Since the end of 2014, General Motors has been negotiating purchasing contracts worth billions of dollars using a new approach. Referred to as the One Cost Model (or the No Bid Model), the program represents a new take on purchasing not only for GM, but also for the industry as a whole.
The program works in a rather peculiar way. First, GM sends a team of engineers and purchasing experts to a supplier’s factories while also analyzing the supplier’s internal cost data. Then, if GM and the supplier agree to terms, the supplier gets a contract for the lifetime of a vehicle program while GM does not solicit other bids from other suppliers. Closing the loop is a process where GM and the supplier update the cost analysis on an annual basis to determine if there are ways for the supplier to cut costs.
Suppliers who participate in GM’s One Cost Model also get an opportunity to propose cost-saving ideas before GM locks in the final vehicle build, with the benefit to GM being that it can create more accurate cost analyses for its vehicle programs. But possibly even more important for GM is that the One Cost Model requires a relatively high degree of trust and collaboration between GM and suppliers, an attribute that can stand to be improved given the automaker’s tense and rocky relationships with suppliers in the past.