Automotive News - December 1, 2008 - (Page 28g) DECEMBER 1, 2008 • 28G BMW purchasing chief: Cost cuts are on track PARIS — In his first year as BMW’s head of purchasing, Herbert Diess asked suppliers to improve their performance. Yet, as the year closed, he said BMW’s relationship with suppliers is on solid ground. “I am very pleased with what we achieved in the last year,” he said. Diess, who has a budget of 26.8 billion euros, or about $34.1 billion, for component purchases this year, works with more than 1,000 suppliers. His task is to find $5 billion in savings through 2012 as BMW strives to become more competitive. At the Paris auto show in October, Diess was interviewed in German by Automotive News Europe Editor-in-Chief Arjen Bongard and Staff Reporter Bettina Mayer about the ways in which BMW helps suppliers in trouble, how the company works with other premium carmakers and how some structural changes within the group help save money. Do you have a list of preferred suppliers? The most capable suppliers are preferred when we look at renewing contracts. have to generate a win-win situation between automaker and supplier. That’s what we will continue to do. In the automotive environment, we have to care more about increasing productivity than in the past. “ You always Can you give us some details on the common purchasing with Daimler? We have been talking with Daimler colleagues for some time now and are defining common modular components we would like to purchase together. Those will be modular components that do not play any role in differentiation of the brands. The engineers are working on that project. Can you give us an example? We are talking, for example, about electronic modules, electronic structures and architectures. Standardizing modular components is very important in the automotive industry, and there is a common interest among German automakers and suppliers. Especially smaller carmakers are very much interested in standardizing parts to generate economies of scale. Here we are on the way and hoping for huge advantages. Suppliers welcome that also because volumes are more attractive then. Basically, the discussion about harmonizing, standardizing and using common parts is highly supported by every supplier I know. How does the merger of Schaeffler and Continental affect you? Continental as well as Schaeffler are two of the most important suppliers we have. After integrating Siemens VDO into Continental, which we welcomed, Continental faced a huge challenge. With integrating Continental into Schaeffler, the challenge the management is facing has got a new dimension. Direct competitors are very aggressive on the market now. If the integration work takes too long, the synergy effect could be lost. As suppliers get bigger, how does this affect your relationship with them? The automaker-supplier relationship is on an equal footing and should be win-win for both parties. This has functioned well in recent years. As long as there is competition among at least three global suppliers, we are pleased with the situation. Some suppliers may have a monopoly on some parts for a certain time through innovation, but the competition is always right behind it. There is a healthy competition among suppliers. c Q&A How is the current financial turmoil affecting your business? The situation could cause problems, especially for some suppliers, including important ones with good ratings. For all of them, it will be difficult to get credit or refinancing if the financial situation gets worse. Rising financial costs could cause big problems. So what are you doing to support your suppliers? We are working closely together with the purchasing departments of our premium competitors to support suppliers that are in trouble or that soon could be in trouble. This already happened in the past and is not caused by the financial crises. We try to identify problems as soon as possible and try to support those suppliers. There are different solutions to their problems. For example, a bigger supplier might buy a smaller one; a stronger supplier might buy a weaker one. You can try to bring them together to get the process started. Normally, we go through the business plans with suppliers. There is also the possibility of investment funds buying distressed companies. The challenge is to find a long-term solution leading to more competition. Can you provide other examples? In certain cases, we support suppliers with financial help or a kind of prepayment. But basically we try to avoid getting too engaged because we want them to be competitive on their own. One solution could be to meet with three customers and de- HERBERT DIESS BMW ” cide to raise prices for a certain period until another solution is found. But that will always be an exception and not a general rule. It would be dangerous to tell suppliers that they are safe because BMW is there to save them if they get into trouble. Are suppliers going out of business? I fear the number of suppliers getting into trouble or going bankrupt could increase in general, and I think that’s not bad. Consolidation makes the automotive industry stronger. Companies performing badly are restructured or are heading for synergies with other companies. That makes these companies stronger, more solid and puts them in a better position financially. This trend would happen without the financial crisis, but the credit crunch could accelerate the process of consolidation. How was your first year on the job? I am very pleased with what we achieved in the last year. We had an innovative approach at BMW by combining purchasing parts, quality, logistics and in-house parts production. We improved the supply chain at every location in the world. We could improve productivity, for example, in the foundry and in our in-house seat production significantly. And we considerably increased productivity in the purchasing of materials. It shows how effective our partners in the automotive industry are. Conclusion: We had a good start with the new setup. You have to save $5 billion through 2012. How is that going? We are on track. We achieved the highest ever savings in the purchasing department. We doubled our savings compared to last year. You don’t do purchasing year by year; we are doing it project by project. Right now we are choosing suppliers for the next 3-series model, so you have to split between productivity increases during the year and savings you achieve through model change. We did a good job on both sides, and that means we will feel some of the effect of the savings from 2010 onward on the new products to be launched. How does BMW’s sharper focus on prices affect supplier relations? We are demanding more of our suppliers regarding quality and productivity, and we are asking for more innovative products than ever before. We intensified the teamwork with the suppliers, which means we meet more often, the work is more system- atic and — I have to admit this — we listen much more to the suppliers than in the past. We are more open to their ideas and suggestions and are asking them to support us — for example, with modular components. You always have to generate a win-win situation between automaker and supplier. That’s what we will continue to do. In the automotive environment, we have to care more about increasing productivity than in the past. Will you have fewer suppliers? Our target is not to reduce the number of suppliers, but we have to manage our portfolio. We continually evaluate a supplier’s advancements in quality levels and productivity. We separate out the worst 10 suppliers every quarter that do not meet our requirements. They don’t get new contracts, so there is an opportunity for new suppliers. We will likely intensify our portfolio management. “DOWN-SIZING” OR “RIGHT-SIZING”? ACCORDING TO NEW STUDY, CAR BUYERS SAY “BOTH.” Acxiom’s Automotive Consumer Dynamics study helps marketers pinpoint target buyers. For a complimentary subscription, visit www.acxiom.com today. Model Mix Which brands and models are selling best in your state? How many are hybrids? JATO can help you to assess your market position by delivering a timely and complete set of volume statistics by state and by engine type. Make informed decisions, not educated guesses. To find out more please visit us at www.jato.com/usa Call: 248 409 5286 http://www.acxiom.com http://www.acxiom.com http://www.jato.com/usa http://www.jato.com/usa
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