Tom McMillen has been GM Europe vice president, Purchasing and Supply Chain, since June 2008. In this capacity, he is responsible for overseeing GM's purchasing and supply chain activities in Europe and serves as a member of the Opel/Vauxhall Leadership Board. Prior to this appointment, he was executive director of General Motors Global Logistics.
Sam Ogle - Describe the structure of the General Motors purchasing and supply chain operation. Where does Europe sit within the global structure?
Tom McMillen - We run our business using creativity teams, something in which GM Europe participates. A creativity team is a group of cross-functional participants which provides the strategy for procuring a commodity or part. GM Europe plays a significant role within the structure of the global purchasing operation in a highly integrated organisation. The supply chain operation is a little bit more regional but global in nature. We are an active participant in all sourcing activities on a global basis and we fully utilise the economies of scale from both a direct materials and a logistics standpoint.
SO - How does Europe and the other regions leverage GM’s global purchasing power?
TMcM - 100% where applicable. The majority of our creativity teams are global. There may be a commodity which has a regional team that doesn’t necessarily require or justify being part of a global bid if we have enough qualified regional suppliers who can support our initiatives, but otherwise we are 100% engaged and the regions are able to leverage GM’s global economies of scale.
SO - Do supply chain executives feature highly enough in company hierarchies? Should there be more board-level representation?
TMcM - I am part of the Opel/Vauxhall management board and I believe that, in general, organisations recognise the importance of supply chain executives. What we do has a direct impact on the bottom line, regardless of whether it is direct material performance, indirect machinery and equipment, direct material inventory or finished vehicle inventory. I don’t know that more board level representation is necessarily required, but whatever the organisation or the industry, any company recognises the importance of what the supply chain organisation does, whether it is an active participant on the board or not.
SO - Is there an image problem affecting career paths in the supply chain, both within and outside the profession?
TMcM - I don’t think so at all. Supply chain offers a lot of diverse career paths. From a purchasing standpoint there is direct, indirect, after sales and supplier quality. In supply chain, there are functions such as logistics, order fulfillment, supply operations and supply chain engineering. So, regardless of how the organisation is structured, I truly feel that there are plenty of opportunities for supply chain professionals. I believe that there is a huge sense of pride and satisfaction to be had working in the function, because this is a job where you can truly leave at the end of the day and recognise your contribution to the company.
SO - When you look around the automotive industry there are many companies, some of them very large corporations, which are in financial difficulty. Is somebody getting it seriously wrong, or is it all down to global conditions?
TMcM - I think it is largely due to global conditions. A lot of industries, not just automotive, are struggling. Larger companies simply couldn’t restructure quickly enough. Volumes in general were down and supplier volumes also, some more than others. Through various means such as consolidation, restructuring and acquisition, a lot of companies persevered and made it through 2009. I still think that 2010 is going to be a difficult year; we’re not out of this yet and we need to continue to monitor our supply base and to be proactive in our risk management teams. That’s exactly what we’re doing.
SO - Is the supply base in Europe strong enough?
TMcM - The supply base in Europe is very mature; there are a lot of large global suppliers here. From an Opel/Vauxhall standpoint a large percentage of our suppliers support GM globally. As markets in other areas of the world continue to grow, such as is the case in China and Brazil, this supports and strengthens the base in Europe as companies have an opportunity to supply those markets.
SO - China, for sure, and probably India, will be the major emerging markets for the automotive industry. How well-placed is GM to capitalise on these opportunities?
TMcM - We are well placed. We have purchasing organisations in both locations which are part of our GM international operations, and both India and China are tied in to our global, integrated purchasing process.
SO - In terms of logistics infrastructure, do these two countries still have some way to go before they reach Western European or North American standards?
TMcM - These two countries are growing at a rapid pace. They perhaps lack a bit of infrastructure, but the situation is very much improved on what it was a few years ago and I think it will continue to improve. This will make things much easier from a supply chain perspective in terms of moving product in and out of these markets.
SO - Should we be attracting more high-tech electric vehicle-related suppliers?
TMcM - Whether it’s for the electric range extended vehicles, battery electric vehicles or hybrids I believe we should be attracting more high-tech EV-related suppliers. They don’t necessarily have to come from a given location or region, but as this product line grows, regardless of what the application is, we will see more suppliers participating on a global basis.
SO - Is there enough electric vehicle expertise out there in the global marketplace?
TMcM - We are starting to see more and more expertise. It’s a field that we’re all learning about and becoming very familiar with very quickly on a daily basis. As the product line emerges and continues to grow, there will be more and more expertise. We are well on our way towards introducing these vehicles and, for now, we have sufficient expertise.
SO - How much do relatively inexperienced new suppliers from low-cost countries increase your exposure to risk?
TMcM - What is important for us is to ensure that we carry out early evaluation of suppliers’ manufacturing capacity and supply chain capabilities. We conduct supplier assessments to ensure that all our new suppliers fulfil requirements regardless of where they’re located. Any time that you increase the length of your supply chain there will always be an element of risk, but it can be managed.
SO - Holding more inventory is one way of mitigating risk. Is this acceptable today?
TMcM - Inventory equals added cost, so you have to be creative and find ways to reduce those costs regardless of where you get the parts from. You have to balance the costs and the risk, but we carry out the proper supplier assessments to make sure that all the criteria are fulfilled.
SO - Is the in-sourcing of previously out-sourced supply chain operations viable in today’s economic climate?
TMcM - Yes, I think it really is. We have to examine all the options and alternatives and do what’s best for the business. Companies today recognise the importance of supply chain and see it as a core competency. It has a major impact on cost. It is important to understand the cost drivers and to have an organisation in place to manage them. Companies are looking to put in place strong personnel within the organisation to manage such initiatives.
SO - Does in-sourcing not mean wasting some of the money and effort originally spent on out-sourcing in the first place?
TMcM - That depends on how much you spent to outsource and the capabilities you received by doing so versus what you can achieve by insourcing. It depends on the capabilities that you gain internally over a period of time and, at the end of the day, you can weigh all these things.
SO - The ultimate goal is to optimise not just logistics as a standalone function, but to optimise the entire business and supply chain. In practice, logistics decisions are far too often taken in isolation and too late in the product/process lifecycle. What needs to change?
TMcM - I think there is a need for early engagement within an organisation during the development life cycle. We source relatively early, but you need to look at the total enterprise when you do that upfront. Logistics and supply chain are a leg to the table at which all functions sit and it is important to make sure that those costs are recognised upfront when other decisions are being made. I think we have got better at this, and better at looking at total engineered cost, but I still think there is room for improvement.
SO - Logistics service providers are being asked to carry more of the commercial risk that would have been found in production 10 or 15 years ago. The vertical integration of the supply chain makes it even more challenging. Is the pendulum swinging too far?
TMcM - We focus on balancing costs across the enterprise, and we understand that we cannot rely on one segment to carry the burden. A lot of LSPs have more services to offer today than they did 10 or 15 years ago and they are more like full service suppliers; maybe not necessarily vertically integrated per se, but a lot will offer material follow-up, asset management, freight forwarding and IT applications. I don’t think that the pendulum has swung too far. I think there is a balance. It goes back to the general global economic conditions and that is what differentiates a lot of companies, whether they are service providers or material suppliers.
SO - How important is it to leverage partner capabilities for innovation and new product introduction?
TMcM - It is very important. A lot of the time they know best, and depending on the capabilities that they offer we need to sort through those capabilities to ensure that they fit the model that we want to put in place.
SO - Is there a landed cost factor which tends to be more expensive than the others?
TMcM - The factors included in the landed cost calculation in general are standard transportation costs, customs duties and taxes, inventory carrying costs and suppliers’ sub-assembly and sequencing costs. The overall cost for each factor is influenced by distance and the amount of change that we drive into our product. I don’t know if there is any landed cost factor which tends to be more expensive, it’s just a matter of what you include in the calculation. If you have an extremely extensive supply chain then it becomes more expensive. You have to look at the total enterprise cost, not just the total landed cost.
SO - Logistics service providers, particularly those involved in finished vehicle distribution, complain that they are being commoditised. Do they have a point?
TMcM - Vehicle distribution is almost a niche service because operators move vehicles from point A to point B, whether by railcar, road haul or short-sea, using very specialised equipment. It is a very focused piece of service and I don’t know if you would define it as being a commodity per se.
SO - How are strategic suppliers defined, and what are General Motors’ expectations of them?
TMcM - I see a strategic supplier as a company which exemplifies a flawless launch, deals with complexity, manages warranty cost reduction and has seamless business transfers. Some of the expectations of a strategic supplier are that they always have the adequate capacity in place and are looking to drive out cost and add value. Also, they should have the quality to support and execute product launches and the will to make GM the OEM of choice as it relates to new ideas and design.
SO - Is this a good time to be a purchasing executive?
TMcM - It’s always a good time to be a purchasing executive. This business has a lot to offer. Every day offers a new opportunity, it’s dynamic and, at the end of the day, you feel good about what you have accomplished for the company. There is always a crisis to be dealt with, whether it’s steel or base metal, oil or currencies, but it is cyclical and you learn to adjust.
SO - What is your prognosis for the industry going forward?
TMcM - From an industry standpoint, 2010 is still going to be a tough year. We are seeing a little bit of stability now and we are dealing with a lot of our troubled supplier activities through various initiatives. As the year progresses, hopefully the global economy will pick up and the industry will start to turn around.