Harold Kutner had a tough act to follow. In 1994, when he took over GM's worldwide purchasing organization, GM suppliers were still reeling from the days of Inaki Lopez. Kutner, too, brought a no-excuses approach to cost-cutting. Though he doesn't win any popularity contests, he has earned respect as he pursues defect-free parts and a global, one-price purchasing system. On May 7, Kutner spoke with Staff Reporter David Sedgwick and Managing Editor David Versical in Warren, Mich. Edited excerpts:
Last year you told your suppliers that you wanted them to adopt a pharmaceutical mentality - that is, zero tolerance - toward defects. Then you gave them a goal: no more than 25 defects per million parts. How many achieved your goal?
First of all, we are convinced that a pharmaceutical mentality will work. The pharmaceutical industry can provide the customer with a product, and every one of them works. So when you get a prescription, your expectation is that every pill will work, and that they are all the same. We studied this industry to see how they design for perfection to protect their customers. We are convinced that if they can do it, we can do it.
Over the last two years, we have seen a 40 percent improvement in quality among global suppliers. That is a dramatic improvement. We are setting very aggressive goals. Even 25 defects per million suggests that we are accepting defects.
Which vehicles have the best quality?
Saturn is probably in the lead. But there is not a significant difference. Our truck group has come a tremendous way in the last two years.
We have seen an aggressive reply by suppliers to the pharmaceutical challenge. The next step is getting our suppliers to participate in our warranty process.
How would you set risks and rewards?
That process is being developed. We will reward suppliers who do the best job. Suppliers who can't meet these goals are going to be paying some of the warranty costs.
We will have high expectations. We will give them a period of time - about 90 days - to fix it.
We don't have a common process around the world for warranty costs. We will introduce a common system. We are studying other car companies like Toyota to see what they do. All car companies have legalese to cover warranty costs, but enforcement is not very aggressive.
One reason we are doing this is because we have seen a significant improvement in quality. It's time to take the next step.
Do your suppliers average fewer than 100 defects per million parts?
No. We are not below 100, on average. However, in some assembly plants, about 60 to 70 percent of our suppliers have 25 to 50 defects per million.
How will you help suppliers cut warranty costs?
The suppliers have asked us to provide them with warranty data online, from the dealers, so that they know what is happening with their components.
You will give them warranty data online?
Will you initially share this data with a small group of suppliers?
When we talk about a warranty data-sharing program, we are not talking about people who supply us with fasteners. We are talking about the major 40 systems in a vehicle. Those are the kinds of things we will focus on.
How many suppliers will go online?
Probably 100 to 150.
Can you get your suppliers online this year?
I don't know whether we can or not. I would hope we can have some sort of data sharing as quickly as possible. This is an urgent request from the suppliers.
Do your North American suppliers or European suppliers have better quality?
I don't think there's a difference anymore. We have one common global quality system.
To cut warranty costs, suppliers will want more authority to design their own parts.
I would agree with them 100 percent.
Suppliers say GM has been less willing than Ford or Chrysler to let suppliers design entire chunks of systems. Is that true?
Historically, I'd say that's accurate. We are moving in a different direction today. We recognize that we can't be experts on everything, and we have to allow the suppliers to do more.
Do you foresee a time when a supplier will be responsible for designing an entire car interior?
Yes. We are doing that today. We presently have suppliers who are quoting bids for entire cockpits.
Maybe we are not doing it as fast as Chrysler has. We will focus more on designing the core product, and let suppliers design the components.
Which vehicle will be first to have an entire cockpit designed by a supplier?
Probably one of our mid-sized vehicles. I don't want to tell you which one. It's three or four years out. That's our strategy.
If you want a harmonious interior - all the parts have the same grain and the same matching colors - you need to have one supplier take total responsibility.
Suppliers like Lear or Johnson Controls are capable of doing that. And when we talk about a car interior, we aren't just talking about the cockpit or instrument panel. We're also talking about the console, the door trim, the headliner, coordinating the carpeting, and so forth.
How do you make sure that your suppliers are using the best technology?
The best technology is not found at the Tier 1 level. The best technology is found among Tier 2 and Tier 3 suppliers. We have a process, called CAP, or Central Advanced Purchasing. We will want to know, for example, who is providing the best entertainment system. We will want to know who is providing the instrument cluster, and whether it is adaptable to an international marketplace.
We will try to create some marriages between suppliers that have not historically done business with each other.
So you are not ready to give Tier 1 suppliers complete freedom to choose their Tier 2 and Tier 3 suppliers?
We are going to review where the technology is coming from. If we are not getting the best technology, there may be some Tier 2s and 3s that the Tier 1 supplier might want to buy parts from. Or maybe they will form a joint venture.
Can you see the world better than the suppliers?
We are encouraging suppliers to knock on our door. We are finding out that Tier 1 suppliers do not always know about the global Tier 2s. As a result of that, we can create some marriages among Tier 1 suppliers to make them better suppliers.
If you have located a better Tier 2 supplier, you are telling the Tier 1 supplier that their in-house technology may not be as good.
That's exactly right. But we would not force marriages between suppliers.
That implies that you are putting some teeth in your contention that merger mania may not always be the best strategy. You are encouraging suppliers to look at alternatives to mergers?
It is up to the supplier to decide how they want to grow. If I have one criticism, it's that in some cases, Tier 1 suppliers have joined up with Tier 2s that don't have the best technology in the world. Only time will tell how those mergers will work out.
A few years ago, GM said it would adopt a global one-price strategy to buy certain components. What progress have you made?
We recognized that we could offer suppliers big sales volumes with a global strategy. Previously, we might have talked about a car program with 200,000 units. Now we are talking about a million units.
The question is: How do we use global pricing to support high-volume regions like Europe and North America, plus low-volume regions like Taiwan or India?
We can do it if we have common components. We told our suppliers that we wanted them to engineer their components one time. Then we wanted them to ship the most expensive components around the world - then use local sourcing to produce less costly parts.
If we talk about a truck program here and in Indonesia, obviously the high-volume production will be in North America. So we pick a supplier like Denso International to produce the air conditioning. We would expect Denso to make the high-cost parts close to the original assembly plant (in North America).
But if we are going to make 7,000 or 8,000 trucks in Indonesia, we would expect Denso to ship the high-cost parts to Indonesia, where they would use some locally sourced components to complete the assembly in Indonesia.
Can you give us an example of a globally priced component?
Airbags. We have one price for airbags around the world, and basically one system. Antilock brakes, window regulators, glass, tires. By using our size, we can get the same prices and the same systems around the world.
How far has GM purchasing come in the past few years?
There has been a lot of turmoil. What I tried to do is truly create a global organization for GM. The globalization of the supply base is something we are extremely proud of.