General Motors launches new purchasing approach

By Doug Smock -- Purchasing, 2/22/2001

General Motors will use "creativity teams," many headed by purchasing pros, to help develop cost-cutting and quality-improving ideas. GM is targeting savings of $800 million this year.

About 100 teams are either in existence or being established, says Bo I. Andersson, GM's executive in charge of worldwide purchasing, in an interview with PURCHASING Magazine. GM recently sent letters to suppliers offering a 65-35 split on proposals that cut costs on current production models.

"Suppliers may recommend changing parts specifications to a more common standard, for example," says Andersson. GM would receive 65% of the savings, suppliers, 35%.

The tactic is a dramatic change for GM, which under former purchasing czar Jose Ignacio López de Artriortua had demanded outright cost reductions, at times with a heavy hand. At the North American International Auto Show in Detroit, GM executives said demanding even an immediate 5% cutback on current purchase orders is not realistic. "We feel it's imperative that our supply base remains healthy," says a GM official.

Andersson appears to be establishing a new tone at GM.

He says GM recently approached suppliers to get feedback on the professionalism of the company's purchasing approach. "We asked things like 'are you getting paid on time?'" Andersson says. The process revealed one supplier group with significant complaints pertaining to tooling payments. The issue was quickly resolved, says Andersson. Invoices, for example, were being sent to a wrong mail drop.

More fundamental issues remain, however. Suppliers complain they have to wait as long as six months to get paid. They must finance the purchase of tool steel and labor with loans that must be repaid in 90 days. Many suppliers are in financial distress and are blaming automotive purchasing practices.

Andersson also says he is studying GM's purchasing practices with suppliers that are sometimes deep in the supply chain, referred to in Detroit parlance as Tier 1s, IIs, IIIs and IVs. The extent to which GM is involved in setting purchasing standards at that level is a "mixed bag," says Andersson. The result is that unexpected quality problems arise. No sweeping policy change is in the works, says Andersson. Situations will be reviewed on a case-by-case basis.

Improved quality performance has been a major initiative by Andersson in the past year. He says quality metrics improved 50% just by putting a spotlight on the issue and digging into problems. He instituted a practice of a conference call with plant purchasing officials every Tuesday and Thursday at 9 a.m. to focus on quality. Andersson is also posting suppliers' quality data on the GM Supply Power Web site. Suppliers can go to the Web site to get daily reports on their quality metrics.

Andersson also says Covisint will play a major role in General Motors purchasing. "Our target for 2001 is $25 billion," he says. GM's direct spend is $90 billion. Total spend with affiliates is $120 billion. He says Covisint probably will have a big impact on how GM buys indirect materials and very little impact on direct materials, such as steel or plastics. He doesn't expect purchasing staff levels at GM to change significantly this year. Covisint is the buying exchange set up by major North American auto producers.

Andersson became executive in charge of worldwide purchasing in September 1999. His previous post was vice president-supply for GM Europe. Before that he was a purchasing executive at a Swedish car maker and a Swedish military officer.