Vehicle producers make tough decisions every day that determine whether individual automotive suppliers will flourish or perish.
Even in the face of aggressive outsourcing, automakers ultimately decide what bells and whistles will adorn their next-generation products. And for vehicles currently in production, they have the power to switch suppliers at a moment's notice.
Top purchasing executives for the automakers strive to take the guesswork out of the process. Sourcing and de-sourcing decisions, they say, must be based on facts. If a supplier has consistently shipped high-quality parts on time, there should be a clear record of it. Likewise, if a supplier has struggled to meet quality and cost targets, there should be ample documentation.
Until recently, there hasn't been much. But today, the Big Three automakers have amassed so much information about supplier job performance that U.S. Census Bureau data geeks would be envious.
The Big Three are using this massive info trail in many ways. Each automaker's purchasing department can pore over the information, check it twice and find out who's been naughty or nice.
More to the point, the automakers share this information with the suppliers themselves, so there is a much more thorough record on which to base these often sensitive discussions. Rather than degenerating into a political squabble or a personality clash between a buyer and seller, the talks can center on undisputed facts.
And this information is up-to-date, thanks to the Internet. Within the past few years, Big Three assembly plant personnel have been able to enter this key performance data into secure Websites that suppliers can access anytime, anywhere. Partsmakers can find out in general terms how they stack up against their competition and they get much more detailed information about themselves — perhaps more than they'd like in some cases.
“The good suppliers love it,” Bo Andersson, executive in charge of worldwide purchasing at General Motors Corp., tells WAW after a demonstration of the GM Supply Power Website. Launched nine months ago, the site tracks the performance of 3,052 production suppliers shipping 120,000 parts to GM plants in North America each year.
Suppliers like the system because they used to get a faxed report — with less information — once a month. “Today you get this daily and weekly,” Mr. Andersson says. “I'm very happy with it because we have pushed the power to the people. They see all this type of stuff, they know what it is, they can react, and within one day they can fix problems.”
The problems? If a supplier causes a disruption at a GM plant by not having parts at a work station or not having them in the assembly plant at all. If parts are defective or mislabeled. For these and other infractions, GM writes a problem resolution report (PRR) to chart the supplier's progress in making the fix. Problems can be traced all the way to individual part numbers.
All this information gets fed into GM's overall rating of its suppliers, and the automaker uses the familiar traffic light color code to signal the supplier's status on several performance fronts.
Each supplier has multiple ratings. Quality might be rated “green,” which means the supplier is meeting expectations. If the same supplier had a problem with a recent product launch, it might get a “yellow” rating in the launch category, which means the problem needs to be fixed. If it is struggling to meet cost targets, that supplier would get a “red” rating for financials, signifying GM should consider exiting and finding a new supplier. Mr. Andersson says GM would only consider re-sourcing if the supplier says he “doesn't have a chance” to meet the targets.
How much time do suppliers have to make fixes if they see a string of “red Xs” on their evaluations?
“We are very flexible,” Mr. Andersson says, but then quickly adds: “It's clear that we may have too many suppliers. If the supplier wants to try, we give them the time.”
GM also is getting better at working with suppliers to set targets for improvement. “They're trying to do it very practically by saying, ‘OK, I'm just going to do a small step here (for improvement),” Mr. Andersson says in describing negotiations with one supplier. “That's OK. But don't miss it.”
DaimlerChrysler also uses red-green-yellow color codes in rating suppliers as part of its “bubble charts,” which DC purchasing began using 2+ years ago, says Thomas Sidlik, executive vice president of procurement and supply for the Chrysler Group and a DC Board of Management member.
Each commodity (about 150 in all) has its own bubble chart, which is a quadrant with technology and quality on one axis and cost and supply on the other. Each supplier has its own bubble, which varies in size based on how much business it has with DC, Mr. Sidlik says.
The bubble appears in one of the four quadrants based on how well the partsmaker is attaining goals for technology, quality, cost and supply. Partsmakers facing extreme difficulties would be red and grouped in the “re-source” quadrant. Stumbling suppliers would be yellow and would land in the “repair” quadrant. Thriving producers that stand to get more business would be green and grouped in the “reward” quadrant.
“We show this to the supply base and say, ‘OK look, this guy's got most of the business. He's in the repair category, meaning there's something he needs to do on the cost and supply end. You are in the reward category. You're actually doing the best. You have the best balance, we'd call it,’” Mr. Sidlik says.
“Then I get to review this stuff: Is this full attainment, perfect world, nirvana?” he says. “The suppliers see this. If they're in the re-source category, they see that and they know it: We've given you a chance.”
In 2000, DC re-sourced between $2 billion and $3 billion worth of business away from struggling suppliers. Mr. Sidlik thinks of it as rewarding DC's better suppliers, based on valuable data from the bubble charts.
“I've got proof now and they (suppliers) understand it, and it's a very business-like scenario,” he says. “It's not just punishment — it's for every person. I'm the good supplier. I've given you great quality, and I need to be rewarded. That's why you give As in class, Cs in class, Fs in class. If you gave everyone the gentleman C, why try to get an A? I want A students.”
At GM, Mr. Andersson wants the same thing. That's why a year ago, he assigned each of his purchasing executives, including himself, to 50 suppliers that “we didn't think were performing perfect. We pulled them in here in November and said, ‘This is our expectation.’”
Mr. Andersson took Lear Corp., which, despite being one of GM's top interior suppliers, was “red” in several categories. “I said to Lear, ‘You need to make me green.’ Four months ago I was red, and everyone was saying, ‘What's he going to do to turn it around?’”
So what did he do? “I'm meeting with them weekly. It's not a beat-up session,” but Lear is showing improvements in several areas, Mr. Andersson says. “Some people say, ‘Bo likes data.’ I like to understand what's really the issue. This is how I measure my executives. I'm rather proud of this system.”
Mr. Andersson admits “We're not the easiest to deal with,” but he says the automaker does not routinely search for better and cheaper suppliers.
“If you're green, green, green, we don't quote your stuff because we're happy with it. But if you're yellow, yellow, yellow, we quote all your stuff,” he says. “If you're supplier of the year, we don't competitively quote that business because then we are hitting ourselves. We give them an award in Washington one week and then quote their business the next week?
“That's why I think my job is to monitor and manage the troops. The buyers say, ‘What does Bo want?’ I say, ‘You know what I want.’ I want all the suppliers to be green.”
DaimlerChrysler
Purchasing by the Numbers
2000 Worldwide automotive spending — $82 billion (including commercial vehicles)
Purchasing resourced to new suppliers:
$2-3 billion
2001 minority sourcing — $2.7 billion
Total suppliers worldwide — 10,000
