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Partnershipping great, but... vendors stuck in price squeeze.

What isn't big news to anybody doing business with the automotive industry OEMs these days is that the big squeeze on price continues. Partnershipping may be on their lips, but there's no escaping the pattern of forced year-on-year price reductions that are being demanded--whether linked to cost reductions in supplier plants or not.

That's how the Economist Intelligence Unit (EIU), London, sizes up the supply chain in the US auto industry. At GM, price reductions take the form of 3-2-2 program, or 7% over 3 years. Ford's looking for suppliers to absorb most of the effects of inflation from 1990 to 1993. What's worse, perhaps, is that suppliers are required to provide technology development that sometimes goes unused and often unrewarded, says the EIU report.

That's not really news to the automated systems engineering companies who work for GM. The scalpel in the hands of GM's chief purchasing executive, JI Lopez de Arriortura, is slashing contracts through competitive re-bidding. The good news/bad news joke making the rounds among suppliers these days goes something like this--Good news: I'm bidding on a dozen contracts with GM. Bad news: Five of them are my own.

The National Tooling & Machining Association, Fort Washington, MD, takes a more sanguine view of organizational changes at GM under new president, John F Smith Jr, for suppliers of tooling and machined parts. If you can deliver on a promise to reduce price by a 2% net each year of the contract, you won't have to worry about re-bidding. "In other words, after the initial competition, the part will not be reshopped as long as it is in the inventory, but the supplier must figure out how to keep reducing cost over time," NTMA says.

A new Sourcing Committee, which meets every Friday and is made up of all unit vice presidents, reviews all sourcing decisions to make sure that suppliers are the best available in the world. GM has established a division for Machinery & Equipment Purchasing, which will be headed by another Spaniard from GM Europe, Jose Manuel Gutierrez, who will report to Mr Lopez. The Die Management Group at the GM tech center will report to the Machinery & Engineering unit.

Finally, suppliers to the automotive OEMs have heard a lot about JIT delivery requirements, but, according to the EIU report, they haven't been adequately involved in OEM product planning and development efforts, neither being provided with schedule stability or planning horizons necessary for effective JIT programs. Other auto company pressures involve moving plants closer to the OEMs and the increasing demand for quality and certification standards.

EIU concludes: "Taken together, these demands are making life very difficult for the supplier community. In an environment where competition and low bid awards have already eroded supplier margins, the OEM policies outlined above, if continued without proper support, may put suppliers in an untenable business position and weaken the entire supply chain. Furthermore, the one-way, autocratic approach taken by the Big Three has caused unrest among suppliers."
COPYRIGHT 1992 Nelson Publishing
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Management Update; original equipment manufacturers of automobiles
Publication:Tooling & Production
Date:Oct 1, 1992
Previous Article:Probing for high-precision machining.
Next Article:Apprenticeships: a training edge.

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