- Mar 13, 2009
Big Three Sitting on $10 Billion Goldmine - Autoline on Autoblog with John McElroy
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.
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.
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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