• Mar 13, 2009
There's no question that the Detroit-based auto industry needs a lot of help. There's a 100-year history of how it got into the problems it's in, and some of those problems are beyond management's control.
But there is one area where General Motors, Ford and Chrysler have total, complete control, and that's in how they deal with their suppliers. While progress has been made in some areas, most supplier CEOs who I know are still frustrated with how the "Big 3" treat them. They tell me there is at least $10 billion in waste that could be eliminated every year if they worked together as true partners instead of at loggerheads.

Remember, more than 70% of the value of a car today is actually designed, developed and manufactured by suppliers, not the car companies. GM purchases roughly $97 billion of materials, components and services from suppliers. Ford buys $90 billion, Chrysler $40 billion. We're talking about a massive amount of money, which potentially means a massive amounts of savings.

Here's how suppliers say the "Big Three" could slash costs and put some of that money back in their pockets.

John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.

First off, suppliers want to see stable production schedules. Japanese automakers follow a build-forecast that is set months in advance so that suppliers know exactly what they have to make and when it has to be delivered. It's all part of lean manufacturing. But the Big Three don't maintain that kind of discipline. Not only do they vary the volume of vehicles they make from week-to-week and month-to-month, they often build a different mix of models than their forecast called for. So suppliers are constantly operating in a reactionary mode, rather than optimizing their existing processes and inventory.
Ford slashed the number of build combinations on the new F-150, yet there are still 10 million different possible combinations!


Next, they want to see the Big Three do a better job of reducing the part-number complexity that's designed into their vehicles. For example, Ford slashed the number of build combinations on the new F-150, yet there are still 10 million different possible combinations! This forces suppliers to carry extra inventory which incurs carrying costs, increases parts obsolescence and increases rework.

On some product lines the take-rate for certain options is less than 1%. Why even offer them? This means suppliers have to store these parts in inventory, or place special rush jobs to make them when the occasional order trickles in. There's no profit in that.

While the "Big Three" talk about making their plants flexible enough to build several different models, many of their plants don't have this capability. So they can't absorb mix changes in the market place, which means they can't maintain level production in their factories.

Worst of all, the "Big Three" don't do a good job of involving their suppliers early in the product development process. That's when it's cheap and easy to try out different ideas and "what-if"' scenarios. As a result, the "Big Three" often end up making last-minute engineering changes that disrupt the product launch process and create unnecessary quality and warranty risks.

Suppliers especially want to know when the "Big Three" will transform their relationship with them and dealers to one that is more collaborative, inclusive and transparent. Suppliers still perceive the current approach as adversarial, parochial and self-serving.

Suppliers still perceive the current approach as adversarial, parochial and self-serving.
They want to see an "extended enterprise" where everyone in the supply chain feels responsible and accountable for the success of the product, is committed to continuous improvement, and strives to identify and eliminate waste in all aspects of the business. Who wouldn't?

None of these criticisms are new. I've been hearing the same old horror stories for decades now. And I've seen numerous car company executives come and go who promised that now they were going to treat suppliers as "true partners." Yet it never seems to materialize – or, at least I should say, the supplier community doesn't really believe it's happening.

All of these issues are within the total control of the "Big Three." They don't need any outsiders to help them get this fixed, especially not the President's Task Force. And the pay off could be huge, $10 billion in waste that they could drop to the bottom line.

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    • 1 Second Ago
  • 20 Comments
      • 5 Years Ago
      I'm sure they could include them earlier in the design process. This may help a little.

      However, I wonder if the suppliers want to take the hit if/when there is a recall on the part(s) they supply? It's the carmakers that catch the heat and negative PR when there's a recall. Would they be willing to pay for the recall repair expenses if they are included in the design process from the start? I doubt it.
      • 5 Years Ago
      In Shreveport, instead of working with the suppliers, when we have any build or quality issues, we automatically raise the red flag, to jump up and down on the supplier. It's never our fault....nothing to do with the fact, for example that a line employee has 4 inch finger nails, with a cell phone to her ear, and the part doesn't fit right. So instead of disturbing the fantasy football league setups, or text messaging some "squeeze" for later, we tie up our supplier resources to do our job for us, that ultimately we are at fault, and not the supplier. Treating them right, and working hand in hand with them, would sure be huge step up, for building WAY more efficiently and sure would help create a "foreign" word.....QUALITY!
      • 5 Years Ago
      "10 million different possible combinations! "

      This is absurd. I'm sure this includes combinations like "The F-150 that has only one wheel."

      Not saying there are optimizations to be had, but hyberbole like this makes their remaining points suspect.
        • 5 Years Ago
        The number comes from all possible configurations:

        Paint color x wheel size x engine x transmission x bed size x wheel base x interior trim X etc. X etc.

        10 million possible configurations isn't that hard to believe.
      • 5 Years Ago
      Do you think it is possible that the DET3 will return to the days of making most of their parts themselves?

      I understand that parts were originally outsourced because Union costs made it unprofitable for the auto manufacturers to continue to do so in-house.

      Those costs have been pared significantly recently almost to the point where the Union could conceivably be utilized in manufacturing some more of the larger components today.

      With key suppliers like American Axle hitting the skids, it would behoove the major Auto companies to reconsider building such components themselves. Delphi and Visteon are another pair of possible candidates for such reorganization. Obviously, the suppliers are tapped out to the limit; and the current economic malaise is smashing their business model to pieces. Something has to be done, and done quickly.
        • 5 Years Ago
        Yeah, I thought it was rather wise for GM to re-purchase the steering operation from Delphi a week ago.
        • 5 Years Ago
        Largely, I believe the spinoff of Delphi and Visteon to be union-breaking measures. Delphi in particular, which was announced almost immediately after the AC Delco plant shut down General Motors in a sympathy strike in '97.

        Now that they've lowered their wages, General Motors is picking over Delphi and looking for essential operations they want to bring back into the fold.
        • 5 Years Ago
        Good point and some of this may already be taking place as GM has bought a few factories off of Delphi recently. I think one was a steering division, but not sure on the other. This would lead to tighter control over the supply chain again as opposed to outsourcing everything. I am sure they will still push for cheaper parts around the world though as was written in "Why GM Matters". They are building up their own Chinese suppliers that source common parts across many platforms. They have started small but will get more business as their quality improves with bigger products.
      • 5 Years Ago
      so, you want that all manufacturers to make boring cars like toyota.. Because, to me personalisation of the car is very important. Here in eastern europe, if you want a vw with ac and esp and no power windows in the back, you can have it. Yes, is more economical to make "standard" cars, but if i want just ac and i don't want to pay for some other thing, why can i doy it at toyota for example?
        • 5 Years Ago
        Alex, a mental note - if you say Toyota is boring, don't use VW as a supposedly not-boring example.

        More importantly, Toyota is a Japanese company, and although it makes its cars in Europe too, it's not exactly the same thing as VW having most of their factories for EU models in Europe. It's less than 800 km from Wolfsburg to Bratislava (for those who don't know - it's major VW factory in Slovakia, the only one in the world making Touaregs). Not to mention the fact, that incredible amount of parts is freely interchangeble among Skodas, Audis, VW and Seats - it makes for less expenses, better logistics but, well, not much for making exciting cars.

        It's 20,000 km from Japan to Swindon (Honda's UK factory). At the moment, Mazda makes all its EU cars in Japan. That's why Japanese cars are almost always better equipped than their European competition - especially base models. There's only ONE B-segment car in Eastern Europe that has height adjustable driver seat standard in the basic configuration - Mazda 2. An issue if you happen to be 160 cm tall - which many of the female customers, the target group of the B-segment, are. Basic Lexus IS 200 Diesel is much better eqipped than comparable Beemer or Merc. It's cheaper, too. It's necessity, but it's far from boring.
        • 5 Years Ago
        Yeah personalization is important, but not to a extent to be insane. Business has to make more sense than being insane.

        People like you who want non-standard personalization are definitely far less. If Toyota made boring cars, most of our people buying them should be boring too.
      Jim Pierce
      • 5 Years Ago
      Contrast the problems here with light-duty (auto, pickup, SUV, CUV) vehicle content and OEM profitability (or lack thereof) with that of class 8 vehicles produced by Paccar (Peterbilt and Kenworth in North America and Mexico). Conclusion: let Paccar completely revamp the Big 3 purchasing and production lines. Not that they would touch it, of course. They are profitable!

      Next on the Daimler "cut costs, eliminate money losing operations globally" agenda: shut down Freighliner and Western Star (as they recently did with their Sterling truck division). Yes folks, you heard it first HERE. Won't take long.........
      • 5 Years Ago
      What I find funny is that "planning months in advance" seems contrary to the idea of lean manufacturing (I'm sure it actually does decrease overhead) and more akin to the "just pump 'em out" philosophy of the 20th Century.

      In any case, General Motors keeps their fingers on the market's pulse; if their cars aren't doing to well, they slow production instead of eating up parts they don't need. They are still largely operating as if Delphi was still an arm of the company instead of an independent supplier; remember at one time most of the car was built from within the company.
      • 5 Years Ago
      The root cause resides in OEM purchasing and their tool analysts, not design proliferation or supplier involvement. OEM purchasing practices remain the biggest contributor to new product line financial risk

      Now, suppliers' single biggest financial risk arises because, long after we launch production tooling and commit, OEM purchasing gets-around to reviewing quoted tooling. Then, the OEM informs the supplier what they will and won't fund. Insofar as competitively bid programs rarely allow anything but marginally attractive gross margins, this practice often renders financial proformas unattractive. Suppliers are left with little recourse apart from threatening the OEM with stop-ship without a unit price increase - makes for superlative supplier-customer relations

      IRS rules may require this analysis, but speeding the tool review process so that its resolved before the project requires production tool launch will dramatically reduce financial risk
        • 5 Years Ago
        When you say "we launch production", who are you talking about?
        From the "transplant" side, I can tell you that all the tooling cost are fixed and agreed upon prior to cutting steel.
        The only times that the supplier may get burned is when there are design changes after the tool is made. Sometimes it isn't clear of who is responsible for the change: Is a supplier issue or a OEM design issue?

        Cheech
      • 5 Years Ago
      I'm usually on board with what John says but I'd have to question anyone who thinks that forecasting months in advance is a good thing. We keep seeing parking lots and container ships full of Japanese product piling up at the docks, does that sound like a good business decision?

      There's also no info on how anyone came to this 10 Billion dollar magic number, are we just guessing here? Also throwing out the number of possible configurations without telling what those things are (this includes paint choices and other things that really don't cost any more to have) is just the normal journalistic way of trying to make a point without disclosing the full details so as to sensationalize your topic.

      Plus the whole story is one sided from the supplier's point of view. Of course the suppliers want to be privey to everything going on in a product's development, but the problem is that these suppliers work for all of the OEMs, disclosing large amounts of info about your product before launch could easily lead to leakage of info to your competitors. Suppliers have no rights to all of that information, it is up to the OEM to disclose what they see fit to protect their assets and get what they need from the people they are paying to produce for them.
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