General Motors said today that it will reward suppliers who hit agreed-upon cost targets for parts on a current vehicle by automatically giving them the contract for the same part for the next generation of that vehicle. Hit the jump to read the rest of the story.
Funk Flex

In a presentation to analysts, purchasing chief Bob Socia said the goal of the program is to encourage suppliers to offer cost-saving ideas earlier in the sourcing process.

“We want to launch [production] at the same price contracted early on,” Socia said. “We want to give suppliers incentive to give us their best cost-reduction ideas.”

Socia said GM introduced the initiative, dubbed “strategic sourcing process,” to suppliers within the last month. He said it was developed with extensive input from suppliers and is part of a broader effort at GM to improve supplier relations, which he called “a weakness” at the automaker.

Historically, GM hasn’t involved suppliers early enough in the procurement process, Socia said. Often, GM has had to change the volume or mix forecast midstream, which frustrates suppliers and leads to cost increases.

“The suppliers would actually hold back on cost-savings ideas because they knew that, as soon as we started with production, we’d go back after them and ask for cost-savings ideas,” Socia said.

He said the key to the new program is for GM and suppliers to discuss new technologies, cost-saving ideas and other elements earlier in the process.

“If in fact we get through this process … and launch at the contract price and quality levels that were identified” early on, Socia said, GM “would award them the next generation of business.”

He called it “a huge incentive for the supply base to be working with us to hold the price down and to eliminate cost creep.”

Socia also said GM’s plan to halve the number of its vehicle architectures and engine platforms globally by 2018 offers a big opportunity for GM to “leverage our purchases on fewer parts with greater volumes.”

GM buys $77 billion worth of parts and materials annually, Socia said. It contracts with about 3,200 suppliers.