The problem of late payments in the U.S. is growing to worrisome levels since some of the nation’s largest corporations began extending their payment terms in 2008. Experts say the trend arose that year when 3G Capital and Anheuser-Busch began lengthening the time it took to settle invoices with their suppliers. Today, some businesses take as long as four months to pay their suppliers, reports say.
The matter is quietly gaining attention in the nation, but Detroit-based General Motors is one firm whose mishandling of supplier relationships has been making headlines for years. And while the firm is looking to repair those relations – in part by offering more agreeable payment terms – the corporation has a long, bumpy road ahead.
GM was one such firm that began stretching its suppliers thin in 2008. According to a letter from the company’s purchasing department obtained by media outlets, GM extended the time it took to settle an invoice with some of its suppliers from about 35 days to 60 days. What’s more, the company announced the new policy just four days before it went into effect, providing suppliers with little time to prepare.
Months later, consulting firm ADR North America CEO Bill Michels reportedly reflected on the catastrophic tactic, noting that GM’s former VP of Procurement and Supply Chain focused on the “drive on price reduction, low cost country sourcing, and extension of terms,” which collectively led to a severely defunct supply chain for the firm.
Today, General Motors’ suppliers are still weary of working with the automaker. While the newest survey among auto industry suppliers isn’t due out until next month, the most recent, published by Planning Perspectives Inc last May, revealed GM to be the worst company for suppliers to work with. Among the most common complaints by these suppliers included claims that General Motors is least likely to allow suppliers to raise prices to make up for any unexpected material cost hikes. Trustworthiness, protection of intellectual property and communication skills were also some of the categories suppliers used to assess their corporate buyers.
This is bad news for General Motors. According to PPI, a positive relationship with an automotive supplier means priority access to new innovations and materials in the works and more favorable price negotiations.
Access to the newest materials and cost savings were, in fact, the two main reasons given by General Motors for its latest attempt to strengthen supplier ties. According to reports this week, GM is looking to lock their suppliers into longer term contracts lasting up to a decade, a move that would provide some significant stability for these vendors.
The new plans were devised by the automaker’s new Purchasing Chief Steve Kiefer, who temporarily left GM to join one of its suppliers Delphi Automotive, before returning to the corporation in 2013. He was appointed to the new position just months ago.
His appointment wasn’t the only leadership change in the company. GM announced its new CEO Mary Barra early last year, embracing her focus of “building relationships” and revising the contract process with suppliers to salvage broken supplier ties. Part of that push has led General Motors to award its suppliers and recognize their contributions.
Looking ahead, Kiefer will help fulfill Barra’s vision, and said he aims to strike new supplier contracts with companies in new places like Silicon Valley and Israel in search for automotive innovation. While General Motors reportedly employs the use of reverse factoring to introduce an early payment plan with its suppliers, it is unclear whether Keifer’s new strategy for suppliers will include any changes in how – or how quickly – supplier invoices are settled. But what is certain is that GM appears to be waking up to the importance of positive buyer-supplier relationships, a realization that is a small step toward solving the issue of late payments.