As R&D costs increasingly shift onto the supply base, OEMs are increasingly aware of supplier’s concerns
The last week has seen reports that General Motors sent a letter to several suppliers offering to help identify waste, forecast costs, reduce raw-material costs, and look for other ways to reduce costs. After several years of profitability being largely attributable to increasing transaction prices, GM has shifted to a programme aimed at driving cost out of the systems and stepping toward working more closelywith suppliers to jointly find and eliminate inefficiencies and reduce costs.
In an interview with AN, GM's purchasing boss Grace Lieblein said the company is already working closely with many suppliers. "It could be waste in the specs we provide for the part. It could be waste in the [supplier's] operations or waste in our operations. We really have changed the lens that our teams use to look for that waste," she said.
She says many suppliers already are working closely with GM to eliminate avoidable costs.
What makes this offer particularly interesting is that this past week has also seem GM roll back changes to its supplier agreement that were causing friction between the OEM and its suppliers. GM rolled out new terms and conditions in July, but suppliers viewed the conditions as being far too favourable to the OEM, giving them open-ended liability for parts later deemed unsafe—even if those parts were made to GM's specifications—and greater access to suppliers' intellectual property rights and financial information. Suppliers also claimed GM was not obligated to keep their technical data confidential unless the two parties signed a separate agreement.
Lieblein acknowledged that GM made a "misstep" last year when it revised the contract terms without input from suppliers and implemented them without notice. Even though few suppliers withdrew their business because of the concerns, Lieblein decided to exclude the problematic conditions as a gesture of trust in GM's suppliers. The win shows how power is shifting from the OEMs and into the hands of suppliers, and cutting-edge technology is a key lever that suppliers can pull to their advantage.
Carmakers are facing a fight on two fronts; stiff emissions regulations and increasing complexity in the technology both inside the car and in the powertrain. The onus is increasingly on suppliers to do the necessary research and development for these technologies. For suppliers with a competitive edge in a specialised market, they have now the power to negotiate on unfavourable contracts. And the number of specialised automotive suppliers with only a few competitors is only going to grow.
The most recent SupplierBusiness OEM supplier relations survey shows that while GM has made great strides with its supplier relations, it still has issues to solve; in particular when it comes to pricing. Matteo Fini senior consultant at IHS Automotive, comments that “GM [has lost ground] particularly in the ‘Profit Potential’ category, meaning that they have a more aggressive stance on pricing. GM and Chrysler have addressed some of the deepest flaws in their relationship with the supply base, but still have major issues. [They] appear weak in giving credit to suppliers’ cost reduction efforts”. This last week from GM has only served to highlight how crucial relations between OEMs and suppliers, particularly in pricing, is going to be in future.