Supplier Mismanagement

There are two sides to every story, as my good friend Earl Boyanton reminded me a few weeks back.  Earl is a retired Colonel from the United States Air Force, which he followed up with a later stint as a senior civilian official in the Department of Defense.  I, on the other hand, was raised by wolves, cutting my teeth on the factory floor of high tech manufacturing company several decades ago, back when we actually did high tech manufacturing in the United States.

What you see depends on where you step, and Earl and I followed different paths and climbed different ladders.

We separately read a news story about a small automotive parts manufacturer, Clark-Cutler-McDermott (CCM).  They’re over 100 years old, and according to their website, “Clark-Cutler-McDermott Company is a world-class Tier I and Tier II provider of acoustic insulation and interior trim products to the automotive industry.”  General Motors is a big customer, and once upon a time GM loved them.

Clark-Cutler-McDermott agreed to a series of contracts with General Motors in 2013 that have resulted in a loss of over $12 million dollars since 2013, according to the Detroit News. That’s a ton of money for a small company, and CCM landed in Chapter 11 earlier this year. 

Clark-Cutler-McDermott owns some unique tooling, used to produce components for a number of GM vehicles.  CCM is apparently sole source for some of these items.  I immediately assumed that GM had ground the folks at Clark-Cutler-McDermott to dust through pricing pressure.  Earl saw the other side of the coin, and had the thought that perhaps CCM was engaging in a round of extortionate brinksmanship.  CCM was, after all, the only game in town for GM’s sourcing of the parts in question.

Perspective is a wonderful thing.  The problem here isn’t a bad contract, it’s a bad relationship.  General Motors and Clark-Cutler-McDermott perpetuated and compounded an adversarial relationship and both ended up getting hurt.  The courts have ruled, and GM will get its hands on the tooling, but this has been an ugly divorce that is destroying one of the partners.

This couple should have been in counselling ages ago.  Any time a business relationship is set up as a zero sum game, an adversarial relationship has been established.  The trading partners no longer have a shared interest; they are opponents.

There is a lesson in here for the federal government.  I’ve worked with and around the feds for over a decade now, and I see the tide shifting.  Once upon a time the federal government liked to request proposals and made evaluations based on “best value” criteria.  If you offered the most compelling story, and were willing to sign up to deliver it, you won the business.

Best Value deals are getting harder and harder to find.

For many years now, the government has been shifting away from Best Value to Low Cost criteria.  Rather than best value, more and more frequently federal government contracts are relying on a “low cost technically acceptable” standard.  If you can check the qualification boxes and have the lowest price, you get the business.

Think of the dynamic that creates.  The federal government is emulating the relationship between General Motors and Clark-Cutler-McDermott.  Perhaps it is time to give up on seeing the federal government do the smart thing by developing partnerships with suppliers, and instead educate our government contracting officers in pre-nuptial agreements, to help them avoid some of the ugliness when the divorce inevitably happens.

There is a little dark humor of on the CCM website.  “Clark-Cutler-McDermott Company was founded in 1911 and has been keeping promises to its customers for over 95 years.”  Do the math.  Maybe that means CCM accepted reality, and changed their rules about keeping promises in 2007.