Lopez in Gm Case Study

Jose Ignacio Lopez de Arriortua was an automotive purchasing executive who utilized an unconventional and abrasive approach to cut costs and maximize efficiency at GM. He was a self-proclaimed corporate warrior that developed a strong following from many employees. Though GM saw a substantial cost benefit from Lopez’s actions, his tactics fostered an environment that was money driven which created many negative consequences. Cutting cost was his primary focus which was not consistent with GM’s core capabilities. This made things very disconnected and increased misunderstandings internally and externally. The strong competitive nature of the auto industry makes it absolutely necessary to incorporate and utilize the supply chain as a key factor. Therefore, it is important to ensure that the buyer and seller relationship is collaborative, integrated, and has trust to obtain competitive advantage by reducing cost, increasing efficiency, improving performance and maintaining profitability.

Andrew Cox states in his article that the ideal situation for buyers is logically to force all of their suppliers into the buyer dominance box (of his “Power Matrix” – page 13 of the article). Should a buyer ultimately be striving to maintain a dominant power leverage position over their supply base as Cox suggests? Is it possible to maintain a buyer dominant power position and simultaneously build a collaborative alliance with a supplier?

Andrew Cox’s theory that the ideal situation is for buyers to logically force all buyers into the buyer’s dominant box is very risky. In business especially the supply chain, there are many considerations that decide what’s best in determining company’s strategies of the buyer seller relationship. Power is a very attractive and uncertain strategy. In turn, we see many examples where there is a great disconnect between intentions, strategies, environment, and results. This is definitely the case in the Jose Ignacio Lopez De Arriortua case study. Though times have drastically changed today, twenty years ago the auto industry was known for being driven by power and control than common shared benefiting objectives. This reflected the industry’s large gap among the amount manufacturers and suppliers. This large gap provided opportunity to allow manufacturers to leverage power for things such as cost reduction, product development, and inventory management back to the suppliers, forcing them to comply with strict performance. If they didn’t comply, they would be replaced. This is the whole fundamental premise behind the case. The problem for the buyer is that it is not always possible to achieve this desired goal of structural leverage (Cox, 2001).

I personally don’t believe that it should be a goal or strategy for a company to “strive to maintain a dominant power leverage position.” In my opinion, supply chain management is fundamentally based on relationships. Leveraging power is a part of business and the supply chain which should be utilized to obtain advantages for the long term. Dominating power is much about control and typically is one sided. As seen in the case study, Lopez definitely utilized a strategy that was based off capitalizing from dominant power. He and top assistants, known as “Warriors” created a very aggressive and intimidating work environment. Thomas Stallkamp, the vice president of Chrysler purchasing, described of the difference between his partnering approach and the approach taken by Lopez: “In general, the cooperative approach is the quickest route to better, lower-cost parts. “When you start to see your suppliers as the experts, then they become valuable partners instead of a switchable commodity. You have to have some technique other than just bludgeoning to get some efficiency out of them (Moffett & Youngdahl, 1998).”

Power exercised inappropriately over suppliers can be a great way of losing supplier trust which could lead to a breakdown of performance in the supply chain. It is important to recognize that while this approach can be made to work successfully in some circumstances, it cannot be made to work successfully in all. Cox’s meaning of power didn’t intend for bullying or intimidating suppliers to get what they wanted. Hence, why it’s important to build relationships with trust. For power to be most effective, trust must be present. The existence of trust and the exercise of power are useful to exert the effective influence over participating members in a given supply chain (Hanfield, 2002).

Though there will be many challenges, I believe it’s possible for a buyer to maintain a dominant power leverage position and simultaneously build a collaborative alliance with a supplier. For it to work, the supply chain environment must be inclusive. The buyer will need to things such as empower, includes, and collaborates with the supplier. Controlling environments and intimidation will work in this environment. Working together towards a team-oriented goal will assist in improving efficeincy, reducing cost, and improving quality.

A key point of the case is when and how power should be used in the management of suppliers. Regardless of how one views Lopez as an individual, he succeeded throughout his career in procurement by using dominance and power over suppliers to the max. Do you believe that Jose Lopez used his supplier leverage appropriately? Was Lopez abusive or appropriately utilizing the leverage that he maintained as the purchasing czar for one of the largest companies in the world under extraordinary circumstances? Explain and discuss your answer.

I believe that Jose Lopez used his power excessively and inappropriately. He was controlling and led with fear. He utilized power to get results. Leveraging power is not bad, it’s the fact that he took it to an extreme. Fundamentally, I understand his strategy and it could have worked but his approach created many opportunities for challenges to surface. The main issue that I find is the way he got results. His focus of price created a combative environment for suppliers. A common criticism of this focus on price alone is that it cultivates no significant interaction between buyer and supplier, and in many cases, destroys any semblance of cooperation or joint-production (Moffett & Youngdahl, 1998). Forcing companies to take actions they don’t