The Lessons Gm Could Learn For Its Supplier Shakeup

Not since Ralph Nader has one man so shaken Detroit. In the three months since he became General Motors Corp.'s global purchasing czar, J. Ignacio Lopez de Arriortua has provoked anger and fear among U.S. automotive parts makers. Although unwilling to complain about such a huge customer, suppliers speak vehemently in private. "You talk to someone on the phone, and it's as if an ax murderer were at the door," notes David Cole, director of the University of Michigan's Center for the Study of Automotive Transportation.

Auto-parts makers consider themselves competitive. But Lopez believes that they still have a long way to go. He has ripped up contracts and sought new bids for all the parts GM buys. In one case, he yanked a multimillion-dollar contract and put it out for new bids twice in three weeks. Suppliers that had invested in developing new products for GM were shocked to see the carmaker pass their blueprints around to competitors, asking if anyone could build the products for less.

COST HELP. Lopez plainly doesn't care about his popularity. His sole preoccupation is making GM's North American operations profitable again. Yet his methods are sowing discord among the very suppliers whose help he needs. Lopez would do well to study supplier relations at other carmakers, which aim to build long-term trust and cooperation (table). With a few changes in style, he might smooth ruffled feathers and still meet his goals.

No U.S. parts maker denies the need to restore GM's competitiveness. The question is whether Lopez will cut the prices GM pays by squeezing suppliers' margins or by helping them cut costs. Lopez insists that he intends to do the latter--wisely so, since only by cutting costs can suppliers sustain lower prices. The core of his strategy: PICOS.

PICOS, an acronym for Purchased Input Concept Optimization with Suppliers, involves sending teams of manufacturing engineers into supplier plants. There they root out waste, help install lean-production techniques, and generally cut costs. Lopez used PICOS teams with great success as head of purchasing for GM Europe, and started setting them up immediately upon his arrival in Detroit. PICOS teams in North America have visited 40 supplier plants already and plan to visit 355 by yearend. On average, they have yielded productivity gains of over 50%, reduced space needs on factory floors by 46%, and cut inventories by 48%, says Alan G. Perriton, a top Lopez aide.

In essence, the PICOS teams are the same as the supplier-improvement groups organized by Toyota Motor Corp. In a recent case, Toyota helped a U.S. supplier, Flex-N-Gate of Danville, Ill., improve its factory operations. After two years of Toyota-led changes, Flex-N-Gate has more than doubled productivity while cutting lead times 94%, inventories 98%, and defects 91%.

NO CODDLING. Toyota isn't one to coddle its suppliers. Inviting Toyota, or a GM PICOS team, into your plant is about as much fun as asking for an IRS audit. Yet Toyota workouts don't spook suppliers the way PICOS does.

Why? First, Toyota is the world's low-cost carmaker. Nobody doubts the competence of Toyota's manufacturing experts. The same can't be said of GM. Suspicions about GM's manufacturing skills are magnified by the widespread view that GM's own in-house suppliers are woefully uncompetitive.

Lopez can turn that skepticism to his advantage by launching a high-visibility PICOS makeover of one of his own shops. An ideal candidate is Saginaw Div., a top-notch outfit that sells steering gears and columns to carmakers worldwide. If a PICOS team can produce 50% improvements in inventory and productivity there, Lopez would quiet a lot of naysayers.

Second, suppliers are more eager to deal with Toyota because of an atmosphere of trust. They know that Toyota is loath to dump a supplier for a lower price elsewhere. That's plainly not true of Lopez's GM. "The way this all got launched, there's a whole lot of distrust about what GM is doing," says Kenneth L. LaGrand, executive vice-president of Gentex Corp., a mirror maker in Zeeland, Mich.

Such comments reveal how Lopez, in his drive to yield immediate cost savings, has poisoned the atmosphere between GM and its suppliers. It may be time to ask whether the pollution is worth the price.

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