1. COMMENT:
GM’s new purchasing
contract makes suppliers
more accountable
By Mark Morley
High profile recalls have been prevalent
in the automotive industry in recent
months, with notable incidents such that
which occurred in Japan a few months ago:
3.4 million vehicles were recalled due to an
airbag fault, impacting four domestic OEMs.
Each manufacturer used airbags from the
same supplier, Takata.
Until now, OEMs have borne the cost of
recalls, even where the likely cause was a
part provided by a supplier. However, it is
the manufacturer’s brand image which is
impacted following a recall, which can lead
to a drop in sales, ultimately reducing
operational profits.
The aftermarket parts or downstream
business of a manufacturer is lucrative, but
key to its success is choosing the best
suppliers. Likewise the upstream business
or direct materials supply to production
lines is lucrative for suppliers as contracts
are typically multi-year and there is a high
chance of repeat business, as well as
expansion, if, for example, the OEM opens a
new plant in an emerging market.
GM is taking the matter into its own
hands by issuing new supplier contracts
which aim to move the cost of a failed or
recalled part back to the supplier. Under
the new contract there are open ended
provisions which state that the supplier’s
products “will not, at any time (including
after expiration or termination of this
contract), pose an unreasonable risk to
consumer or vehicle safety”. The end result
of this is that the supplier will need to
The supplier’s products “will not, at any time
(including after expiration or termination of this
contract), pose an unreasonable risk to consumer
or vehicle safety”
invest in more stringent testing procedures
to try to further increase the mean time
between failures. The new contract will also
mean that suppliers will need to consider
improving design processes, perhaps using
alternative materials and potentially
modifying production processes to design
parts which are even more reliable. Should
a major recall occur under this new
contract, it will not only damage a
suppliers’ business but also, if it does not
work towards improving product quality
and investing in processes, see it run the
risk of losing contracts.
The automotive industry as whole is
now closely watching GM’s situation to
see what happens. There is always a fine
balance in terms of how much an increase
in supplier-related costs can be passed on
to the consumer. Some may view this
contract provision as GM being proactive
in dealing with the recall challenge, but it
is likely that the new contracts will
potentially impact both up and down
stream business.
This new policy will also help boost
GM’s global Corporate Social Responsibility
(CSR) charter. To enforce this charter, GM
and other OEMs need to optimise how
they work with suppliers, both contractually
and in terms of adhering to quality
standards, leading to even more stringent
and frequent supplier assessment
processes.
One such process already in use is the
Materials Management Operations
Guideline Logistics Evaluation, (MMOG/LE)
an extensive supplier assessment process
developed by the Automotive Industry
Action Group (AIAG) in North America and
the Odette organisation in Europe. Many
manufacturers run this assessment process
once a year but GM’s initiative may lead to
more regular MMOG/LE assessments being
carried out across itssupply base.
All in all, it is fair to say that GM’s new
policy comes with the best of intentions,
aiming to further improve quality processes
across the supply base, which can only help
increase consumer confidence in the brand.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Mark Morley is EMEA Industry Marketing Director at GXS.
The AutomotiveWorld.com Comment column is open to automotive industry decision makers and influencers. If you would like to
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