Kiefer pledged publicly to improve the firm’s supplier relations – a necessary first move for any CPO serious about a shift in strategy.
But Kiefer hasn’t just talked a good game. As an excellent article by Bob Trebilcock in the latest issue of Supply Chain Management Review explains, he’s taken a series of concrete steps under the banner of Strategic Supplier Engagement (SSE) designed to change the dynamic with GM’s 50 most critical suppliers.
Action #1 – Get suppliers involved earlier. GM synchronized its purchasing and engineering functions to coordinate supplier interactions and bring them in early in the product development process in order to contain costs more effectively.
Action #2 – Make supplier performance more transparent. GM introduced new scorecards with 1-5 ratings on metrics covering both business performance (quality, launch, material cost and supply chain) and cultural performance (total enterprise cost, transparency, communication and responsiveness, and innovation/engineering). Scores are relayed to suppliers on a regular basis.
Action #3 – Give suppliers a chance to rate GM. The WRI gives supplier personnel the opportunity to rate GM in 14 categories. However, because the survey is anonymous, it provides limited scope to drive improvement actions. So GM has introduced SSE 360⁰, a feedback survey that enables suppliers to rate GM on the same four cultural performance indicators that it uses to score them.
Action #4 – Appoint an executive champion. Bosch, LG Electronics and other strategic suppliers are assigned a GM sponsor. This individual acts as a single point of contact across different commodity areas, reviews performance and business opportunities with their supplier counterpart, and helps to resolve any problems.
Action #5 – Recognize and reward supplier excellence. Two new awards celebrate the contribution of suppliers that go above and beyond the call of duty in how they serve GM, and bring cutting-edge innovation such as advances in battery technology.
Driving Competitive Success
Practices such as these, along with others in SCM World’s framework (below), build trust between GM and its key suppliers and position it as a “customer of choice” – a vital source of competitive advantage at a time of rapid technological advances in the auto industry.
Customer of Choice Practices and Behaviors
The SSE initiative has paid off for GM so far, according to SCMR, with eight consecutive quarters of improving margins, while 80% of its top 50 suppliers have won more business from the company.
That’s in line with a previous analysis of WRI data by Dr. John Henke, which demonstrated that the stronger the relations, the greater the cost savings suppliers generate and the more profit per vehicle they contribute.
However, GM has been here before. When I interviewed former CPO Bo Andersson in 2007 he presented a similar vision to Kiefer’s, and for the next five years supplier relations steadily improved. But then GM reverted to type and its standing declined again.
The challenge for Kiefer and his executive team this time around is to truly ingrain a more progressive way of doing business with suppliers into the company’s operating model.
GM’s survival as a top-tier auto maker depends on it.