Does Whitacre bring hope to GM’s suppliers?

One of the most frustrating things for suppliers to General Motors has been a track record of promising better relationships and delivering more of the same or even worse terms and conditions. Oddly, the upheaval of bankruptcy and a federal bailout had actually had started to crack that vicious cycle, and the permanent appointment of Ed Whitacre as CEO actually offers hope that changes will stick.

As The New York Times reported, Whitacre has a great opportunity as an outsider to question past practices and make significant changes. And his record at AT&T supports changes for the better for suppliers.

At AT&T Whitacre concentrated on promoting diversity within SBC companies and suppliers. Fortune and Working Woman magazines, along with the Women’s Business Enterprise National Council, the National Minority Business Council, and the National Minority Supplier Development Council recognized these efforts. Under Whitacre’s guidance SBC Communications’ supplier diversity program won the prestigious Ron Brown Award for outstanding corporate citizenship.

Whitacre’s ability to commit, resource and drive a supplier development initiative demonstrates that there is potential for GM to commit to an initiative to develop a strong supply chain with suppliers making investments, innovating and striving to achieve cost and value improvements.

With momentum strongly moving the auto industry to radically different powertrains, there is tremendous pressure for innovation throughout the automotive supply chain. That requires significant investment, trust and strong commitments for the future.  If Whitacre commits to a supplier relationship development program and drives it with the same energy that he did with the supplier diversity program at AT&T, GM  and it’s suppliers will be in a position to achieve competitive advantage.

Latest insights from ADR

Have you seen your suppliers lately? As the economy still struggles through a slow recovery — it makes sense to pay your suppliers a visit.
Are you wondering what pressures are building over the next year?

Our ADR eBulletin provides some quick insights on those two questions. It’s worth a look.

Quick Responses to Cadmium…

It didn’t take long, did it?  Wal-Mart and Claire’s at least, have pulled jewelry loaded with the toxic heavy metal, cadmium from their stores.

Here’s an AP story.

Add Cadmium to the “China Watch List”

Toxic toys. Toxic drywall. Today it’s toxic jewelry from China. The Associated Press is reporting it conducted its own tests on a number of jewelry items purchased at Wal-Mart, Claire’s and other retailers and found significant amounts of cadmium in them. The heavy metal is a known carcinogen and is linked — like lead — to brain damage in young children.

According to the AP, the items could be categorized as hazardous waste if a factory tried to put them in a dumpster, but there are no standards for jewelry, so children can wear them around their necks, toy with them, maybe put them in their mouths and suck on them without any cautions from the government.

It’s easy to slam China for these situations, but the real issue is “buyer beware.” This is a great example of the hidden cost behind a low “per piece” price. More and more, companies are being held accountable for the full length of their supply chains — and often for the life and disposal of their products as well. It’s harder than ever to shift the blame to a supplier, and almost impossible to shift the cost to a reputation when your product is considered a threat to children.

There are excellent products coming from China and other low-cost country sources. There are even product innovations and improvements in quality where once we could only expect low prices on copycat designs. The cadmium alert simply reminds us to evaluate risks and other factors on every individual purchase we make.

2010 – Recovery and Risk

Happy New Year? Or Not?

According to the Institute for Supply Management’s latest Manufacturing ISM Report On Business^®, “the manufacturing sector expanded in December for the fifth consecutive month, and the overall economy grew for the eighth consecutive month.”

Nevertheless, as we look at the year ahead we are still recovering from one of the worst economic climates since the Great Depression.  There is little doubt that suppliers in commodity channels will be again at the mercy of their customers for lower costs, green products, inventory-free supply chains and stretched out payment terms.

I think we can also expect major initiatives from leading global supply managers, as they adjust to the new landscape and try to find ways to gain a competitive edge or hedge their bets to protect against the dangers of an economy recovering in fits and starts. Already we have seen a major announcement from Wal-Mart saying it wants to achieve lower costs by going to sources directly — cutting out the middle level of distribution.  I have also read that there the giant retailer will push to get supplier support of green initiatives.

Many companies that have reduced demand will not be as willing to add capacity quickly until markets and customer demand level off. Consequently, that reluctance will likely bring shortages in some categories.  It is also likely that we will see prices rise sporadically as demand and supply go out of balance.  Overall, increasing activity in 2010 will bring increased prices and inflation.

Supply management talent, already in short supply, will become increasingly tough to come by this year, and companies will have to make investments to attract, develop and retain people who can generate value from the supply chain.

These are significant challenges, but I am looking forward to working through them as the new year unfolds.

Inventories Still Dropping

I’m catching up on the ISM  Manufacturing Report on Business for November and looking at inventory levels, which are on a 43-month trend downward. The index is 41.3, a 5-point drop from October and in the range that often aligns with a stagnant economy. Since other indicators suggest a slowly recovering manufacturing sector, the inventory numbers are more evidence that companies are creating “planned scarcity.” The cost of credit to carry inventory outweighs the risk of lost sales opportunities because of shortages, and there could be a hope that shortages will support higher prices.

From a buyer’s perspective — that analysis keeps us watchful for inflationary pressure. It’s been a buyers’ market generally for more than a year. It’s time to lock in prices for key categories if you can.  Low inventories also increase risk — especially if parts are coming long distance.  The winter winds are whipping around our office in Ann Arbor, Michigan today — a reminder that weather is not an insignificant risk factor in the supply chain.

Here’s the link to the ISM news release about the November Report on Business.

Actual Change in GM Supplier Relations?

One of our mantras here is that suppliers don’t give their best ideas to their worst customers, and buried in the last four paragraphs of this story in the New York Times today is a hint that maybe General Motors has come to the same conclusion.

A Flush G.M. to Lavish Cash on New Vehicles

Talking about a new Cadillac in the works that is supposed to compete head-to-head with the BMW 3-series of sports sedans, Mark Reuss was quoted as saying, “G.M. will pay top dollar if it gets the most advanced technology before other automakers.”  That’s a huge break from what the Times described as the old GM tactic of writing out a spec for a part, and shopping for the lowest bid.

Of course, he is talking about one model car in a premium brand. The real test will be if GM spreads this approach across its brands, and if the supply chain be able to support and contribute to the innovation.

It is likely that new electric and hydrogen cars will require a whole new supply chain and supply base who in collaboration with GM can bring new solutions to the market place.  When I look at the history of the domestic automotive supply chains, suppliers have not been really collaborating partners.
This article is the first visible evidence that there may be significant changes in the works.  I am wondering if the transformation will require current
suppliers to adapt, or if new suppliers will be taking their place.

We will be watching this carefully.

Wal-Mart’s Speedier Pay

Looking at this news from Wal-Mart — using a very smart strategy to reduce its supply risk by speeding up payments to its clothing vendors:

Wal-Mart Offers Way to Faster Payments to Vendors

There’s a lesson here for companies that have been stretching payment terms to 90 or 120 days….

 

More Inflation Cautions

The Institute of Supply Management’s Purchasing Managers Index (PMI) for October that was reported today made its biggest jump since 2006. — from 52.6 in September to 55.7 last month. (See the news release.) That’s good news for the economy as a whole, but it bolsters our cautions that pressures on prices are likely to increase faster than the pace of economic recovery over the next few months.

The PMI is considered a leading indicator of economic business conditions. Purchasing managers are already reporting price increases in 11 commodity categories. Furthermore, inventories have been contracting for 42 consecutive months. Those facts suggest that price pressure is likely to go up.

Suppliers may be trying to recover from their losses over the last year and perhaps betting that shortages might drive prices higher quickly. It’s also possible that tight credit is still limiting manufacturers to add production capacity. Whatever the reason, buyers must remain diligent in their efforts to contain cost.  As companies recover and work to improve their bottom line, cost containment will be the core focus in managing suppliers in 2010. It will be necessary for buyers to review their tools for containing costs and develop new methods for dealing with price escalation.

In southeast Michigan we see the same kind of pressures on prices, but there was also a drop in the local PMI, released by the Institute of Supply Management – Southeast Michigan.  The ISM-SEM reported that its October purchasing managers index was 51.3, a drop of more than 10 points, but still in the range that demonstrates some modest improvement in economic conditions. The three-month trend of the index also remains positive.

We likely had an uptick in September as a trailing result of the ‘Cash for Clunkers’ automotive incentives. The October composite figure shows a slight cooling off, but looking deeper we see local purchasing managers reporting higher prices in a number of categories. That suggests there is finally demand building that can drive new growth.

The drop in the southeast Michigan index might suggest a note of caution about the national figure, too, because Michigan’s PMI often leads the index for the rest of the country. October’s big jump in the national PMI might be followed by a lower index next month, matching Michigan’s pattern. With so many uncertainties, we shouldn’t be surprised if the recovery has some fits and starts. Overall the outlook is still positive.”

Have we hit the bottom …. of prices?

Governments around the world have pumped billions. Wait. Trillions into economic stimulus and bailout programs. Although you may still be able to leverage prices down right now — my colleague in London, Robin Jackson suggests that you ought to be prepared for rising prices ahead.

Here’s his analysis and list of tips.http://www.adr-international.com/BusBrief-Oct09-golden-age.shtml

To see the all latest ADR International commentary and analysis use this link:

http://www.adr-international.com/eshot/eShot_Oct09.html