GM Supplier Strategy: IP, Sourcing, and Supply Chain Risk

Intellectual Property and the GM–Supplier Relationship

Intellectual property (IP) is crucial to General Motors' business model (Srock et al., 2019). If a supplier owns the IP, GM is placed at a disadvantageous position and may have to pay royalty fees or license the technology. This would make GM's products more expensive and less competitive. Additionally, a supplier that owns the IP could use it to develop competing products, further undermining GM's market position.

A supplier may be hesitant to share its IP with another business for a variety of reasons (Daniels et al., 2007). The supplier may believe that the other business is not capable of properly safeguarding the IP, or that the other business will use the IP to compete against them. Additionally, the supplier may be concerned that sharing IP could give the other party an unfair competitive advantage. Finally, the supplier may simply want to maintain control over the IP and its associated technology. Whatever the reason, it is important to understand a supplier's motivation for keeping its IP proprietary before entering into any kind of partnership or collaboration.

As a result, it is essential for GM to carefully manage its relationships with suppliers in order to protect its intellectual property and maintain its competitive position.

Geographic Location and Sourcing Decisions

GM's decision to source parts from suppliers in China, Mexico, the United States, and Germany is based on a number of factors, including the geographical location of those suppliers. The proximity of suppliers to GM's manufacturing facilities is an important consideration, as it can impact the timely delivery of parts and materials. Additionally, the cost of labor and transportation must be taken into account when making sourcing decisions. Labor costs include wages, benefits, and training, while transportation costs include fuel, maintenance, and insurance. The relative weight of these two factors varies depending on the supplier's location and the mode of transportation used. For example, a supplier located in a developing country may offer lower labor costs but incur higher transportation costs, while a supplier in a remote location may present the reverse trade-off. In general, suppliers in China and Mexico are able to offer lower prices than those in the United States or Germany.

However, GM must also consider the political and economic stability of the countries where its suppliers are located. For example, supply disruptions due to natural disasters such as tsunamis or earthquakes are more likely in China and Japan than in Mexico or the United States. In sum, GM's decision to source parts from suppliers in different countries is based on a variety of factors, including geography, cost, and political stability.

Single-Source Versus Multi-Source Supply Strategy

Global automakers have long relied on a single-source supplier for a variety of reasons. The most obvious is that purchasing from a single supplier can be cheaper. In addition, supply chains are often already in place, and managing production tends to be simpler when working with one supplier (Burke et al., 2007).

However, there are significant risks associated with single sourcing. If the supplier experiences difficulties, it can have a major impact on production. Any manufacturing process depends on a reliable flow of raw materials and components. If the supplier of these inputs falls short or faces operational disruptions, production can be halted entirely. Poor quality from a single supplier can also cause problems further down the line, resulting in faulty or sub-standard finished products. A single supplier can help streamline operations and ensure consistency, but entrusting an entire operation to one source carries substantial risk.

Furthermore, if the relationship between the automaker and the supplier breaks down — whether due to new leadership, a change in strategy, or contractual disagreements — it can be difficult and expensive to find a replacement. The automotive supply chain is highly complex, with each supplier playing a vital role in the production process, and rebuilding those relationships takes time and resources.

As a result, many automakers are increasingly turning to multi-source supply strategies in order to reduce risk and increase flexibility. While multi-sourcing may not always be the cheapest option, it offers significant advantages in terms of risk management. By diversifying its supplier base, GM can protect itself against supply chain disruptions. Multi-sourcing also creates competition among suppliers, which can lead to lower prices and improved quality. Working with multiple suppliers also gives a company like GM access to a wider range of expertise and technologies. For these reasons, a move toward multi-sourcing represents a sound long-term strategy for GM.

Conclusion

GM's supplier decisions reflect the complexity of managing cost, risk, and innovation in a global automotive supply chain. Protecting intellectual property, diversifying sourcing geographically, and moving toward multi-source supply are all strategies that strengthen GM's long-term competitive position. By carefully evaluating collaboration history and balancing the trade-offs between efficiency and resilience, GM can build a supplier network capable of supporting both current production needs and future innovation goals.

References

Burke, G. J., Carrillo, J. E., & Vakharia, A. J. (2007). Single versus multiple supplier sourcing strategies. European Journal of Operational Research, 182(1), 95–112.

Daniels, J. D., Radebaugh, L. H., Sullivan, D. P., & Click, R. (2017). International business: Environments and operations. Pearson.

Srock, M. et al. (2019). General Motors: Supplier selection for innovation. IVEY Publishing.