The news last week that GM was planning to sign long-term contracts with several suppliers may have struck some as a ho-hum development. After all, long-term contracts are a normal strategy for companies in many industries. What’s the big deal here?
The news last week that GM was planning to sign long-term contracts with several suppliers may have struck some as a ho-hum development. After all, long-term contracts are a normal strategy for companies in many industries. What’s the big deal here?
Primarily, the big deal is that we’re talking about the largest company in the automotive industry, one that, like the industry as a whole, has an unenviable record of unmercifully squeezing suppliers hard for cost savings. Certainly, GM will be looking for savings in its new strategy, but there’s something else at work here that’s important: GM is hoping to gain access to the new technologies suppliers are developing that can help the company survive. Long-term contracts – and the partnerships they create – enable manufacturers and suppliers to share information and visions, and jointly make their separate visions come true.
The devil, of course will be in the details of the individual working relationships GM develops with specific suppliers. The idea of partnering in the industry has been around for 10 to 20 years, says Bernard Swecki, assistant director of the Automotive Communities Partnership at the University of Michigan Center for Automotive Research (CAR). "But," he told me recently, "suppliers had complained that it wasn’t happening on a one-to-one level. Now it’s taking root."
One reason is the increasing reliance of the industry on its suppliers for technology to cost-effectively meet increasingly complex fuel-efficiency and safety standards. "Trust is important in that effort," Swecki says, including suppliers trusting they will get a good price for their technology.
Actually, there are precedents for close working relationships in the automotive industry, and you don’t have to look to Japan, which taught the industry about supplier management, to find them. The magazine Manufacturing Engineering recently reported one example of automotive suppliers themselves working together. It involved tier-one transmission-parts supplier Dynamic Manufacturing’s work to bid projects resulting from plant closures in other countries and bring outsourced parts back on-shore. Early planning meetings with its own suppliers and a distributor enabled Dynamic to acquire the technology needed take on the work.
There is an increasing recognition that key suppliers in every industry should be partners rather than just vendors. Kudos to GM for its moves in that direction.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.
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