By David Sedgwick, Automotive News (a Crain publication)
Detroit, Michigan -- Delphi Automotive plans to earmark as much as 70 percent of its $8000 million annual purchasing budget for 100 key suppliers, up from about 40 percent today.
Sidney Johnson, Delphi's purchasing chief, says the company's top leadership is spending time with these key suppliers to build relationships and share expansion plans.
In an interview, Johnson also discussed disaster planning after Japan's earthquake, volatile raw material prices and the need for dual suppliers of key products.
Here is an extract of Johnson's interview with special correspondent David Sedgwick.
Q: A year ago you said 500 or 600 vendors account for most of Delphi's purchasing budget. Do you plan to give them a bigger share of Delphi's purchasing budget?
Johnson: Yes, that's the idea. The 600 suppliers are what we call our "castle." They account for 80 to 85 percent of our current expenditures. We'll try to get that up to 90 percent.
Q: How many of them would be considered key suppliers?
Johnson: Within that group [of 600 vendors], there is a core group of 100 key suppliers. Right now that core group gets 40 to 45 percent of Delphi's annual expenditure. We'll target them for 60 to 70 percent of our expenditures.
Q: Toyota has said it will rely on dual suppliers to buy key components. Is Delphi doing likewise?
Johnson: We call that dual manufacturing; that's not new. As you move up to more valuable components, you want to understand the likelihood that something can go wrong.
Q: Can you give me an example of a key product that requires you to line up dual suppliers?
Johnson: We'd do it for raw materials like plastic resin. It's a critical piece of our business. Resin goes into a lot of our products, and there is a lot of volatility in that market.
Q: So raw materials are actually the key potential bottleneck for Delphi?
Johnson: Yeah, maybe your supplier has a fire or a flood. When you lose a critical raw material with a long lead-time, you've got a problem.
Q: How about plastic resins? The price of oil has flattened a bit, so that has moderated resin prices, right?
Johnson: Oil prices have been pretty stable of late. But there's no price index for plastic resins. Everybody knows what a barrel of oil costs. But oil is just one factor of resin production. There are a ton of other factors that impact resin. For example, natural gas is a huge component of resin manufacturing.
Q: What do you do about it?
Johnson: That's a good question. You look at alternate raw materials. Maybe there's a lower-cost resin that will meet your performance specs.
Q: How do you handle suppliers that come to you and complain that the price of resin has doubled?
Johnson: If it's truly a hardship for a supplier, and they are a strategic supplier and you have the right relationship, you help them out and hope that they return the favour. These [price adjustments] are one-offs.
Q: So it's a matter of "come in and we'll talk."
Johnson: Absolutely. Resins are difficult to manage.
See more of this interview at www.autonews.com