Ignacio Lopez was a visionary with nicknames as “Lopez the Terrible,” “Hurricane Lopez,” and “The Spaniard Who Makes the Germans Tremble (Lynn, 2005).During 1980’s and 1990’s when American automakers were facing tough competition from the Japanese car makers Ignacio stepped in as GM’s purchasing chief as GM had been losing its market share at home at an accelerating rate. Lopez brought his service providing and cut throat cost savings methods with him to ease the financial pain of General Motors.
Lopez applied his strategies to the purchasing policies of General Motors to make it cost competitive .To have the best distribution, marketing and cost-controlled operations were critical to creating a profitable business and diversified supplier-base. He wanted to revolutionize the General Motors purchasing demand by strategic sourcing. According to Jacobs and Chase (2010, p. 376), “strategic sourcing is the development and management of global supplier and relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business”. “The term sourcing implies a more complex process suitable for products that are strategically important.”
Lopez further initiated on-target bids which were welcomed by the suppliers and “he felt that the tier-one suppliers such as TRW and AMP offered lower costs, excellent delivery, and design capabilities that could be integrated into GM’s product development activities. The primary criterion driving the move to external suppliers, however, was cost reduction” (Moffet &Youngdahl p.179, 1999).
Lopez applied the same tactics he applied to GM’s European operations where Opel was forced to cut off the local suppliers in favor of companies in other countries. He wanted the GM in America to seek suppliers in Canada, Mexico and even Europe so that complete advantage of greater efficiencies of bigger production runs.” Finally, Lopez sought to overturn the rules on who in the supply chain did what.
The top-down, command-and-control relationship between GM and its suppliers led, he believed, to stasis and waste. Lopez now not only demanded that GM’s suppliers deliver more for less, but he also urged them to take more responsibility for engineering their products and for managing lengths of the assembly line. Lopez not only wanted GM’s suppliers to be leaner, he wanted them to be smarter and more self-directing as well” (Lynn, 2005).
Lopez was not concerned about his relationship with the suppliers of parts to General Motors and has been stated in opening paragraph of the case study by Moffet and Youngdahl “He cared not whit about long-standing relationships with GM suppliers, even when those suppliers were GM subsidiaries.”Lopez wanted short term gains even if it meant breaking the long standing relations that the suppliers had with GM which were directly opposite to the beliefs of Chrysler which considered the suppliers as their valuable partners instead of a switchable commodity.
The declining relationship between GM’s suppliers and the North American unit which had worst quality assurance and cost competitiveness were in turmoil before Lopez came on board and due to cut throat policies and creating competition among suppliers created further rifts causing the bullwhip effect and some suppliers went ahead and stopped their business with General motors.
Competitive strategies caused declining business for local suppliers and affected the American economy. Lopez’s cost competitive strategies increased profits for the company but the adversarial relationship between GM and its suppliers due to Lopez’s cost Suppliers switched product development resources to Ford, Toyota and Daimler- Chrysler as Lopez had established teams of buyers- he called his “warriors”- whose mission it was to wage war on supplier costs. The warriors were encouraged to be “lean and mean”.
“All existing contracts were voided and all business was opened to the lowest-priced supplier. Supplier blueprints were passed to competition ignoring intellectual property rights. GM only paid suppliers 90 to 95 percent of their invoices prices. The GM buyers dictated to suppliers what the new prices would be” (Miller, 2006).
Lopez hurt the local economy and buyer-supplier relationships. Lopez deflected General Motors and joined Volkswagen but due to the GM suit he was barred to work for Volkswagen through the year 2000 but when Volkswagen Commercial Vehicles took over the Brazilian Trucks and Buses operation in 2000 from Volkswagen do Brazil, Lopez introduced the concept of modular consortium. Modular consortium meant “VW maintained primary responsibility for vehicle design, selection of suppliers, and provision of the basic manufacturing facility. VW’s suppliers performed the actual assembly in the Resende plant.
That is, they replaced Volkswagen employees on the assembly line. The manufacturing floor, or modular consortium, was divided by yellow lines separating one supplier group from the next. Traditionally, these yellow lines were used by the manufacturer to separate production-line employees”(Moffet &Youngdahl p. 191, 1999). Volkswagens involvement was only supplying the factory and inspection at the end of production; Volkswagen paid only a small amount of wages, as each partner of the Modular Consortium paid the workers.
The Modular Consortium at Volkswagen comprised of companies like MaxionSiemas Automotivos Ltda. which manufactured the chassis parts such as air reservoir, fuel tank and frame ; ArvinMeritor which manufactured the suspension and axle parts such as springs and hubs and drums ; Remon S.A. which manufactured the tires and wheel; Aethra Karmann-Ghia which managed the body shop;
Carese managed the paint shop and Continental AG manufacture the Cab Trim components such as Seats and Instrument Panels. Lopez is not only credited for cost cutting and cost saving activities across the company but he is famous for his defection and stealing the documents that contained vital information concerning the manufacturing processes and this proved to be historic in the legal history of the world’s largest, industrial company.
“Where document security is concerned, the “Lopez Affair” may aptly be called “the case of the century” (it even threatened diplomatic relations between the U. S. and Germany).What, exactly, occurred to justify such a momentous legal action? Actually, it came down to twenty cartons of missing records!” (Stephens, 2007). Lopez was barred from working with any Volkswagen in any capacity through the year 2000. The Uniform Trade Secrets Act has been adopted by at least 40 states and the Economic Espionage Act was signed into law by President Clinton in 1996 for protection of “trade secrets” due to such embezzlement cases in some other major companies across the country.
The Lopez case reflects on the misappropriation of business secrets and information which are not isolated to GM but many other companies have issues related to security breaches. Lopez had hard core cost saving methods which are known as lean manufacturing but his too aggressive cost cutting methods destroyed the buyer- supplier relationships and could have been the reason for economic descend of automakers as well the suppliers.
Lopez moved to Volkswagen for his benefit though it was unethical. In present day of global economy his concept of modular consortium and lean manufacturing are being adopted by many international companies but it is essential to support local companies and suppliers for the local economic growth and development of the industry.