How Quickly We Forget

Last year the global auto industry was caught by surprise when the Japanese tsunamis knocked out the factory that makes a black paint pigment used by several car companies.
This week it’s deja vu all over again, as The Detroit News reports that an explosion in a single factory in Germany likely has disrupted 50% or more of the supply of a critical resin used in brake hoses and fuel lines by all three U.S. automakers. The News reports that 200 engineers, purchasers and others gathered outside of Detroit to figure out what to do next.
It turns out that the explosion at the Evonik Industries AG plant in Marl, Germany not only produces 25% of the world’s supply of nylon-12, a petroleum resistant resin, it also supplies a critical chemical building block used by suppliers of another 25% of nylon-12.  With automotive production up in the U.S., global inventories of the resin could run out in quickly.
Now, it does show progress that the industry responded quickly after the accident to sort out alternatives, but it’s still shopping for an umbrella after you’ve already been caught in the rain. If the OEMs had thoroughly mapped their supply chains before this happened, they would have seen the big red “X” where all fuel hoses and brake lines led back to Marl. And that should have led them to formulate risk mitigation strategies that could be implemented the moment the news of the explosion hit Twitter.

Ask GM About Getting Value from Indirect Spend

Marketing costs are a category of indirect spend that are notoriously hard to control. As one ad agency executive admitted a long time ago, “I know that half of every ad budget is wasted, but I just don’t know which half.”
General Motors has often talked about streamlining its marketing — but with so many brands and geographic markets it never really made progress. Automotive News reports that an earnest effort that started during the bankruptcy reorganization is taking a new turn — which might save $400 million per year, or about 10% of GM’s estimated global advertising budget.

GM expects $2 billion in savings from marketing overhaul

It will take discipline to make that number stick, because marketing is exceptionally prone to chasing whatever seems to be the latest hot idea — regardless of cost. But it is an eye-opening lesson that every dollar saved, regardless of where it comes from, is a dollar that can contribute to the bottom line.

GM’s Carbon Fiber Diet

I have a friend who trains and races on several light-weight, high-tech bicycles. He calls them his “carbon fiber diet.” I know golfers who have a similar appetite, and now General Motors seems to have acquired a taste for carbon fiber as well.

According to the Wall Street Journal, “General Motors and Tokyo-based Teijin Ltd. on Thursday disclosed plans to jointly develop lightweight automobile components using an advanced carbon-fiber materials process.”

WSJ reported that GM Vice Chairman Steve Girsky admitted that GM’s internal capabilities were limited in the new technology, so it went looking for a new strategic partner. That’s a significant statement coming from GM. Considering its long history of rocky relations with suppliers, this is another sign that GM is recognizing the value of the supplier community in delivering innovation as well as cost savings. We’ve been hearing executives talk the talk in the past, but this is concrete (or should we say carbon fiber) evidence that they have begun to walk the walk. What do you think?

BMW Gets It — Suppliers Bring Value Beyond Cost Savings

In a news release, BMW recently announced it has launched a supplier innovation award program — recognizing nine suppliers for outstanding technological advances. The innovations included a new automatic transmission, a camera-based driver assistance system, fully adaptive LED headlamps, and a new way to fuse lightweight aluminum sheets for greater structural strength.
BMW cut to the chase in a statment, “With its new award, the BMW Group aims to demonstrate that innovation is a crucial success factor for the company. Working closely with suppliers is extremely important to the BMW Group in expanding and reinforcing its leadership in the field of innovation.” That’s about as strong a statement as you are likely to see that recognizes the value of suppliers as an extension of a company. I think it’s very significant that BMW, which has a brand already so strongly associated with innovation, was willing to essentially share that recognition with its supplier community.  It is not likely that BMW would take such a step unless it had strong strategic relationships with those suppliers and felt comfortable that no competitor would be able to break them.

GM CEO Appears to be listening

General Motors CEO Dan Akerson recently told Automotive News that it had to be more upfront about telling its suppliers about its product plans, adding “we have to be willing to say that, if they’ll bring a good idea to us first, we’d be willing to pay for it.” (Quote as reported in Crain’s Detroit Business.)
Congratulations.  We’ve been saying for years that a well-managed supply chain is a source of innovation as well as cost improvements. In it’s most simple expression — you can’t expect suppliers to bring their best ideas to their worst customers.
Sounds like that message has finally arrived in the corner office at GM.

Congratulations ISM Awards for Excellence Winners

Winners of this year’s Institute for Supply Management’s Awards for Excellence have been announced, and they include:

• Delphi Corporation in the technology category
• IBM in the sustainability category
• L-3 Communications in the process category
• Pfizer, Inc. in the process category
• State of Georgia, Department of Administrative Services — State Purchasing Division in the technology category

ADR consultants know of the work from people at several of these organizations, and it’s benchmark class. We’re certain the awards were well earned and we look forward to hearing their presentations at the ISM Conference.

Risk Quick Fix – Backup Sourcing

What a turnaround to the phrase attributed to Henry Ford that you could have a Model T in any color “as long as it was black.” Ford Motor and others have found themselves telling dealers you can have vehicles in any color except black. That, of course is a result of the earthquake and tsunami that damaged Merck’s Onahama, Japan plant. According to Automotive News, “the only plant worldwide making its Xirallic metallic pigment.”

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20110408/OEM10/110409901/1117#ixzz1Ju48Z3QU

While Merck scrambles to restore production there or elsewhere, companies are rapidly changing strategy away from single sources to dual sourcing. Primary and secondary sources are a quick fix to SC risk.

The price vice

Crain’s Detroit Business confirmed this week the trend I recently mentioned here — that automotive companies are back to singing a one-note song, and the only lyric is “price, price, price.”

Crain’s called it the price vice in its coverage.  That’s particularly apt, because it is a squeeze between costs and price. I like the term because “vice” also means a forbidden activity, and that’s exactly what a fixation only on price ought to be.

 

 

Did the U.S. Automotive Supply Chain Learn Anything from Recession?

General Motors used the cover of bankruptcy to whack at huge overhead and legacy costs within its own organization. The payoff was big profits on a reduced sales volume. That in turn gave GM the ability to sell its stock at a price that will go a long way toward making its majority stockholder, the U.S. Government whole again.
That’s all great — unless automotive companies from the OEM’s through Tiers One and Two fall right back into the habit of focusing only on price in their procurement strategies.
Yes, many companies throughout the industry accomplished some restructuring to lower their overheads, too, but the fact is that the purchasing practices over the last decade had already pushed lower tier suppliers to razor thin margins. Simply going back to hammering on price is a strategy that is blind to the long term. Buyers should never stop searching for value from suppliers — but price is only one component of value. The global market is demanding innovation, better safety, reliability and environmental sustainability as well as affordability. These are values, along with production planning efficiencies and risk management that trusted suppliers can bring to the companies that are smart enough to recognize them.
Long term success will go to the companies — in every industry — that develop the skills to tap into those other values from their suppliers.

 

 

 

GM’s Owners Get to Regulate Their Competitor?

So — Toyota’s safety issues have put its president testifying in front of a panel of Congresspersons representing the U.S. Government. Just to have the head of foreign company testifying before Congress is unusual enough — but there’s another twist. The U.S. Government is still the majority owner of General Motors. The old adage “what’s good for General Motors is good for the country” is literally true now. If Congressional criticism of Toyota helps General Motors gain market share — it should increase the value of GM stock that the U.S. Government owns.

Wouldn’t you like to own a company where you get to regulate your competitors?

Listen to my discussion with Jon Hansen of PI Window on Business on this and related supply chain topics on this blogradio program:

http://www.blogtalkradio.com/jon-hansen/2010/02/24/thought-leaders-segment-introducing-bill-michels