The US automotive OEM sector generally, and GM specifically, has a long and well-deserved reputation for beating up on suppliers for lower costs and better terms regardless of the impact on their bottom lines.
Those practices, if not introduced by Ignacio Lopez, a Spaniard who led GM's purchasing organization in the late 1980s and early 1990s, were certainly perfected by him, as he worked to help a struggling GM by ruthlessly demanding lower prices from suppliers.
Supply Chain Digest Says...
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| At least once a year, the parts makers can now renegotiate terms when hit by unexpected economic pressures, such as currency fluctuations. |
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Summarizing his career, Automotive News wrote in 2008 that when Lopez was first head of purchasing for GM Europe, he "turned the supply industry topsy-turvy by shredding contracts, demanding price cut after price cut, and pressing for improved quality and just-in-time delivery."
When he was promoted to Detroit in 1991, Lopez saved GM $1.1 billion in his first year. For 1993, GM anticipated Lopez would save GM another $2.4 billion, primarily by renegotiating supplier contracts - before Lopez bolted to Volkswagen and what later became a major scandal.
But the tough automotive procurement practices hardly ended with Lopez leaving the sector. In 2006, then auto parts supplier Collins & Aikman, operating under bankruptcy protection, briefly stopped shipping Ford the parts it had ordered, saying it was losing money on the business, causing a shutdown of almost a day at one of Ford's factories.
In 2008, engine maker Navistar was among several high profile suppliers that at least temporarily stopped shipping components to at least one of the US OEMs over a pricing dispute. Navistar cut off all engine shipments to Ford, whom it had supplied for decades. The Ford/Navistar dispute arose in part from a demand by Ford that Navistar sell it engines for pick-up trucks at a loss to "accommodate Ford's desire for higher profits."
Now that's collaboration.
Fast forward to 2016, and this week the Wall Street Journal ran article saying that GM is in fact bending a little in its supplier dealings.
According to the article, GM will allow roughly 400 mostly US-based parts and component suppliers to periodically renegotiate contracts. This could greatly benefit suppliers, which often face rising materials costs and gyrating foreign currencies within a contract period.
In fact, being stuck under low priced contracts with rapidly rising input costs is largely what caused the aforementioned supplier mini-revolt prior to the Great Recession.
At least once a year, the parts makers can now renegotiate terms when hit by unexpected economic pressures, such as currency fluctuations, according to Steve Kiefer, GM's purchasing chief.
 Has GM suddenly developed a procurement conscience? Of course not. The changing policy appears to be a move to reduce the risk of supplier failure and potential parts disruptions that could impact a major program GM is launching to sell a new line-up of cars to Mexico, Brazil, India, China and other international markets over the next decade.
For example, because of current economic chaos in Brazil, GM suppliers may be reluctant to invest to set up production or distribution capabilities there.
"But we are focused on the Brazil market, and we want to work together with our suppliers to make that work," Kiefer told the Journal.
But Kiefer's background may explain some of this more collaborative perspective. Before taking the top GM procurement spot in 2014, he spent many years with major parts supplier Delphi Automotive.
He is said to be supporting longer-term contracts and consulting more with parts makers on early designs for new vehicles.
"What we have today are fixed, very rigid contracts and we tell the suppliers don't bother us with the details," Kiefer told the Journal. "On a very narrow band of business, that approach works. But when you have moving raw-material costs and currency rates, you find yourself spending too much time fighting over that.
He added that "What we are trying to do here is take that all off the table by adopting a simple formula that is more predictable and allows both sides to share in the ups and downs of those costs."
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