Your decisions will affect the 70% of the variable cost that originates from outside suppliers. You must ensure that everything is bought at the best available global price. And, you’re responsible for everything ending up in the right place at the right time with a minimum of incumbent errors. Everything has to be shipped and delivered to the right place and on time. Oh, by the way, did we mention that all this means shopping for close to 160,000 parts from 3,200 suppliers related to the flawless production of 65 car models and the construction of 40,000 cars every day? That’s an annual shopping list of $86 billion right there. Add another $13 billion for machinery and equipment, $6 billion more for freight and forwarding, and now you have an insight into the enormity of Bo Andersson’s job as head of purchasing for General Motors.
A native Swede, Andersson is the only non-American among the 15 people who make up GM’s Corporate Management team. As a Vice President of N.A. and Global Purchasing and Supply Chain, he is responsible for the purchase of all outside materials, regardless of whether they’re used for the production of cars, the production of paperwork or the production of sales results. His organization buys parts for the production of vehicles, machinery for GM’s assembly plants and new technology that benefits overall sales results.
In theory, Andersson claims, “it’s really not that complicated. All you have to do is know why you are doing what you are doing, who’s doing what, where you are going, and how you’re getting there. Then you assign the right people to the right job, put in place the checks and balances and you are on your way.”
Sounds complicated to us.
Considering the system of checks and balances he built for GM’s purchasing operations over the last ten years, Andersson may rightly be described as a systems visionary. His philosophy: “We should buy better than anyone else – the best quality at the right price – and make sure new model launches work smoothly and save money through proper procedures.”
Bo Andersson himself is a bit of an enigma. With roots in a deeply religious family on Sweden’s West Coast, he was faced with choosing a career in the church or the military. He decided on the military, a decision that became the basis for his take on life and later a basis for the agenda to ultimately transform GM from a highly vertically integrated company (producing everything from batteries to light bulbs to windshields under its own roof) to a manufacturing giant supported by a well-functioning supply chain.
In 1990, GM had several thousand suppliers. Today, with 3,200 direct material suppliers, Andersson is looking to pare that number down even further. “It’s all about having the right suppliers in the right place around the world,” he says.
The effort comes at a time when GM is once again facing financial challenges. As it did in 1992, GM recently announced plans to reduce capacity in North America as part of a turnaround plan to generate much needed structural cost savings. Anderssons group is on the hook to add $1 billion in material cost savings for 2006, according to GM Chairman Rick Wagoner. Andersson is up to the challenge and is tireless in his quest to drive alignment between GM and its supply base.
Everything in the purchasing process is transparent and open, from individual performance (including Andersson’s) to the rubber-edge detail for a car door to the $10 million in steel he had negotiated prior to our second visit in September, 2005.
Shortly after our visit, Andersson unveiled a new multi-year plan for suppliers, where GM’s 300 key suppliers—those that account for more than 80 percent of GM’s purchases—will have a “champion,” someone in the purchasing organization who is there to represent the supplier’s concerns within the automaker. The champions are in addition to the extensive team of commodity and supplier quality engineers who handle contracts and measure suppliers for reliability, continuity of quality, spill and overall performance—every working day of the year.
On July 22, the date of our first visit, 99.5% of all parts arrived on time, and only 35 parts in one million were not up to standard. The GM organization overall has lately saved 3% per year on buying smarter, better, with less spill and disruptions.
“It’s all about accountability,” says Andersson. “My systems implemented here are designed to make everyone not only responsible for very defined areas, but accountable for the results.” Every person in his 4,000-employee strong purchasing organization has to know what he or she is responsible for, and has to be able to see how they’re performing.
The purchasing process affects everything in an organization where 70% of the variable cost comes from the outside. Major decisions are made during a weekly videoconference where personnel from 40 countries participate, and, as a rule, all decisions over $10 million are made. “It was essential to re-establish faith and confidence among the suppliers after a very different philosophy and structure in the early 1990s,” Andersson explains.
Andersson’s new approach to managing the purchasing process better has changed the entire process of creating a new car model. During our visit, one of the cars we test drove was a new Pontiac Solstice, a $20,000 Roadster that was developed in less than 28 months—about half the time it usually takes to develop a new car model.
“As soon as the designers had their sketches done on the drawing boards, we invited engineers and the suppliers we felt were able to piece together this car,” Andersson says. “The production was a cooperative process between suppliers, GM development and engineers, with [our] coordinating the efforts based on the principle of buying best — i.e., from the right source and at the lowest cost.”
A rough start
Andersson arrived in Detroit at a difficult time for the car giant. All signs indicated things were going badly awry in the car industry overall—let’s face it, this quintessential American industry has been written off many times over the last few decades. Chrysler was bailed out by the government in the early ’80’s; Ford narrowly escaped bankruptcy at the same time, and in 1991, the combined losses of the big three topped $7 billion. GM was said to be within hours of disaster in 1992, as top executives sat, eyes fixed on monitors, waiting for the credit downgrade that would have pushed the company over the edge. The financial troubles at the time came just prior to the scandalous exit of then-VP purchasing, the infamous Lopez, who together with a group of associates, brought GM secrets with him to the German auto maker Volkswagen. The move left the purchasing organization, the corporation itself and its supplier relationships in a moral and functional limbo.
Enter Bo I. Andersson from Sweden.
After a career in the military, feeling less motivated after the end of the Cold War, Andersson took a position at SAAB where, in 1990 he became head of purchasing. His mentor at SAAB was the first GM-appointed CEO at the company, David Hermans, who also introduced him to now GM boss Rick Wagoner.
Lopez, the previous head of purchasing at the GM headquarters quit during the first week of March 1993, Wagoner succeeded him and a week later Andersson was asked whether he’d be interested in a position in Detroit. He became responsible for the global purchases of electrical in 1993. His successes in the electrical division did not go unnoticed and he was promoted to VP of GM Europe under Herman in 1997-98, then went through a management program at Harvard, whereupon he became No. 2 in purchasing at the GM head office in Detroit. He helped run purchasing under then-VP Harold Kutner for two years and was appointed VP, Global Purchasing and Supply Chain, in November, 2001.
“When I first arrived in Detroit, I had much to learn about GM and I was lucky since everyone working with me was eager to share their views on how things were accomplished at the company. One thing that I have learned quickly is that so many decisions were based on individual’s relationships,” Andersson reminisces with a smile.
“Well, I don’t work like that. I believe you need to set your priorities, work out goals and how to measure achievements, decide who’s going to do what and set up systems and procedures to enable your staff to succeed.”
Needless to say, Andersson’s approach was a novelty at the car giant. “I do believe that we owe it to ourselves, our colleagues and our suppliers to establish and maintain a good working relationship. But I strongly believe that any good working relationship has to be based on facts and data.”
GM has in recent years been accused of squeezing suppliers for lower prices. Andersson responds, “It is a little publicized fact that the ten best paid people in the automotive industry in 2004 were suppliers. As for us, we are very clear in expressing our motives and expectations and are always willing to work with the supplier to help them hit their targets. Higher efficiency and more reliable quality is a must everywhere. Each supplier receives his daily update on how he is performing; those that don’t perform will not continue to work for us.”
True to Andersson’s push for accountability, his own boss demands the same of Andersson. GM’s purchasing goals this year are to reach 100% on delivery reliability, have a maximum 25 detrimental parts per million, smooth new model launches and a 2.1% savings (the equivalent of somewhere around $2.3 billion). For competitive reasons, Andersson won’t share results to date or how the year will end. Regardless, he and his organization remain focused on delivering results that will help the car giant emerge financially stronger.
He has been criticized in some quarters for outsourcing jobs overseas or for challenging suppliers to look into overseas potential. To this he also has a response: “The trend is, we buy where we deliver, and in terms of regions, there’s a clear global trend toward the east and south. That being said, it is an oft-overlooked fact that over 50% of our purchases are in the U.S. The larger supply countries abroad are Mexico and Canada, with new countries in the east and south having evolved over the last ten years. Best performance of all supply countries in 2004 was Korea, where a car is less expensive to build than in, for instance, China, where GM already builds one million cars.”
One major difference between GM, and its foreign competitors in the US is GM produces most of the vehicles sold in the United States domestically. The situation is very different for the competition. For comparison, Andersson notes that, “roughly 40% of the two million cars sold last year by, e.g., Toyota in the U.S. were actually imported from Asian operations.”
Andersson’s main focus, however, is on his company’s results. “How many items were delivered on time? [The answer is] 99.9 % today, compared with 99.7% three years ago. In terms of quality, today 25 to 35 parts per million are of unacceptable quality; five years ago it was 1,500 parts per million. That’s where I have to put my energy. Only by constantly improving and by buying better can you save up to $2.5 billion a year.”
It’s a 24/7 job that never ends—GM has operations all over the world, and is the kind of organization that never sleeps. Andersson’s regular workday starts at 5:30 a.m. with calls to Europe. At 9:30 p.m., he starts working with China. In between, it’s North and South America.
“The strange thing is, I am still having so much fun on the job,” Andersson says. “It took me three years to fully analyze things in the purchasing organization… and implementing the system over the last three years has been sheer bliss. I do have a lot on my plate sometimes, [but] other than constantly seeing the results, part of the reward is when the boss [Wagoner] says, ‘The good thing with you is that every aspect of your performance is now measurable. I’ll sleep well for as long as you’re doing this job, Bo.’”
Written by: Ulf Martensson
Bo I. Andersson
Education: Karlberg military school (the Swedish equivalent of West Point)
Royal Swedish Armed Forces College;
Stockholm University BA
AMP program at Harvard.
(“Toughest was the armed forces college; Harvard Business School was child’s play in comparison.”)
Family: Wife and two daughters
Lives: Bloomington Hills, Mich.
Most valuable traits in a person: Honesty, loyalty and courage
Most admired person: My mother
Most important invention of all time: The blackberry
Travels: Not as much as he would like to
Drives: Cadillac Escalade
Latest read book: The Painted Bird – by Jerzy Kosinski
Latest watched movie: The Wedding Crashers (with my two daughters)
Vacations: In Glommen (a small village on Sweden’s West coast)
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