Poor GM: Cost Cutting in all the Small Places

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Sourcing Strategies

GM sure has seen better days from a public relations perspective. My husband absolutely bashed the auto manufacturer for showing up at congressional hearings having taken the company jet. His postscript note was written specifically for me because I disagreed with him that this was an over-reaction on the part of the media. Sure, perception is reality, I get that. And, perhaps the obnoxious factor reaches a new high to take the corporate jet (on your way to ask for a bail-out) while you are busy cutting every possible cost under the sun (check out this article from yesterday’s Wall Street Journal on GM not replacing wall clock batteries) as part of a massive cost reduction initiative.

I have new-found respect though to learn that GM appears to be cutting costs wherever possible. But let’s stop for a moment and ask ourselves if that is a good spend management strategy? Now, in a company as large as GM, those little efforts help but I would ask the question, “What are the cost reduction strategies for the 20% of your purchases/expenses that make up 80% of your costs?” It’s a basic question but if I were GM’s CPO or CMO for that matter, I would leak some stories about cost cutting in those areas. They are not only extremely compelling, they have a much bigger impact on the bottom line. So let’s take a look at what those cost savings initiatives include, available on GM’s most recent 10K filing:

Salaried employee cost savingsVoluntary retirement packages

Elimination of discretionary bonuses

Salary freezes

Production cuts

Discretionary spending cuts (e.g. travel)

Lean inventory reductions (we’ll give GM partial credit here as the company has failed to implement lean across its operations)

Working capital reductions

And where are large chunks of costs lurking? Yes, labor is an obvious one but so is finished product inventory including service parts, WIP and supplies (these costs represent 15.5% of GM’s total assets). Maybe GM can save some money on re-sourcing their public relations expenditures? But as we like to say, put your best people on the categories that can have the biggest impact on your bottom line. And as for those clocks, well, at least they are right twice a day!–Lisa Reisman

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