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All your eggs in one basket?
The situation at GM and Delphi is enough to get any purchaser worried. After all, there's a trend these days to pare down the number of suppliers you deal with, and forge long-term relationships with a select few.
There are all kinds of benefits--fewer contracts to manage, less time spent on supplier discovery, reduced risk of bidder challenges. Even so, the strategy can put buyers into a precarious position.
Consider GM. The automaker depends on Delphi as if it were a vital organ. It bought roughly half of the US$29 billion in parts produced by Delphi in 2004. Delphi is now under bankruptcy protection and making some pretty tough demands from GM to stay afloat.
"We need GM to cover a greater portion of the costs of manufacturing products for GM..." Delphi stated in a press release. "We simply cannot continue to sell products at a loss."
Delphi is planning to close or sell 21 of its 29 US plants and cut 8,500 workers. It has asked a US bankruptcy judge to scrap its labour deals and money-losing contracts with GM. The move would dry up much of GM's parts supply, and according to the Globe and Mail, "send shockwaves through the North American auto industry."
Even in a best-case scenario, Delphi and GM will be sitting down to re-negotiate 400 contracts. Everyone knows how much haggling that will involve.
Delphi is at loggerheads with its union too--asking for an unthinkable cut of three quarters of its unionized workforce. United Auto Workers president Ron Gettelfinger said the plan doesn't even merit discussion. If Delphi goes ahead with the cuts, there will be a long strike, he predicts. That could push GM into bankruptcy protection, because it won't be able to find alternate sources of supply, the analysts say.
For purchasers, the situation is a paradox. They're told to rationalize their supplier base. But when the relationship sours, stakeholders will wonder why the purchaser didn't have alternate arrangements in place.
It isn't an easy thing to cut a supplier without burning the bridge. Who knows when you'll need that very same vendor for a one-off order when the regular guy fails?
Purchasers must diplomatically shed excess vendors, but keep them on the hook, just in case. In effect, they have to discover and develop a base of back-up suppliers, which is many ways, negates the efficiency gains of supplier rationalization programs.
But overall, having a solid Plan B for critical supplies--though it's challenging to develop--will abate some of the concerns arising from the Delphi fiasco. Many wonder if for GM, it's already too late.
—Lisa Wichmann
Editor
Contact the editor at lisa.wichmann@pb2b.rogers.com
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