Delphi To Cut Supply Base

Automotive Industries,  Oct, 1999  by James Carbone

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Non-traditional suppliers to vie for electronics systems gold mine.

Commodity teams at Delphi Automotive Systems are seeking to reduce the company's supplier base, due to changes in procurement strategies begun after the giant Tier 1 supplier was spun off from GM last year.

"We have more suppliers in North America than we can manage, so we are looking at significant reductions," says Ray Campbell, vice president of purchasing. "But we have to do that in a sensible way. We can't close the door On suppliers we are currently doing business with. They might have a new manufacturing process that's lower cost or faster or better technology, so we want to keep the door open and do the right thing," he notes.

Campbell says a priority is determining how many suppliers are needed for a given commodity. "In some commodities, we have 80% or 90% of our spend with two or three suppliers," he reveals. "But in others, 90% of suppliers have 1% or so of our total spend. We are in the process of understanding how we got into this dilemma."

In rationalizing suppliers, quality is Delphi's top criterion, followed by technology, service, and cost. "Quality is what we put the most emphasis on," says Campbell. "We need the highest quality. If a supplier is rationalized, it's probably because he does not have the process capabilities."

As automakers move increasingly into electronics-intensive vehicles packed with mobile multimedia and other high-profit systems, purchasing experts predict a shift toward suppliers used in the computer industry. The average vehicle now has some $1,000 worth of electronics. And that number is escalating, with electronics permeating seating, steering, braking, suspension, navigation and entertainment systems.

Delphi Automotive Systems annually buys about $4 billion of electronics, including $2 billion from Delphi Delco, which makes electronics systems and subsystems for other Delphi divisions as well as other vehicle manufacturers. Delphi's 600 buyers purchase a wide variety of electronics, ranging from microprocessors and memory chips to resistors and capacitors.

Suppliers are measured quarterly on parts per million (ppm) defects. "In some cases, suppliers achieve zero parts per million," says Pat Murtagh, commodities manager. "Our goal is zero. Zero is realistic in electronics. We have a lot of suppliers who have attained zero and maintain it.."

Of course, cost is a factor in supplier rationalizing as well.

"Over time, suppliers prove whether they are cost-effective or not," notes Campbell. "We are not just saying, `If you're not competitive, we're throwing you out.'"

While some Delphi suppliers may be cut, others will be added. Many of them will be for new electronics systems that are under development for future vehicles. Some of those systems will be mobile multimedia that will provide car drivers with e-mail, hands-free cellular telephone use, television, direct broadcast satellite reception, digital versatile disk (DVD) and minidisk playback, heads-up displays, and voice and text-to-speech recognition.

As more technology-laden systems are designed into vehicles, Delphi's supply base strategy will change.

"As we move into more new products like mobile multimedia, we are moving away from traditional automotive suppliers and looking for suppliers that would be used in the computer industry," explains Jon Anderson, director of purchasing for Delphi Delco. For some new systems, Delphi is adding liquid crystal display (LCD) suppliers that supply notebook computer manufacturers.

"We are talking proven technologies in other industries and adapting them to the automotive environment," he says.

"Buyers travel the world looking for suppliers who may have technology that is already being used in different applications in other industries," adds Campbell.

Delphi's purchasers also work closely with suppliers to see where technology is headed. "We sit down with suppliers and they lay out their technology road maps," says Anderson. "They tell us where they expect to be at a given point in time with a product or technology. We then try to match against what we feel we need from the customer standpoint. We then lay out a plan on how we can implement that into our product in a timely fashion to meet our customers' needs and expectations."

Buyers at Delphi also see what new systems the automakers are planning, so they can determine what components and which suppliers will be needed -- as well as the cost, quality, and delivery issues. They're also on business teams that develop proposals for products that can be offered to customers. The buyers look for new or better technology that can be brought into Delphi so it can be offered to customers.

Buyers need to be on those teams because Delphi does "early sourcing" on products, says Campbell. Suppliers are often sourced before product design is finalized. "As a Tier 1 supplier, we don't have the luxury of long lead-time," he admits.

James Carbone is senior editor, electronics, at Purchasing magazine, a Cahners publication in Newton, Mass.

COPYRIGHT 1999 Cahners Publishing Company
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