That has helped us quite a bit in gaining benefits as opposed to the old, traditional approach of going out and saying [to suppliers], "Give me a 5 percent or 10 percent cost reduction." I'd rather work with them up front to design the cost out of the product. Because, if you're a casting supplier to American Axle, I look at you as the expert in that domain, and if you can tell me how to design my product better to leverage your manufacturing capability and so on, I've taken cost out without even asking for it. So that's one area on which we work quite heavily.
Also, our whole procurement department and I work with our suppliers to make sure that they understand that AAM is not just competing against other axle manufacturers in North America we're competing globally against axle manufacturers from around the world. We need to be very productive to stay competitive, and we want our suppliers to be able to compete on a global footprint as well. It doesn't matter if you're an AAM supplier in Korea, China, Mexico or Detroit, Mich.; we all have to work together to be globally competitive. That philosophy comes from our CEO, our chief operating officer and myself, and it is delivered throughout our whole supply chain. It is a constant theme any time we communicate with our supply chain.
S&DCE: What are the processes and technologies that you have invested in to enable the kind of supplier collaboration that you're talking about?
Shanti: I'll talk as much as I can without getting into the technical details, because I don't want our competition to know what tools we use.
If you remember three years ago or so, when the whole e-business and dot-com buzz was going on, everybody was talking about auctioning and selling over the Web. AAM chose a path that, at the time, was not the most popular to follow; we didn't think auctioning was a key competitive advantage for American Axle. Instead, we decided that our greatest productivity could come through leveraging IT on the collaboration side between our strategic suppliers and us.
Our approach at AAM was to focus more on the up-front work. We brought in our key strategic suppliers and had an open discussion to determine ways in which we could help each other be globally competitive by leveraging IT tools. We concluded that collaborative engineering and collaborative manufacturing are two strategic initiatives that would help us achieve our objectives.
Some [suppliers] were co-located, either physically or virtually, and that's where the IT kicks in. What I mean by "virtually" is actually working together through the use of computers on product design and manufacturing processes. We investigated a number of tools, a number of technologies. We looked at technologies that we already had in place, the technologies our suppliers had in place, and we figured out a way to create an open architectural platform that brought our suppliers into our infrastructure without burdening them with technology investments and extra costs.
We focused on this strategy and built a supplier portal. This allows our suppliers to come into [our systems] and do whatever they're authorized to do with us. (Not every supplier has the same level of access.) Our suppliers can come in, design with us, review, collaborate, do all kinds of things online. We are able to track shipments throughout the whole chain all the way from shipping parts to knowing that the parts have been delivered. If there is a discrepancy with a part or a component, [the supplier] instantly knows about it. I'm not talking about an hour or two-hour timeframe, but in real time instantaneously. Our suppliers know that the part we received from them had an issue, and they can immediately react and solve that problem. If they don't react fast enough, the problem will escalate electronically through the management chain of command.
Those systems have been very successful, very productive and they have helped us achieve some key things, such as improved quality and delivery, higher visibility and reduced inventory throughout the supply chain.
S&DCE: Are you building your own technology in house, or are you using off-the-shelf applications?
Shanti: Eighty percent of the IT applications that we use are purchased; 20 percent are customized. We are not developing applications, but we are partnering with technology companies, and they are building those applications and hosting them for us. So it's not all build or all buy; it's a hybrid of both. If the software doesn't exist and we think it's very important to have, then we go ahead and try to figure out a smart way of building it. But we're not in the software business as a company.