General Motors – Sourcing for Steel

Requirements

Presented By (Group 4 ) :-
Abhijit Goldar (12061)
Kapil Sharma (12087)
Karanbir Singh (12141 )
Neha Bhusari (12057 )

Rumaisa (12101)
Saurabh Trivedi (12046)
GM’s position in steel purchase
GM is the largest steel purchaser ( around $3 Billion
in 1974 )
Accounts for 12-13% of total US steel production
Automobile accounted for 18-22 % of total domestic
steel production
• Being a large buyer it decides market price and
policies ( like Freight Equalization Policy )
• Even provides steel companies funding for expansion
Options with GM for Steel Sourcing

Sourcing
from
Domestic Foreign
Buying Mills

Mix of
Both
 Sourcing steel from abroad
Advantages
Prices are lower. $25 a less on every
tonne
Handle situations where domestic supply
can’t meet current demands
Keep a check on domestic prices
Good Quality ( required for speciality
steels )
Disadvantages
Cost advantage might not be
sustainable.
Demand in developing countries will be
more so production of steel will be routed
there
Large Working capital required as
supplies ordered are together also
Inventory costs increases. In every $25
cost saved $10 is spent on handling
Currency revaluations increases the cost
of steel
Accurate planning and forecasting
system required . Fluctuations can cause
more costs of transportation
Domestic purchase of steel
Advantages
1. Lower costs of Inventory
2. Proximity fosters good relations
3.Fast to fulfill more demand of steel
4. Good for hot rolled products where
quality varies little
Disadvantages
1. Supply shortages
2. Strikes
3.Frequent price rise
4. Changes in Freight Equalization
policies ( though now it has been
restored)
5. Drop in quality of services ( that
required in Speciality steel)
Current Situation Analysis
Frequent change of Suppliers  This does not allow GM to have
good relationships with suppliers. Also there is change in amount
of supply depending of services delivered
Different prices paid for same steel to different suppliers  GM
not using its bargaining power effectively
Changes in monthly sourcing program because of late delivery and
quality issues  Supply system for GM is not smooth and not in
place
In the year 1975 GM has evaluated suppliers in terms of their
ability to control costs, expansion plans, and service levels
US has the potential to be the lowest cost steel producing country
for reasons of its ore and energy supplies  So GM has to have
Domestic Sourcing
Long term Sourcing Pattern for GM
Sourcing has to be done both from Global & Domestic
suppliers  This is to take cover risk of Domestic supply
shortages and command Bargaining power in domestic
market. So Global sourcing is a sort of Contingency plan.
Speciality steel ( quality matters) can be outsourced from
foreign mills
Major proportion of supply should be had from Domestic
suppliers
Fixed Suppliers should be selected (as evaluated in 1973-
1975 ) and should be engaged
‘Jawboning’ should be used to reduce prices and make use of
bargaining power to increase the profitability of the GM
Each location of GM should buy from that respective country
E.g. GM in China should buy steel from China
( This maintains good relations with International suppliers and bring in
cost efficiencies)
• Sales forecasting should be done each based on the previous year and
suppliers should be given estimation of the supplies to be made
• Continuous appraisal of quality and services received from suppliers
• Finance the domestic suppliers to prepare them for Long-Term
expansion and keep them engaged with the company
• Hedging to prevent against currency fluctuations
• Feedback should be given to each supplier about the service received
so that know the rational of increasing or decreasing of the supplies
solicited from them
Thanks !!!