Letter Box.

Price Reductions Are the Only Concern of U.S. OEM 

In regard to the May editorial, "If It's Not Our Job, Whose Is It?," I believe the average U.S. OEM purchasing agent is concerned with one thing, and one thing only--cost. Continued pressure on cost forces the OEM supplier to trim wherever possible, and the potential for adding services seems beyond reality. In the past, U.S. OEM infrastructure included casting design expertise, but as attrition and downsizing has trimmed the infrastructure, this talent has nearly disappeared. As a result, the supplier is forced to step to the plate with competent design staff, or, as I frequently see, accept what design has been forwarded (computer-developed, with little casting knowledge) by the OEM. How can the supplier add design staff when the U.S. OEM purchasing agent is more than likely to pull the business from him to save a nickel per piece?

The result of this sort of roulette manifests itself in scenarios such as the missed, or interrupted, introduction of such important new products as the V8 version of the 2002 Explorer and the recall of the just-introduced 2002 Chevy TrailBlazer.

How can this happen? Let me tell you. The U.S. OEMs operate from two pockets. One pocket represents the money that purchasing has "saved" the OEM on the initial sourcing of components, and the other pocket, representing long-term costs, has a hole in it. The money that leaks from the second pocket is written off and never accounted for.

The OEM just counts the money left in this leaking pocket at the end of the year, looks at the "savings" made by purchasing and claims, "Thank God, if it hadn't been for purchasing we would have lost a lot more money this year.

Never is there any attempt to determine in what manner the purchasing "savings" have affected warranty costs, limited a new product introduction or added "after-the-fact" engineering. This is the type of short-term thinking that shows itself in many of the facets of U.S. OEM management.

This is one of the reasons Toyota and Honda are eating our shorts. They have target costs, but work with the supplier to achieve those costs. They have left the synapses intact. Their infrastructure, including their keiretsus, have the talent in-house to determine the total (systemic) effect of a new design.

Even though the OEMs such as GM take gas for it, Japanese OEMs are much more vertically integrated than commonly perceived (however, their organizations are flatter). Not only do they design their own castings, but in many cases they design their own casting equipment.

Until the U.S.-based OEMs stop "shuffling the deck chairs on the Titanic," and let their infrastructures settle for a moment (which they have shown no propensity to do) they will be unable to functionally organize to minimize costs.

Until that time, they wilt continue to take from one pocket to feed another, never maximizing cost reduction efforts.