GM is the worst performer in our series of supplier satisfaction surveys so far. But the survey reveals that while some suppliers are struggling to make their business with GM viable, others are rising to the challenge. Indeed, while GM's approach may come across as harsh, it does want to shed some suppliers - its strategy is therefore working. Susan Brown reports

With a background of sliding market share in North America and Europe, heavy incentives in North America to recover market share, and legacy cost liabilities, GM is desperately looking for cost reduction opportunities, and has stepped up cost reduction targets beyond the traditional two percent a year. Whilst there are many actions that GM needs to take and is taking internally, such as improved platform and vehicle system sharing, pressure on suppliers to cut costs is severe. GM made just over $3bn in cost savings in 2001, and $4bn in 2002. It is currently looking for material cost reductions of 20% over three years.

As a result relations between GM and its suppliers appear to be at an all-time low. "GM in North America has gone from being No. 1 among the domestics to the worst of the three," said one US-based supplier in response to the SupplierBusiness.com GM satisfaction survey, the results of which are published at the end of this article. "Pressure for cost reductions within GM has broken down many processes and created a total breakdown in supplier partnerships and trust," said another vendor.

These headline-grabbing criticisms do give some indication into what it's like to supply GM but our survey shows that the situation is much more complex. GM is rated highly by some suppliers, and clearly some see the 20% cost reduction target as a challenge, and one that will help them improve their own competitive position.

Volume planning
With so many models volume planning is extremely difficult and GM is heavily criticised for this in the satisfaction survey. It received by far the lowest score of the four surveys conducted so far. This poor result can be largely attributed to the failure of the Vectra/Signum programs in Europe to attain predicted sales volumes. "Due to these low volumes," said one irate respondent, "almost all of our suppliers will increase their price levels or stop business with us. For future business the extreme deviation from nomination volumes will be a major issue for our top management, concerning approval for any future GM projects." Some key suppliers to the Vectra/Signum program are listed in table 1.

Structure
GM has recently aligned its worldwide purchasing and engineering functions more closely. The structure and the managers responsible are outlined in the table opposite, which shows that each purchasing chief has a counterpart in engineering. Furthermore there are cross-functional teams in specific areas where greater creativity is needed. The alignment of purchasing and engineering did not stop one supplier from saying that "WWPurchasing and GME-Engineering particularly at Opel have two different objectives!"

Table 1: Major suppliers to the Vectra/Signum programs
Bosch
 
Engine management systems, park assist
ContiTemic
  Body control module
Decoma
  Front & rear bumpers
Delphi
  Electric / electronic distribution systems
Faurecia
  Seats
Getrag
  5-speed manual transmission
Grammer
  Centre console - rear
Grupo Antolin
  Modular headliner
Hella
  Adaptive headlamps
Intier
  Instrument panel
Lear (Signum)
  Seats
Schefenacker
  Interior mirror, tail lights
Siemens VDO
  Navigation system
SLI Miniature Lighting
  Overhead console
TRW Automotive
  Electronic stability program
Valeo
  HVAC unit
Source: AutoBusiness Component Contracts Database

The objective of this alignment of purchasing and engineering is clearly aimed at implementing technical change more quickly. GM says that suppliers lauded GM for its efforts toward greater alignment with the engineering function and engineering champions were present at the Frankfurt meeting, which strengthened that message. However, several suppliers said that they found they were very much at the whim of "excessive (minor) engineering changes merely to placate the changing whims of union operators at the assembly plants (they change operators and want a design change)."

Another criticism from our survey, perhaps a reflection of this latest reorganisation, was that engineers and buyers are moved around a lot within GM. "This should be compensated for by more involvement of management to ensure continuity in supplier relations," said that respondent. A major change to the purchasing organisation is taking place in Europe with the formation of the Fiat-GM purchasing organisation. The major impact of this, according to the respondents to our survey, is that Europe appears to be operating more independently from the US.

Cost reduction is key
The concern with GM purchasing is that cost is such an overriding factor in all purchasing decisions that other requirements, such as quality and innovation, are no longer valued. Our survey showed that, whilst the pressure on suppliers from GM to reduce price has increased over the last two years, the same was true of all other OEMs surveyed so far (Volkswagen, Renault-Nissan, BMW). Similarly all OEMs' quality and product liability demands have increased to a similar degree across the board.

The difference lies in terms of working with GM as a partner and here for the first time we saw that some suppliers are viewing GM as a potentially unattractive customer. Most importantly they are concerned that the level of trust as a commercial partner is declining, and this is against the industry trend since this is an area where other OEMs had improved during the last two years.

"There is no trust with GM. This prohibits good and accurate flow of information and ideas because one knows that GM freely shares suppliers' new technology ideas with competitors in order to drive down prices," said one supplier responding to our survey.

Click to enlarge
Click to enlarge

Andersson's priorities
Clearly cost reduction is not the only stated objective. Bo Andersson, vice president, Worldwide Purchasing, Production Control & Logistics keeps a 'priorities chart, which helps to keep a focus on the big picture. "It is what we drive to within worldwide purchasing every day," he said, at a presentation to suppliers in September.

Andersson has instituted a rigid system for tracking supplier performance in each of these areas. "Now that priorities are aligned we can track our progress both inside GM and with our suppliers. This data is available to our teams in purchasing, engineering and our suppliers through GM SupplyPower. Our suppliers can
check their status with GM on a daily basis. We are all driving to the same goals and that sets the stage for us to create winning products at GM." GM SupplyPower (www.gmsupplypower.com) is a web portal for suppliers, which is proving to be an increasingly valuable tool. "This is GM's main form of mass communication. A good system that will be used more often to communicate to supply base, it is used for mostly operations and commercial activity," said one supplier.

Only 13% of GM suppliers who responded to our survey said they do not use the portal. Those who do use it said the site compares favourably with those of other OEMs. The main difference is that it allows suppliers to track their performance.

Quality and supplier performance
GM uses metrics to track supplier performance and awards a red, yellow or green status. "The suppliers not only trust the data to be accurate, but many have told me that they are using it to run their organizations better," said Bo Andersson.

81% of respondents to our survey agreed with this and said they found the GM performance ratings system useful for their own evaluation and most believed they are applied consistently. But many were not convinced that the ratings are applied fairly.

One respondent said: "GM applies their ratings much more severely to suppliers who do not meet their cost down targets as a way of 'punishment' for perceived non-cooperation."

GM's supplier rating system "Red-Yellow-Green" is seen as arbitrary. "a red rating is overlooked if the price is right," said one supplier. "GM talks 'quality' but from a supplier perspective, price remains the key differentiator to winning GM business or to at least remain on the bid list."

Product development and ramp-up
GM product specifications are well-defined and GM compared favourably with other OEMs in our survey. "The key to improving launch is to have the supplier leadership fully engaged and committed to launch activities with GM," said Howard Monk, GM Director, Supplier Quality Launch and Readiness, in a note to suppliers. "We need them all to adopt a sense of urgency and focus that mirrors that of General Motors. Our goal is to have zero red suppliers that deliver flawless
launches for GM."

Table 2: Top 20 users of the GM SupplyPower portal, as of November 2003, based on number of logins
  1. Freudenberg
  2. Delphi
  3. Magna
  4. Lear
  5. Johnson Controls
  6. Dana
  7. Collins & Aikman
  8. Quadion Corp
  9. Valeo
  10. Applied Composites
  11. Robert Bosch
  12. Dura Automotive
  13. Blackstone Capital Partners
  14. Siemens
  15. Textron
  16. Delta Containers
  17. Cooper Tire & Rubber
  18. Tomkins
  19. Total Fina Elf
  20. TI Automotive
Source: GM SupplyPower

Another area of improvement is better maximisation of synergies, so that suppliers do the basic engineering of products once, then share the commodity across several vehicle programs and regions. Global suppliers should engineer products once only. GM has instituted quarterly visits to suppliers called Supplier Launch Days. GM purchasing and order-to-delivery executives visit suppliers plants supporting current launches to help overcome 'red' supplier assessments, identify new risks and resolve any issues.

Nevertheless our survey extracted some harsh criticism of GM from one supplier. "Although launch planning and support have really improved, incompetent product design ideas and very late but radical changes outweighed the better support and caused us huge problems which were only partly recognized by GM."

Repositioning of Cadillac
The repositioning of Cadillac further upmarket is generating some new opportunities for suppliers, and GM is relying on German and Japanese suppliers, which often already supply established luxury brands such as BMW, Mercedes-Benz and Lexus, to provide the high quality and high technology needed. Several key suppliers say that their involvement in the new generation of Cadillac vehicles was a positive and rewarding experience. Some key suppliers are detailed in Table 3.

An executive at Getrag, which supplied the 5-speed manual transmission as an option on the CTS, the first time a rear-wheel-drive Cadillac has been offered with a manual transmission, said the overriding aim of the project was to offer "best-in-class in regard of performance." Despite their established reputation as a high-end transmission supplier, the main challenge was to achieve the required levels of quality and comfort. With Getrag's business heavily Europe-oriented, the prestige attached to the Cadillac program in North America was a major benefit for the supplier company.

Webasto supplies the "Ultra View" panoramic roof on the recently launched SRX wagon. "Cadillac made this a focal point of their strategy, to generate a unique feature for the segment," says a spokesperson for Webasto, and being selected for the program "allowed us to showcase our innovation on a premium American brand."

Unsurprisingly, Delphi has a lot of content on all three vehicles, including some of its more advanced systems, such as the ForeWarn forward looking detection system, and MagneRide semi-active suspension system. Notwithstanding Delphi's deep and broad experience of GM processes, the supplier company's engineers saw that Cadillac was trying to do something very different. In an interview with SupplierBusiness.com, Bill Hanna, Chief Engineer, Occupant Protection Systems at Delphi said "We have industrial design capability, but we often don't get the chance to use it on [production] vehicles; Cadillac really allowed us to engage in the
styling process to a greater degree."

North America confronts
General Motors' supplier relations in North America have traditionally been more confrontational than in Europe. Relations today are not as bad as in the early 1990s, when J. Ignacio Lopez, the ruthless cost-cutter from Spain, headed GM's worldwide purchasing operations and put American suppliers under his thumb.

Table 3: Suppliers of key systems to Cadillac
Model
Part
Supplier
XLR
Rectractable hardtop
Car Top Systems
Complete cockpit
Collins & Aikman
ForeWarn, Magneride, HVAC
Delphi
Navigation system
Denso
SRX & XLR
Complete sealing packages
Freudenberg-NOK
Complete interior integration
Intier
SRX
Rear seat DVD system
Panasonic
Panoramic glass roof "Ultra View"
Webasto
CTS
Manual transmission
Getrag
Source: SupplierBusiness.com

Still, 2003 has been a contentious year for GM and its US parts makers. On October 1 it inserted language into component contracts that gives it the right to sack a supplier that fails to match a competitor's lower price or technology improvement within 30 days. Suppliers say the GM contract terms are unfair. But though the 30-day clause outraged many, CEO Rick Wagoner says GM merely sought to standardize its worldwide contracts. He says the language will affect only a handful of vendors. He told Automotive News: "Do you think it is going to be in our interest on a regular basis, 30 days before production, to move a (contract) from company A to company B? It could happen, but it would have to be an outrageous set of circumstances to do that." Some have fought back against the price pressure. GM filed a lawsuit against AK Steel, its chief steel supplier, earlier this year after the steel company threatened to cut off shipments in a contract dispute. The conflict did ultimately result in a settlement. In June, GM dropped its suit and AK withdrew its own litigation.

GM is clearly playing hardball in America. It has by far the most clout among the Big 3 automakers, especially now that it is far out-performing rivals Ford and Chrysler in the marketplace. With several key new models arriving in 2004 GM is pressuring its suppliers to make sure the many rampups next year go smoothly. Purchasing chief Bo Andersson has told suppliers he expects "zero disruptions at launch." The strong-willed Andersson reminds some suppliers more of Lopez than he does of his predecessor, Harold Kutner.

Conclusion
On balance the picture is slightly bleaker for GM than it has been for the other OEMs covered by the survey to date (Volkswagen Group, Renault-Nissan and BMW Group). The major concern is a breakdown of trust and that some suppliers are now viewing GM as an unattractive customer. The nature of 'partnerships' with GM is also called into question.