90s Recollection Part 2

In the 90s, Foreign, Domestic and European automakers reached one third of the North American market.  The Big Three (Ford, General Motors and Chrysler) demanded even further cost reduction from their suppliers.  New contracts were drafted in such a way that over the program’s life, a specific cost was automatically reduced yearly, regardless of whether or not suppliers were able to reduce their costs internally. 

General Motor’s brought a new person to their executive purchasing team named J. Ignacio Lopez who’s favourite phrase was “Let’s make a deal”.  I’m sure many suppliers will remember him well as he created a revolution in GMs purchasing philosophy.  His main concern was obtaining supplier cost reduction in double digits and any supplier that wasn’t able to do so, would lose the contract, which would then be passed on to another supplier that was able to provide savings.

Lopez started his strategy by sending a cost reduction team to his main suppliers.  They were to demonstrate how to reduce costs as fast as possible.  Usually within 3 to 5 days. 

Allow me to share my own experience with this team:

GMs cost reduction team came to our plant with the objective of reducing all our program costs by 20%.  Prior to their arrival, we had to provide them with all sorts of information including plant layout, process flow, tooling, fixtures, scrap percentage, quality issues and our cost structure. This allowed them to analyze our operating strategies in full and for them to develop a plan for cost reduction.   (No operating strategies remained a secret for us suppliers). 

Upon their arrival, they requested specific personnel to join their team and work with them over the next several days.  We worked extensive hours.  Improvements needed to get implemented as fast as possible.  The word NO or Not Possible was unaccepted vocabulary. 

If my recollection serves me well, they reduced raw material, work in process and finished goods floor space.  They compressed each work cell and reduced cycle time.  They asked us to reduce equipment maintenance and tooling maintenance costs.  Support staff, including setup personnel and schedulers, were also reduced. They thought suppliers should get their daily work orders from GM themselves and eliminate our internal scheduling staff.  They requested for operators to do their own setups. 

This GM team achieved their objective and saved more than 20%.  They informed us that these changes were to be effective immediately and provided us with a timeline for improving all other work cells as well.

Our own team tried to achieve some of their objectives, however, we were not always able to reduce the cost and were therefore forced to inform GM and suffer the consequences of losing these jobs to suppliers that could operate at lower costs.

This short term strategy worked well for GM and they saved a lot of money on product costs, however, this led to many quality and launch issues.  As for Lopez, he quit GM and went to Volkswagon.  He took most of his team with him.  Several months after his departure, GM launched a lawsuit against Volkswagon and Lopez.  For further detail, click here.

Volkswagon and General Motors spent a lot of time fighting over this issue which led to involving top politicians in order to put this matter to rest.  Lopez then left Volkswagon and pursued other opportunities.