Today’s PI Window on Business Show on Contracting Challenges Drives Home The Lessons That GM Has Learned The Hard Way!

Posted on July 10, 2009


When it rains, it pours!

Wednesday’s post pertaining to the folly of the new Procter & Gamble “Preferred Vendor” strategy was the epitome of the “when will they ever learn” axiom as companies that should know better continue to make the same mistakes.  Specifically, seeking quick savings through the silver or lead mindset that is at the heart of the Walmart approach to supplier relations.

The timing of course could not have been better, as Thursday’s PI Window on Business Show titled “Simplifying the Contracting Process in a Complicated World” (which of course is now available to you on an on-demand basis for your listening convenience), touched on the very issues that strike at the heart of the problems with the P&G program.

No sooner does the show go off the air, and while electronically “leafing” through my increasingly sizable daily research file, I come across a Supply Chain Digest article that asked the question, “Will Change in GM’s Supply Chain Leadership Finally Open Door to Improved Supplier Relationships?”

Highlighting the fact that the former VP of Procurement and Supply Chain, Bo Andersson, was let go and replaced with Bob Socia, the SCDigest wondered if the move “opens up a path to dramatically improving the approach and relationships between US auto OEMs and their suppliers?”

Referencing the comments of ADR North America CEO Bill Michels, it was reported that Andersson “left behind a supply chain crippled by bankruptcies, unprofitable, unstable and undeveloped.”

At the heart of this “wreck” that is now the GM supply network, was the “drive on price reduction, low cost country (LCC) sourcing, and extension of terms” that led to what the article referred to as the “collapse of the domestic automotive supply chain.”  Can you say Vlasic Pickles and Walmart!

SCDigest went on to state that “A supplier working with GM was under constant competitive threat versus working with a non-domestic OEM with target costing, development, margin protection and transparency.”  Under these circumstances, any good supplier will chose to focus their energies and resources on the non-domestic OEM.

Michels went on to say that “Andersson’s hard line approach might have been a short term win for GM, but resulted in long term supply chain problems and risk.”

He concluded that “the view that suppliers are a source of incremental profitability rather than an extension of manufacturing capability is a gross miscalculation.”

Once again, in today’s PI Window on Business interview with Strategic Relationships Solutions’ Co-Founder and Principal Andy Akrouche, we delve deeply into the challenges associated with the “incremental profitability” mindset that eschews building supplier relations.  We also discuss how emerging practices are now taking a more holistic, win-win approach to supplier development and engagement.  Here is the LINK to today’s show as it is really worth a listen.

Getting back to P&G, senior management really needs to take a step back and rethink their “preferred vendor” program as their targeted suppliers are expressing similar sentiments to those of the suppliers within the GM supply chain.

P&G is at a critical crossroads, in which the course they ultimately chose might very well lead them down a path of no return.  A path that will likely burn bridges with the good suppliers, whose capabilities create opportunities with other clients (perhaps even P&G competitors).  This in turn will leave the Cincinnati giant with the remnants of a supply base populated by the least desireable suppliers who have only stayed in the game because they desperately need the business.  Arrogant force and desperate need is not a good combination.