The End of Cost Reduction Objectives?

If you attended the CAR Management Briefing Seminars this past August in Traverse City, perhaps you heard Tom Finelli from Fiat Chrysler, Steve Keifer from GM, and Robert Young from Toyota talk about buyer cost reduction objectives.

They’re getting rid of them.

What? No more cost savings goals in 2016? No specific cost reduction objectives? How can FCA, GM and Toyota successfully control costs if their buyers do not have specific cost goals?

Supplier Relationships

The answer comes down to this: supplier relationships.

All three OEMs want their buyers to work collaboratively with their supply base to achieve product goals. They want their buyers to have a cross-functional structure and process to improve supplier relationships. Collaboration is key.

APD Survey Results

APD conducted a survey with more than 30 automotive suppliers about the cost processes used by their customers.

One of the results focused on the high inconsistency in the use of the same cost methods by the buyers within the same company. This inconsistency leads to supplier distrust in the processes and trustworthiness of their customers.

Removing the cost objective from the buyers’ scorecard enables management to focus their discussions with the buyers on how they are implementing the processes and the effectiveness of the processes.

What’s Next

OEMs expect their tier-one suppliers to have cost standards/cost models to guide their business relationships. Over the next several weeks, we will focus attention on the three predominant cost models in use in the manufacturing sector today:

  • Regional cost modeling or knowledge based modeling
  • Hyper-optimized cost modeling
  • Open book cost modeling

How are you using cost modeling for your suppliers?

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