The worldwide purchasing tab at Delphi Automotive Systems Corp. rivals the supplier spending of some automakers. The megasupplier last year bought almost $14 billion in components and materials, another $1 billion in tooling, and more than $4 billion more in supplies and services. Like the automakers, Troy, Mich.-based Delphi is seeking efficiencies in its supplier network. That task now confronts Ray Campbell, Delphi's vice president for global purchasing. Campbell works with a supply chain that consists of more than 8,500 supplier plants around the world.
Campbell spoke recently with Lindsay Chappell, a staff reporter with Plastics News sister publication Automotive News. The following is an edited transcript of their conversation.
Q. Automakers are eagerly consolidating their supply chains with big global, multitechnology suppliers such as Delphi. Is Delphi also moving in that direction with its supply base?
A. Yes, but our motivation is perhaps a little different. We're at a point where we are implementing lean manufacturing systems in our plants. And as the bar continues to rise on supplier quality performance, we recognize that we can't effectively manage all the suppliers we have. We need a manageable number of suppliers. In certain products that are fairly complex, there are really only a handful of suppliers who can meet our technical requirements. But other products that are less complex are almost like commodities.
We've got a heck of a lot of suppliers, and it's just a matter of getting the ones that can meet all of the issues around quality, service and cost. We're on a mission to reduce our supply base, but not to do it with a machete.
Q. By how much will you reduce it?
A. Our commodity teams spend the bulk of our dollars. We now have plans from our teams on the how and the who of reducing our supply base by 30-50 percent over the next two to three years. The issue is to do it smartly. If we get to a 50 percent reduction of the supply base, it's going to be because of quality improvement. We don't know what the optimal number of suppliers will be. In some cases, on a particular component, it could be three or four. But on a particular item that's really a commodity, it could be that we still need 50.
Q. It must be difficult to globalize the procurement of a Tier 2 commodity that you need in only small quantities, but at a hundred different Delphi plants around the world.
A. We have a lot of products that we buy globally but that are produced locally. On the other hand, we might deal with a strategic supplier who is located in one region of the world but doesn't have production operations in any other region. Instead, he might have creative relationships with partners in the other regions — a joint venture or even just an informal relationship. Even though we have so many far-flung manufacturing sites, we are still able to aggregate our spending on specific commodities in order to get globally competitive prices.
But again, the issue for us now is not reducing the number of suppliers in order to get lower prices. The issue is what is a manageable number of suppliers because of our human-resource limitations. The improved economics is an added benefit, not the objective.
Q. How does e-procurement fit into this future?
A. We've been purchasing through electronic auctions for three years. Over the past six to 10 months we've been intensely involved in trying to understand the potential of e-business tools beyond electronic auctions. We're still in the process of gathering knowledge and trying to find the right solutions, not just for us but also for our customers. We have not locked down on all of the solutions for Delphi purchasing.
But we have had enough experience to know that electronic auctions and e-business are tremendously helpful in increasing our speed in making selections, establishing prices, communicating changes in parts drawings and generally exchanging data in day-to-day business schedules. The process of globally sourcing a part can take us anywhere from 12-24 weeks. Where we've applied electronic auctions, we can reduce that process all the way down to four to 12 weeks. So these are huge benefits in speed.
They also help you make sure you've got globally competitive prices. They help you identify more rapidly alternate supply scenarios around the world.
Q. Have you put the process to the test in identifying new suppliers?
A. Yes. I'm not going to name names, but since last year, we've identified huge opportunities in tooling out of [South] Korea and Taiwan. We also have identified new opportunities with suppliers that we didn't know much about for other products, also from Korea and the rest of Asia.
This isn't limited to opening your eyes to suppliers from different parts of the world. It also opens horizons for suppliers in your own state and city. We've done auctions in which one of our incumbent suppliers was astounded to discover a company in his same industrial park had a more competitive price.
So it's not just finding new suppliers in Korea. It's also about finding new suppliers in Michigan and California.
Q. What kind of savings have you seen so far from the Net?
A. In 1999 we put about $465 million through the electronic auction process. We identified savings of about $70 million. We haven't put all $70 million into our pocket yet. Some of that would come from new suppliers to Delphi, and we are still going through a technical evaluation of the product to make sure it passes our specifications. But it's safe to say we've put through tens of millions of dollars in savings.
Q. What about the argument that unknown, unproven suppliers are going to pop up in the auction process claiming potential savings that they just can't deliver?
A. It's a factual statement. Some suppliers will come in and quote something at a huge savings potential. And then when you get down to seeing the product and determining whether or not it meets your technical criteria, it's woefully short. Or even if it passes the technical criteria, the company is not accustomed to the way we do things in the automotive business with high volume and a lot of changes.
But on the other hand, we've gotten more supplier opportunities that have turned out to be very beneficial.
Q. What is the intention of the new industry research study on e-procurement that Delphi, Dana, TRW, Valeo and other Tier 1 suppliers are conducting?
A. We're in the midst of detailed discussions to determine if there is a need to set up an e-business mechanism between the Tier 1s and the Tier 2s and 3s. If we're going to do business with the Big Three, we've got to use whatever mechanism they say. The automakers are focused on getting their own Newco system up and running to work with the Tier 1s. [Editor's note: the Big Three automakers recently named their so-called Newco e-marketplace Covisint.]
The automakers don't have time to focus on suppliers down in the second, third and fourth tiers. We thought there might be an opportunity here to help the industry as a whole by starting to work on how would we use e-commerce with other suppliers. Getting multiple companies to agree on something as complicated as this is an incredible undertaking.
Q. But you, the supplier world, are not really at a point of knowing how to augment what the automakers themselves are planning?
A. No. We don't know what their system is yet. All we're trying to do is figure out how we might set up a network between Tier 1s and our suppliers, and build it with enough flexibility that whatever comes out of Newco, we can just plug it in. We're not trying to do anything to their system yet because we don't know what it is.