Visteon's plan: Buy better with a smaller supplier base
Mary Clair Austin -- Purchasing, 10/7/2004 2:00:00 AM
Tier one automotive supplier Visteon is "preparing for an uncertain future" by developing cost-cutting strategies centered around long-term relationships with a substantially smaller supply base than in years past, says Paul Radkoski, vice president of North American materials management. But supply of key raw materials is tight these days, and petrochemical and plastics prices are high—while metals prices are spiraling out of control. So, the company has been forced by tough economic conditions to make numerous changes including the reduction of its supply base, going from 2,500 suppliers three years ago to 900 today.
Visteon makes just about everything in a car: instrument panels, climate control parts, audio systems and axle systems. The purchasing department has an $11 million spend and its number one buy is metal including steel, aluminum, copper and other production-grade metallics—followed closely by plastic.
Radkoski told PURCHASING in a recent interview that, "Supplier partnerships are vital to our success so we constantly look for ways to improve these relationships." In fact, Radkoski insists he is committed to a strong supply base to enhance and expand Visteon, which already is a huge multinational with $17.7 billion in 2003 global sales revenue.
Radkoski says the keys to fostering those strong relationships are early involvement in future programs, design to target for new products, joint collaboration on cost savings and waste reduction initiatives, and continuous refinement of our global commodity strategies.
There have been a lot of changes since June of 2000, when Visteon was spun off from Ford Motor Co. At that time, there were 23 different business units inside Visteon. Each one had its own purchasing group. When Radkoski came to Visteon as director of North American and Asian materials management in 2001, he initiated a survey to assess the company's performance and customer service. When the surveys came back, he "realized the company was in trouble." Not only were business relations strained, but the company was spending 55% of its revenue without a clear strategy. Customers felt it cost them extra money to do business with Visteon and the company had poor lines of communication. Because of that, suppliers added a premium to the price of many supplies.
Radkoski's initial solution to problems uncovered by the supplier survey was a central purchasing department, which began to look at commodities on a global basis. "The whole idea was to go back to basics and look at commodity strategies," he says. That's because, a commodity for Visteon is not just oil or metal—it is market segments such as injections and molded plastics, which are not typically considered commodities .
"We focused on a five-year plan in each of the 100 different products and commodities that we buy, and then we assembled large-scale strategies," Radkoski says. "We signed with certain suppliers for a five-year horizon. We built a global team to decide whom we should work with. With the supply base we were concerned with quality, delivery, technology and cost."
So, after paring the supply base, Radkoski and company began coordinating longer-term agreements. Starting with only 5% of supply under long-term agreements, Visteon now has as much as 68% of its suppliers under long-term contracts.
Recently, at a management seminar in Traverse City, Mich., Radkoski explained how Visteon's commodity strategies have helped reduce costs, increase quality and drive greater value through the extended supply chain. Prior to joining Visteon, he served as director of purchasing with Lear Corp. in Southfield, Mich., and United Technologies Automotive, which was later acquired by Lear. Before that, he was manager of logistics and assembly for BMW Manufacturing Corp. in Greer, S.C., managing the manufacturing assembly team for three years through the plant's planning, construction and launch of production. Radkoski began his career in purchasing at Honda of America Manufacturing in Marysville, Ohio, where he oversaw the production procurement group, as well as the East Liberty plant materials service group.
"My background is a more Japanese-based purchasing style than the traditional Detroit style," says Radkoski. "I was with Honda for a number of years, and then moved to BMW, and they are companies that traditionally have good relationships with their suppliers. When I started my work at Visteon I came in with a different perspective and quickly realized that we had some issues. We were just spinning off from Ford as a tier one supplier, but our purchasing department was still in a Ford mindset, thinking that we would always have the business and customers."
The difference, as Radkoski points out, is that, "Ford can always find a supplier who can sell them parts, but Visteon is different. We don't have any business unless we win that business from our customers, and we can only do that with the benefit of a strong supply base that gives us good competitive parts and technology. That was the first mindset change that had to take place; we had to remember that if the suppliers aren't happy with us, we are not going to win any business."
Radkoski's team has reinstituted value analysis and value engineering. The upshot is there are now 900 preferred suppliers working with Visteon with six to eight suppliers in each part they buy.
"Our approach is similar to Honda and Toyota: if you are one of their suppliers, then you know you are going to be their supplier forever," he says. "We want to make the supplier for one model be our supplier on that next model also. Instead of sending out for quotes to businesses all over the world, we aim to work solely with our preferred suppliers. This is where designed to target comes in because then the supplier is acquainted with the specifications that it has to meet."
Radkoski takes the approach that "continuous supplier involvement will make for a stronger functioning VA/VE and supply team." He says Visteon's aim is have the supplier and the producer be a team from the concept of the part to the final warranty management of the part.
"If you supply Visteon with parts, then you are not just a vendor selling a part; you are actually a partner that is integral part of the supply chain. The responsibility of Visteon and its suppliers is to support the customers; in this case, the manufacturing floor." He says that suppliers "don't share their best technology with you because they like you, they will only do it if they see you as a long-term business partner."
At present, Visteon analyzes and rates their suppliers on two levels. First, effectiveness: quality, technology and delivery. Second, efficiency: price, designing the product to specification and warranty. "This approach is paying off," Radkoski believes, "People want to do new business with us because we are looking for suppliers that are willing to be financially tied into Visteon's success."
The purchasing group did a follow-up survey of suppliers 18 months ago. "That showed we have improved significantly as a buying organization in the eyes of our suppliers," Radkoski says. "We knew we were on track because suppliers were feeling better about the direction we were both going. Our latest survey came back with even more positive results."
The next frontier in cost control: Quality
01/15/2009Detroit needs a different driver
04/06/2005
Now Playing: 