OM in the News: GM Turns to Long-Term Supplier Contracts
General Motors’ purchasing chief said the nation’s largest auto maker aims to sign new parts contracts for two vehicle generations, or as long as a decade, to cut costs and gain access to advanced technologies. GM is gearing up for big investments in luxury cars, electric vehicles and other projects, and expects to sign hundreds of billions of dollars in new supply contracts over the next 2 years. By locking suppliers into longer-term contracts and looping into vehicle designs earlier in the process, the auto maker expects suppliers to share more innovations and better processes that help save money. “We want them to double down on us,” the purchasing head stated.
Recently, GM asked about 30 of the auto maker’s biggest parts makers to help relieve supply bottlenecks so the company can crank up production of its highly profitable pickup trucks and sport-utility vehicles. In some cases, GM promised to help suppliers cover additional costs to get the needed parts.
“The change is part of a technology arms race in the industry, with auto makers vying to be first with self-driving features for vehicles or propulsion technologies that reduce emissions,” writes The Wall Street Journal (April 15, 2015). GM’s CEO recently implemented a strategy aimed at improving relationships with suppliers; she believed that the auto maker was overly optimistic in its planning assumptions or too forceful in its cost-cutting mandates. The firm is attempting to undo decades of damage caused by poor relationships with suppliers that had curtailed its early access to new innovations.
Classroom discussion questions:
1. Describe GM’s prior relations with suppliers.
2. Why the change?
3. Research the history of the famous GM VP-Purchasing, Jose Lopez. (See Supply Chain Digest (July 7, 2009)