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A Shifting of Supplier Relationship Strategy for General Motors

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Supply Chain Matters has provided a series of ongoing commentaries involving fairly recent multiple industry aspects involving escalating pressures being placed on suppliers. Our commentaries have reflected on reports regarding global retailer Wal-Mart ‘s latest efforts of cost cutting and certain Consumer Product Goods producers being driven to bullying or extreme cost-cutting measures. Today, The Wall Street Journal provides a report indicating how one global automotive manufacturer is now trying to reverse course of previous supplier squeeze actions to foster needed collaboration.

This report, GM Wants Long-Term Parts Contracts (paid subscription or complimentary metered view) describes efforts by General Motor’s newest Chief Procurement Officer Steve Keifer to influence extended component parts supplier contracts that extend as much as a decade, in order to support two new vehicle product development programs and subsequent market volume output requirements.  According to the WSJ report: “locking suppliers into longer-term contracts and looping into vehicle designs earlier in the process, the auto maker can expect suppliers to share more innovations and better processes that help save money.”

For some of our readers, that statement would appear to be forward-thinking but keep in-mind that the U.S. automotive industry has had a long history of supplier bullying that has been difficult to change for some manufacturers. While Keifer is described as a GM veteran, he only recently assumed the CPO role at the end of 2014, after serving an executive role at Tier one supplier Delphi Automotive. The report thus hints that this new CPO has brought more of a supplier sensitivity to his role.

That approach is apparently being influenced and supported by GM’s new CEO, Mary Barra, who herself has a manufacturing and product development leadership background. According to the WSJ, Barra has recently implemented a strategy “aimed at improving relationships with suppliers that believed the automaker was overly optimistic in its planning assumptions or too forceful in cost-cutting mandates.”

The report points to the ongoing technology-driven revolution occurring across the automotive industry, and the need to bring even more technology to market at a quicker competitive pace. However, the new CPO has the challenge of undoing decades of poor supplier relationships that curtailed deeper collaboration on areas of innovation. The spur such innovation, GM is reportedly open to consideration of new suppliers from regions such as the U.S. Silicon Valley or Israel.

On this blog we have pointed out the drawbacks of how a short-term business outcomes perspective driven to cost reduction mandates can permeate across the many levels of the value-chain. While such efforts may lead to short-term accolades and performance bonuses, they undermine efforts directed at longer-term needs for product, process and customer fulfillment innovation.  Suppliers themselves need to have heightened sensitivities to the business pressures of key customers, and try to provide a helping hand perspective on short and longer term supplier relationship alternatives.

In the case of this week’s WSJ report concerning General Motors, a changed senior management perspective, driven by both the realities of long-term industry competitiveness through innovation, and a leadership grounding in the importance of suppliers for contributing to such innovation has helped to initiate a changing perspective. That will help in overall change management.

We trust there will be more of the above positive actions rather than the others we have highlighted of-late.

Bob Ferrari

 


Report Indicates Volvo Will Open a U.S. Auto Production Plant

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Today, The Wall Street Journal reported that Volvo Car Corporation, owned by China based Geely Holding Group plans to invest $500 million in the construction of a new vehicle production and assembly facility in the United States.

According to this report, Volvo is making this investment to become closer to its prime North American market, take advantage of attractive labor rates and protect against currency fluctuations. Volvo has had a presence in the U.S. market since 1957 but has struggled in recent years to establish market-share growth. The plant will reportedly build vehicles utilizing a new “SPA” platform that serves the basis of several new models including the Volvo XC90 SUV.

The report further indicates that the auto maker is considering sourcing its new facility in a handful of U.S. states and will make a final site decision in about a month. Volvo had considered a new plant investment in Mexico but opted instead for a U.S. site.

What is even more interesting is that Volvo’s CEO indicates that the new factory could eventually serve as an avenue for its parent, Geely to distribute cars in the United States.


Industry Disruptor: Tesla and the Automotive Driving Experience

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We are often reminded that one of the most common traits of industry disruptors is that they think differently.  They challenge the notions of industry norms, current practices and business processes or the leveraged use of technology in product and service delivery.   Telsa Motors Model S

Over the coming weeks, Supply Chain Matters will feature a series commentaries focused on industry disruptors and their implications to existing customer fulfillment.

Fast becoming one of the icons of disruptive thinking approaches is Elon Musk with his current ventures in the automotive and space exploration and aerospace sectors.  The two companies he leads, Tesla Motors and Space Exploration Technologies have each challenged legacy industry practices.

Supply Chain Matters has featured a number of prior commentaries specifically focused on Tesla and how this automotive producer has challenged existing norms in is driving re- thinking in supply chain vertical integration, advanced manufacturing practices, service and distribution strategy. Tesla’s fundamental approach is that an automobile serves as a transportation device that is primarily powered by computer intelligence and the user experience. There is little need for intermediaries or after-market providers.

This week, Tesla has invigorated both social and business media on the news of its latest series of software upgrades planned for the Tesla Model S. At a recent automotive industry conference, Musk declared that it will soon become illegal for humans to take the wheel once the technology of self-driving cars have proven themselves. If you sit in a Tesla vehicle, it’s visually striking that the huge 17 inch LCD screen takes-up more driver attention than a traditional automobile dashboard.  It was designed as such.

Last October, IHS reported on its initial analysis of a teardown of the components of the Tesla Model S with the headline: Is it a Car or an iPad?  The article is impressive and worth a read.

What is extraordinarily impressive is that Tesla’s software upgrades are delivered wirelessly to individual owned consumer vehicles in the truest form of cloud delivery. There is no need for the traditional automotive industry dealer visit. Musk views such upgrades in the same context as updating a laptop computer or a smartphone. He further categories autonomous driving as a “solved-problem”. Last year, Tesla began equipping its Model S with on-board cameras and sensors to be powered by a sophisticated system termed “autopilot”.

Over the coming weeks and months planned upgrades will include functionality that completely puts the driver at-ease regarding the existing range of the car’s battery power. The software analyzes the current driving route, road conditions, topography and location of available battery charging stations. If the car is going to exceed the range and distance to the nearest charging station, a real-time warning is issued along with GPS coordinates to the charging facility. According to Musk, “it makes it almost impossible to run out unless you do it intentionally.”

In an upcoming release 7.0, a new user interface will provide the ability of the car to operate with complete autonomy on highways when the driver lets go of the steering wheel.

In the context of the consumer experience, like Apple, Tesla delivers on design elegance and the interactive user experience. The car you may have purchased one or two years ago, has newer functionality and user experience features delivered by the cloud than when you purchased that vehicle.

For the remainder of automotive related industry, a disruptor such as Tesla will elicit more accelerated innovation in applied technology and the driver experience. Suppliers are already working on more sophisticated processors, sensors, embedded systems and driving aides.

Is it any wonder that when news broke that Apple was working on its own secret development of an electric vehicle, that social media lit-up like fireworks and the automotive industry shuttered.

In today’s industries, change is constant and the termed clock speeds of product innovation are indeed accelerating.  Supply chain teams will invariably be either on-board facilitators or unfortunate obstacles to these changes.

Bob Ferrari

Note: This author is not a current owner of a Tesla automobile nor  a stockholder, rather an observer and enthusiast of automobiles.

 


Report of Alternative Supplier of Automotive Airbag Inflators

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There has been a new development regarding the ongoing large number of product recall activities involving suspected automobile defective airbag inflators produced by supplier Takata Corporation.

The Associated Press is reporting that rival Japan based airbag inflator supplier Daicel Corporation announced last week that it will accelerate the building of a second U.S. factory in Arizona to meet the growing demand for alternative capacity for these components.  This supplier, responding to specific requests from Honda Motor for an alternative supplier, and expects to start operating the Arizona facility by March of 2016.  According to this report, Daicel has further plans to increase production of inflators at its existing factory in Western Japan to supply additional replacement parts later this year.

This is an obvious sign that alternative component supply arrangements are being initiated as Takata continues to struggle in resolution of current component needs.


A Sudden CEO Leadership Change at Honda and Another Reinforcement of the New Product and Operations Grounded CEO

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In the wake of continued challenges involving quality glitches and mass product recalls, Honda Motor Company announced today that is current CEO will step-down in June to make way for a new breed of leadership.

Takahiro Hachigo, a trained engineer and currently a managing officer within China, will replace Takanobu Ito as president and CEO in late June. Mr. Ito has led Honda since 2009, at the height of the global recession.

According to reporting from The Wall Street Journal, this executive leadership change comes at a critical juncture for Honda, which is being challenged by Nissan Motor for the number three brand leadership for the U.S. market, and amid continued product recall actions involving airbag inflators produced by supplier Takata Corporation. Honda has been one of the brands most affected by the defective airbag inflator quality crisis, and in October, top executives took on salary cuts to demonstrate responsibility for quality problems.

Reportedly, company insiders were taken by surprise by the timing of this announcement, and the choice of a younger executive promoted over those executives expected to be considered as the next Honda CEO.  The global auto company further indicated that several directors who ranked higher than Mr. Hachingo would retire. In a released statement, Mr. Ito stated: “Honda is ready to make a new leap forward. To do this, Honda needs to be led by a new, younger team.”

Mr. Hachigo’s experience includes stints in product design, production operations, and procurement, which provides yet another example of a trend for new senior management appointments involving executives with product and supply chain management prowess. According to Honda’s announcement,  Mr. Hachigo’s previous experience includes roles as a vice-president of Honda Motor Technology- China, representative of development, purchasing and production- China, president and director of R&D in Europe, general manager of the Suzuka manufacturing facility production operations , general manager of purchasing and vice-president of R&D in the Americas.

This resume adds further evidence of the new importance of global-based experience, including operational experience within China.

In December of 2014, BMW appointed new replacement CEO Harold Kruger, with a background in operations, engineering and manufacturing.  A year earlier, General Motors rocked the global automotive industry by appointing the first ever female CEO, Mary Barra, who had risen through the GM ranks in roles in manufacturing, engineering, product design and other leadership positions. Mrs. Barra has since experienced a baptism of fire involved in GM’s massive product recall incidents.

This trend extends beyond the automotive industry, with product management and supply chain experience in the current CEO’s of Apple, Home Depot, McCormack Foods and other firms large and small.

There is an adage that one data point is interesting, two consistent data points are more interesting and three or more consistent data points is obviously a sign of a trend.  For the global automotive industry, the new trend for senior management is showing a common denominator for sensitivity and grounding in product design, operations and global supply chain management leadership.

The year 2015 may well be a watershed year as this new generation of product design and operations background CEO’s continue to take the leadership helm. For global supply chain ecosystems across the automotive industry, these are, by our Supply Chain Matters lens, encouraging signs.

Bob Ferrari

© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


More Information Comes to Light Regarding Speculation that Apple is Developing an Electric Car

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Supply Chain Matters provides a brief update to our previous commentary regarding Apple’s reported potential development of an electric powered car. More information has come to public light, information pointing to development of advanced battery component capabilities for larger applications.

Today’s edition of The Wall Street Journal echoes a published report from Reuters that A123 Systems, a lithium-ion battery developer and producer is in the process of filing suite with Apple for what that company alleges as “an aggressive campaign to poach employees.” The compliant names five employees that have defected to Apple or appear to be in the process of recruiting other existing A123 employees to join Apple.

According to the Reuters report: “Apple has been poaching engineers with deep expertise in car systems, including from Tesla, Inc., and talking with industry experts and automakers with the ultimate aim of learning how to make its own electric car, an auto industry source said last week.” In its reported lawsuit, A123 believes Apple aims to build a competing battery business partially relying on the expertise from its former employees.  The employees in question, who initially joined Apple in June of last year, were reported to be working of A123’s most critical projects, and by joining Apple, they violated their employment agreements.

Neither Apple nor A123 have responded to both media outlets in requests for confirmation.

A123 was initially funded in-part by a research grant in 2009 from the U.S. government as part of a broad economic stimulus program as a result of the severe recession at the time.  A123 Systems, who was awarded a $249 million matching, grant to construct world class lithium-ion battery manufacturing facilities in the U.S., and Johnson Controls was awarded a similar amount to deploy advanced battery supply capabilities. A123 had been previously designated by Chrysler as its prime battery supplier, while Johnson Controls, in a joint venture with France’s SaftGroupe, was previously chosen to be a primary battery supplier to Ford Motor Company. Later however, A123 ran into a number of business challenges and had to file for bankruptcy in 2012.

These notion reinforces the speculation that we raised in our previous commentary, namely that if Apple has serious intent to produce electric cars, it needs to invest in product design and manufacturing sourcing of batteries.

Bob Ferrari


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