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Will the Future Be Different?

Here's what GM and Chrysler—the "New GM" and "New Chrysler"—need to do if they'll truly be different companies.

I never thought we would see the day when two North American automotive manufacturers filed Chapter 11 bankruptcy protection and the industry and economy would be gasping for air. Chrysler may emerge sooner than expected, probably by the time this column is published. But the face of the company is certainly different and one that many never expected. GM now enters court, but things will not be as efficient because GM is global with many things that intertwine. The process will be painful any way you look at it.

Many are asking how Chrysler and GM got here, but frankly it's not worth discussing at this point. Bottom line: This is the worst crisis in the history of the companies and they have to restructure and emerge as the "New Chrysler" and "New GM". The real question to be asked is what will be different from the operating days of old. A new business model is required to behave differently but will that be the case with the new companies?

Our recent study of these companies validated what we had longed believed. A new culture must be created to emerge from this crisis healthier. The companies cannot just say they will be leaner and meaner and it will be so. The management and leadership must modify their values as organizations in order to drive the right behavior and culture.

The domestic companies have stated for years that they value a healthy supply base, commonization of designs, and collaboration with suppliers, yet none of those things are highly effective at these companies. They have adversarial relationships with their suppliers, they don't leverage the engineering strength of their suppliers and "collaboration" is a great buzzword used by OEMs to be politically correct.

The ability for OEMs to accurately match supply to demand through flexible operations and leveraging the supply base are the biggest issues for the industry moving forward. The domestic companies are behind the Japanese OEMs at listening to the market, understanding customer needs and wants, and providing them with competitive and internal alternatives that meet the societal imperatives. The Japanese have better matched demand to the lifecycle of a vehicle program.

The key to the Japanese success starts at sales planning and product development where an extreme amount of uncommon proliferation can be caused. This complexity often drives cost not only at the design level but at the operator manufacturing level and may yield low productivity and poor quality. The focus for the Japanese has been on commonization across the platforms and architectures and global components to drive down overall cost.

The next piece of flexibility is within the manufacturing engineering process to build any of those platforms or architectures through one assembly system. This focus is not just within a certain segment of vehicle (B, C, D, etc.) but must be across each of the segments. This allows for the highest utilization of capacity and the reduction of unneeded assets.

The critical last component of this process are the suppliers and their relationship to the OEMs. We have heard much about this in recent months and days. This will be the part of the industry that suffers the most with OEM bankruptcy and not just the Tier One suppliers but all of the Tier Two and Three suppliers that are not being helped in this crisis. The government and OEMs want to protect the "key" Tier One suppliers and maybe rightfully so but who is protecting the $30-million supplier that provides all his work to a Tier One? These suppliers could single handedly shut down GM or Chrysler plants—and even Ford and Japanese plants, if they produce for all manufacturers.

The missing link here is the business model of how suppliers are chosen by Purchasing and work with product development. The Japanese keiretsu system, which many American companies do not condone, is a system that partners or collaborates between the OEM and supplier mostly because the OEM typically has ownership stake in the supplier so the collaboration is somewhat forced. But it works. American manufacturers have been against this system for many reasons.

Regardless of how it happens, the domestic OEMs and traditional suppliers must evolve to the collaborative model. They don't need to buy suppliers but the model must be focused on a few key elements:

  1. Value a healthy supply base and put the structure in place to ensure that within purchasing and product development
  2. Reward buyers and engineers at the OEM for total cost solutions rather than lowest price
  3. Involve suppliers very early in the process and provide financial support progressively for engineering development and tool development
  4. Design components together and value their creative input
  5. Remove the system of givebacks each year after start of production; agree on a margin at PO signing and stick with it through the life of the program, then reduce cost on new model
  6. Reward suppliers for cost-reduction ideas.

These things are simple—or so it seems—but still not valued within the domestic environment. With a consolidated supply base going into the future, excellent suppliers will be able to determine if they want to sell value to the OEMs that value them, or just sell capacity to those companies that just want parts. This choice will change the face of supplier relationships long term.