UAW-GM
NATIONAL
Educational
Outline
October 3 Through October 6, 1994
UAW-GM
NATIONAL AGREEMENT
(EFFECTIVE November 15, 1993)
SOURCING
Issued by
GENERAL MOTORS DEPARTMENT, UAW
STEPHEN P. YOKICH
VICE PRESIDENT AND DIRECTOR
|
|
WARNING: This document is presented in its original form,
minus blank pages. Consequently, page numbering as it appears in the table
of contents may not coincide with actual pages. Therfore, all page numbers
have been omitted.
|
|
VICE PRES;DENTS. CAROLYN FORREST .
ERNEST LOFTON . STAN MARSHALL . STEPHEN P YOKICH
Greetings:
This Educational Outline represents a continuation of a
program of providing information with the objective of assisting the Local
Unions in applying the provisions of the National Agreement.
The Agreement on Sourcing covers a subject
dealt with on a formal contract basis for the first time in negotiations in
1982. Consequently, there is no body of umpire precedent to provide guidelines
in the implementation of the Sourcing Agreement.
In 1990 negotiations, we were successful in
making the sourcing provisions part of the main body of the National Agreement
rather than an attached Document. We also made it an arbitrable issue and
drastically modified the rights of management in regards to sourcing. These
changes allowed us to preserve and create thousands of UAW/GM jobs during the
life of the 1990 Agreement.
In 1993 bargaining, we made several changes
to the language placing tighter restrictions on management and further expanding
our rights and our role in sourcing issues. Appendix
L and the new changes are explained in this Educational Outline.
The information, interpretations and
recommendations in this Educational Outline represent the best opinions of the
International Union's General Motors Department as to what the agreement means
and how it can best be applied to enhance the job security of the workers we
are privileged to represent.
Fraternally,
Stephen
P. Yokich
Vice
President and Director
UAW
General Motors Department
Opeiu494
1993
GM/UAW NATIONAL AGREEMENT
APPENDIX L
SOURCING
During the 1993 negotiations, the Union raised numerous
concerns about the Corporation's sourcing actions and their impact on
employment opportunities. To that end, the Corporation will work with and assist the Union
at both the Local and International levels to preserve jobs, replace jobs which
may be lost by outsourcing action, and to create jobs for Protected
employees and laid off employees. It is an objective of the Corporation to
grow the business and to continue to rely upon its employees and facilities as
the source of its products. During the life of the current Agreement, the
Corporation will advise, in writing,
the Union members of the Sourcing Committee of the NAO Labor
Relations Policy Board meeting results relative to sourcing recommendations,
including the number of potential jobs affected. Additionally, data regarding incoming and
outgoing work will be given to the International Union in a quarterly
meeting. (The Corporation will provide inquiry access to the International
Union through the use of a computer terminal.) In this manner, the parties
can judge the success of mutual efforts toward improved job security. The
Corporation agrees to incorporate the procedures and structure outlined
herein when making sourcing determinations during the current Agreement.
The rationale for sourcing actions will consider the
criteria of quality, technology, cost, timing, statutory requirements, occupational
and related environmental health and safety issues, the impact on long‑term
job stability, the degree to which the Corporation's resources ran be allocated
to further capital expenditures, the overall financial stability of affected
facilities, and the impact on related facilities. Other factors considered
by the Corporation before a final sourcing decision is made will include the
effect on employment, and job and income security costs, on both a short and
long‑term basis. Such criteria shall give equal weight to the full impact
of a sourcing action on General Motors‑UAW represented employment levels
and the job and income security of General Motors‑UAW represented
employees. The National parties will jointly further develop the above
criteria
to be used to address sourcing issues. In developing this
criteria transfer pricing profits will not be considered in making sourcing
decisions. Only appropriate return on investment and burden will be considered.
Following the development of the sourcing criteria, the
National Sourcing‑ Committee may form Joint Task Forces to ensure full
implementation of such criteria throughout the Corporation and, on an as needed
basis, to address any specific sourcing areas of concern identified by the
Union. Pertinent criteria will be applied consistently in comparisons of
internal and external supply capability. The International Union and where appropriate the
local union will be provided full and timely access to all appropriate data,
including financial information, that is pertinent to evaluate product
competitiveness and contemplated sourcing.
If the Local Committee cannot resolve a sourcing issue, it
may file a grievance at the second step of the grievance procedure.
In addition, the following specific commitments have been
made to address sourcing -related job security concerns of UAW members:
1.
Insourcing
The Local JOBS Committee will discuss the practicality of
insourcing, in whole or in part, work previously outsourced or new work which
the Committee identifies as that which might be performed competitively within
the location based on the criteria outlined above. To assist in this process,
the International Union will be furnished a complete list of work similar to
that currently performed at the local that has been (1) outsourced from that
location or (2) is currently performed by non‑GM/UAW suppliers for
General Motors. These lists will be updated and expanded to include supplier
expiration dates and will be furnished within 90 days following the
effective date of the Agreement. Thereafter, the parties will initiate efforts
to insource particular work consistent with the aforementioned criteria to
create prospects for growth and to provide jobs for Protected employees and
employees on layoff.
If it is established that certain work can be performed
competitively judged by the above criteria, management will adopt the
Committee's proposal and barring unique or unforeseen circumstances, bring the
work in‑house. The Union shall thereafter obtain any necessary approval
or ratification within 30 days of the decision to bring the work in‑house.
2. Outsourcing
Outsourcing as used herein means the Corporation's sourcing
of work from GM/UAW locations, including work connected with current, new or
redesigned vehicles, fabricated parts, powertrain, and component products.
When a request for a quote is initiated, the
International Union and the local Union at the affected location(s) will be
advised in writing by the Corporation. At such time as the quotes have been
received and an outsourcing decision is contemplated the International
Union and the local union will be given 150 days' written notice, or
longer advance notice, when possible. The notice will include the reason for
the outsourcing, a description of the work involved, the number of jobs
affected on both a short‑term and long‑term basis, if known, at
both the affected facility and any other General Motors‑UAW represented
facility, the identification of the sourcing authority, and all financial
information. Proposals to keep the work in‑house will be made by the
Union within 90 days of the receipt of the written notice.
a. When such an outsourcing
decision is contemplated and within the control of the Local Management, the
written notice will be given to the Chairperson of the Shop Committee. A
copy of such notice will be sent to the Director of the General Motors
Department of the International Union and the Vice President, Personnel,
North American Operations, for the Corporation.
b. When such a contemplated
outsourcing decision is initiated by any other sourcing authority of the
Corporation at a level external to the affected location(s), that sourcing
authority will provide sufficient advance written notice to allow the designated
management representative at the impacted location to comply with the
notification procedure. The written notice will be given to the Chairperson of
the Local Union Shop Committee. Also, a copy of such notice will be given
to the Director of the General Motors Department of the International Union and
to the Vice President, Personnel, North American Operations.
Additionally, International Union and local union input will
be sought by the corporation and its Groups and Divisions as early as possible
in the outsourcing decision‑making process. The intent of the evaluation
period and Union input being sought as early as possible is to allow for more
thorough discussion
and to permit the parties to better assess the impact of
outsourcing on the long term job stability of employees and the financial
viability of given Corporate locations.
c. The sourcing authority will
not enter into a contractual relationship with a non‑GM-UAW supplier
until such time as the designated management representative of the impacted
location provides written verification that the above notification procedure
and discussion by the JOBS Committee, has taken place.
If it is established that the work can be performed competitively,
judged by the criteria listed earlier in this Appendix, Management will,
barring unique and unforeseen circumstances, keep the work in‑house. The
Union shall thereafter obtain any necessary approvals or ratification within 30
days of the decision to keep the work in‑house.
d. The Corporation agrees to a
full disclosure to the International Union of the procedures utilized in
sourcing activities.
3. Future Product Sourcing
International Union input to early sourcing decisions will
be sought by the Corporation's Groups and Divisions. In that regard, the International Union will be
notified in writing by
the appropriate Group or Division upon "Group Concept
Initiation Approval" to proceed with a new or redesigned vehicle,
subsystem or component part.
Following the notification, the members of the National
Committee shall have responsibility for overseeing the interface with
individual vehicle platforms and the powertrain division. The union
representative for each car and truck division, powertrain, and the ACG will
work with members of their respective organizations so as to gain
information and knowledge and to provide input into sourcing discussions and
sourcing determinations for those organizations.
When there is a need for a Union platform representative to
interface with a component division relative to sourcing discussions at their
platform, the contact should be made through the divisional industrial
relations contact for that component division.
The Corporation agrees not to use the results of such
discussions to obtain more attractive contract terms from outside supplier's in
lieu of keeping the work in‑house.
If requested, higher level meetings or discussions on these
matters will be scheduled.
The implementation of this process should provide the
parties with the mechanism to take advantage of every opportunity to use
internal resources and to create jobs for Protected employees.
The
commitments expressed in this Appendix are intended to contribute significantly
to our cooperatively working together to provide General Motor's employees in
the United States improved job security by growing the business.
POWERS
OF THE UMPIRE
(46)(1)
In making a decision on a case alleging a violation of Paragraphs (183a),
(183b),
(183c),
(183e),
Appendix
F‑1, or Appendix
L, the Umpire can only provide a remedy where the Umpire finds that
(1) a violation of the express commitments set forth in the above paragraphs, Appendix
F‑1, or Appendix L has been established, (2) the established
violation resulted from the exercise of improper judgment by Management, (3) an
E.I.T.S. or Journeyman/woman employee, who customarily would perform the
work in question has been laid off or was allowed to remain on layoff as a
direct and immediate result of work being subcontracted, or (4) in the case
of Appendix
L, an employee has been laid off or was allowed to remain on layoff as
a result of work being outsourced, or not being brought in‑house. The
Umpire's remedy shall be limited to back wages for the affected
employees as defined in (3) and (4) of this paragraph, and in the
case of Appendix
L, the Umpire may rule that the affected employees will be
recalled and/or placed on regular productive work.
HISTORY
I.
Prior to the
March 21, 1982 National Agreement there were no provisions in the contract that
restricted the Company's right to determine the source of the components used
in the building of its products.
A. Its right to determine the source of vehicle
components flowed from Paragraph
(8).
II.
When the
1979 National Agreement was negotiated, General Motors built ‑ in the U.S. and Canada ‑
approximately 95% of the components used in the vehicles it produced and
assembled in these two countries.
A. While there had previously been sourcing of
parts to companies outside GM, both domestic and foreign, there also was
insourcing of components to GM plants in the U.S. and Canada.
III.
Beginning in
early 1981 there were increased reports of loss of jobs from GM plants due to
the outsourcing of work, while at the same time there were only limited reports
of jobs being returned to GM plants.
A. Investigation over a period of time
disclosed that jobs were being
sent to both domestic and foreign manufacturers ‑ many
of which
were non‑union.
(1) The Corporation contended
that some components
could be acquired cheaper by outsourcing the work
rather than by producing it in‑house.
(2) The International Union
determined that the problem
had to be attacked through negotiations.
1982
NATIONAL AGREEMENT
I. The March 21, 1982 National Agreement
contained provisions covering both outsourcing and insourcing of work. (Document
93)
A. The Corporation committed to a "shared
desire" with the Union to
preserve jobs, reestablish the need for lost jobs and to
create new jobs. The Corporation further committed to an "earnest effort
to maintain employment opportunities".
B. Insourcing Provisions
(1) The Corporation agreed to discuss
the feasibility of insourcing components outsourced during the term of the 1979
National Agreement.
(2) The burden of identifying
these opportunities rested with the Union.
(3) Management retained the
right to determine whether or not
they would accept the Union's proposal(s) to insource work.
C. Outsourcing Provisions
(1) The Union now received at
least 60 day advance written notice of contemplated major outsourcing.
(2) Major outsourcing was
defined as actions resulting in the
permanent layoff of more than 10% of a plant's population or
100 employees, whichever is less.
(3) The movement of work to GM
plants in Canada was not
considered outsourcing.
(4) The Union had 30 days from
the notification to propose changes to reduce labor costs and retain the work.
(5) Management retained the
right to determine whether or not
they would accept the Union's proposal(s) and retain the
work.
D. Initial Administration and implementation of
these provisions were the responsibility of the local union bargaining
committee.
1984
NATIONAL AGREEMENT
I. The September 21, 1984 National Agreement
contained revisions designed to increase the awareness of local union personnel
when sourcing decisions were being contemplated.
A. A JOB Opportunity Bank‑Security
Program was created to protect
eligible employees against layoff caused by a number of
factors
including outsourcing.
(1) The JOBS Program provided a
forum (the Local JOBS Committee) to regularly address mutual concerns
pertaining to sourcing decisions.
B. Insourcing Provisions
(1) The Corporation agreed to
discuss the practicality of insourcing
work outsourced since 1979. This was an expansion on the
language of the 1982 Agreement which utilized the term
"components".
(2) The identification of potential
insourcing opportunities became
the joint responsibility of the Local JOBS Committee.
(3) Management retained the
right to determine whether or not
they would accept the Committee's proposal(s) to insource
work.
C. Outsourcing Provisions
(1) The number of affected jobs
which required a 60 day
written notice was substantially changed to decisions
which affect 25 or more existing jobs.
(2) A detailed procedure for the
60 day written notice was
negotiated that included a clear outline of management's
procedural obligations.
(3) Management retained the
right to determine whether or not
they would accept the Committee's proposal(s) and retain the
work.
D. The
Local JOBS Committee was empowered to discuss sourcing issues.
However, the initial responsibility for administration and
any necessary
implementation continued to reside with the local bargaining
committee.
E. In 1984 negotiations the Sourcing Letter was
renumbered as Document 89.
1987
NATIONAL AGREEMENT
I. The October 8, 1987 National Agreement
expanded the relationship between sourcing and the JOBS program and
substantially increased the involvement of the joint Local JOBS Committee in
discussions and decisions regarding sourcing.
A. The Corporation agreed to modify its
historical sourcing practices in
accordance with the goals and guidelines contained in the
Agreement.
B. Sourcing criteria appeared for the first time
in 1987, however, except for the requirement to give "equal weight"
to long term job security, there were no provisions to jointly define these
criteria.
C. The Agreement provided for an
"appeal" to the National parties in the event the Local Committee(s)
were unable to resolve a sourcing issue. The Corporation's position was that
the Union had no further recourse beyond this appeal procedure.
D. Insourcing Provisions
1. The language regarding work to be evaluated
for insourcing was
expanded to include new/replacement components and vehicles.
2. The restriction in the language on
management considering
proposals where labor costs could make a difference was
removed.
This was a recognition by the Corporation that the issue of
to competitiveness" is far broader than just labor
costs. (The same
changes are found in the outsourcing provisions.)
3. Management retained the right to determine
whether or not they
would accept the Committee's proposal(s) to insource work.
E. Outsourcing Provisions
1. The 1987 Agreement, for the first time,
considered work sourced
from UAW/GM locations to GM plants in Canada as
"outsourcing".
2. The 25 or more employee restriction on
management's obligation to
provide written notice was removed and the 60 day
requirement was
expanded to 90 days.
3. The 30 day provision for Union proposals to
retain the work was
expanded to 45 days.
4. The Corporation committed to full and timely
access, following the 90 day notice, to all appropriate data including
financial information to evaluate contemplated sourcing.
5. New language was introduced giving
recognition to the National
parties' responsibility to assist in finding replacement
work when the local parties were unsuccessful.
6. Management retained the right to determine
whether or not they
would accept the Committee's proposal(s) and retain the
work.
F. Future Product Sourcing
1. This issue was first
addressed in the 1987 Agreement.
2. The Corporation agreed to seek early
International Union input as alternate sources were being discussed in
connection with future product programs.
G. Unpublished Letter
1. The Corporation and the International Union
agreed to determine
which of the previously approved sourcing decisions (which
impacted 25 or more jobs) would be appropriate for restudy.
2. This letter stemmed from the parties renewed
commitment to create
and preserve jobs.
3. These studies were to be completed within
six months of the
effective date of the Agreement.
1990
NATIONAL AGREEMENT
I. The October 1, 1990 National Agreement
Sourcing language was drastically modified and was made part of the main body
of the Agreement (Appendix
L. The language of Paragraph
46 (1) was also modified to accommodate the specific arbitration details.
A. The Corporation expanded their commitments
to job security, agreeing to
work with the International and Local Unions to:
v
Preserve jobs
v
Replace jobs
lost by outsourcing actions
v
Create jobs for
Bank and laid off employees
v
Grow the
business
v
Continue to rely
upon UAW/GM employees and facilities as the source of the Corporation's
products
B. The Corporation agreed, for the first time,
to work with the International Union to jointly define the criteria to be used
in making sourcing decisions.
1. Transfer pricing profits were specifically
excluded in making sourcing decisions and only appropriate return on
investments and burden can be considered.
C. All appropriate data to evaluate product
competitiveness and contemplated sourcing must now be furnished to the
International Union.
D. Violations of management's sourcing
commitments and obligations contained in the Agreement are subject to the
grievance procedure and are arbitrable.
1. Grievances should be filed at the second
step of the grievance procedure.
E. Insourcing Provisions
1. The language was expanded to include work
previously outsourced, new work and work similar to in‑house work that is
currently being performed by non‑GM/UAW suppliers for General Motors.
2. The Corporation agreed to provide the
International Union with a list of work (defined in (1) above) within 90 days
of the effective date of the Agreement. This list was to be used to assist the
parties in the insourcing of work.
3. If the potential insourcing opportunity
could be performed
competitively, judged by the jointly developed
criteria,
management is obligated to adopt the Committee's proposal
and
bring the work in‑house.
v
Exceptions to
this requirement could only occur in "unique or unforeseen
circumstances".
v
This change
removed management's unilateral (Paragraph 8) right to determine whether or not
they would adopt the Committee's proposal(s).
4. The time limits for the Union obtaining
necessary approvals or
ratification was expanded to 30 days.
F. Outsourcing Provisions
1. The focus of these provisions was
substantially changed by
removing the following provisions: "........... to keep
the Union informed of outsourcing decisions".
v
Management's
contractual requirement is to notify the Union when they are CONTEMPLATING
outsourcing.
2. The definition of outsourcing was changed to
include not only current work, but new or redesigned vehicles, fabricated
parts, powertrain and component products.
3. The written notice requirement was expanded
to 120 days. The
notice requirements were changed to include all pertinent
information at the time the notice was issued.
4. The 45 day provision for Union proposals to
retain the work was
expanded to 60 days.
5. If the potential outsourcing could be
performed competitively, judged by the jointly developed criteria,
management is obligated to adopt the Committee's proposal and keep the work
in‑house.
v
Exceptions to
this requirement could only occur in "unique or unforeseen
circumstances".
v
This change
removed management's unilateral (Paragraph
8) rights to determine whether or not they would adopt the Committee's
proposal(s).
6. The time limits for the Union obtaining
necessary approvals or
ratification was expanded to 30 days.
G. Future Product Sourcing Provisions
1. This section is new to the Sourcing language
and provided greater
opportunity to place new product work into UAW/GM plants.
2. The Agreement required that the
International Union be notified in
writing at the point that "Group Concept
Initiation" approval is given by the Group or Division.
v
This notice is
required in all instances involving new or redesigned vehicles, subsystems or
component parts.
v
This notice gave
the Union opportunity to have input in future product sourcing discussions for
the purpose of advantaging every opportunity to use internal resources.
3. The language required that the Union and
Corporation develop one
generic process to implement these commitments.
v
The generic
process was to be in writing and be completed within 90 days of the effective
date of the Agreement.
v
The agreed upon
process was to be forwarded to the Director of the GM Department of the UAW and
the Vice President of Industrial Relations for the Corporation.
4. Priority consideration will be given to
design and processing systems since they have such a major impact on cost and
quality.
H. The last paragraph of Appendix
L was a re‑affirmation of the commitments
found in the first paragraph.
v
Job security
will be provided to UAW/GM employees by "growing the business".
1993
NATIONAL AGREEMENT
PURPOSE
I.
The purpose
of Appendix
L is to provide a procedure and structure for the Corporation and the Union
at all levels to be used when making sourcing determinations during the current
Agreement. The procedure and structure contained in the language are designed
specifically to protect UAW/GM employees job security through proper evaluation
and consideration of all factors involved in the sourcing of work before such
decisions are made.
A. Keeping the purpose of the Sourcing
Agreement in the forefront is vital when considering the propriety of any
sourcing action (insourcing, outsourcing or future product sourcing).
SCOPE OF
APPLICATION
I.
The
commitments, procedures, structure, etc. contained in Appendix
L apply to all sourcing actions and determinations regarding GM/UAW
facilities. (Insourcing, Outsourcing and Future Product Sourcing.)
A. This would include any sourcing action or
decision on work connected with current, new or redesigned vehicles,
subsystems, fabricated parts, powertrains and component products.
APPENDIX
L CHRONOLOGY
I.
Appendix
L has five (5) basic sections which address the contractual relationship
between the parties with regard to sourcing. These sections are listed below
in the order in which they appear in the Agreement. (Note: This Educational
Outline will cover these sections in the same order.)
v
The opening
paragraphs containing the Corporation's commitments, the criteria to be used in
making sourcing decisions and the reference to the proper processing of
grievances.
v
Insourcing
v
Outsourcing
v
Future Product
Sourcing
v
Closing
paragraph re‑affirming the commitments and the purpose of the Appendix.
CORPORATION
COMMITMENTS
I.
General
Motors made a number of commitments to the Union during national bargaining and
these are reflected in the Agreement.
A. In response to the Union's concerns about
the Corporation's sourcing
actions and their impact on employment opportunities, the
Corporation
committed to work with the Union at both the Local and
International levels to:
v
Preserve jobs
v
Replace jobs
lost by outsourcing actions
v
Create jobs for
Protected employees and laid off employees
v
Grow the
business
v
Continue to rely
upon UAW/GM employees and facilities as the source of the Corporation's
products.
EXPLANATION: The
scope of these commitments is obviously much broader than simply dealing with
outsourcing. Local unions must keep management focused on their obligation to
"preserve jobs, create jobs and to grow the business" especially when
they are asking us to work with them to improve operational effectiveness.
B. The Corporation agreed to incorporate the procedures and the
structure
outlined in Appendix
L when making sourcing determinations during the
term of the Agreement.
EXPLANATION: The
commitments, decision making criteria, procedures, etc. in Appendix
L were agreed to by the Corporation in national bargaining. Plants, Groups
or Divisions do not have the authority to decide not to comply because they are
"too cumbersome", "don’t fit their Business Plan".
"not consistent with their core business philosophy" or any other
such excuses.
C. The rationale for sourcing actions
will consider several criteria:
v
Quality,
technology, cost, timing, statutory requirements and occupational and related
environmental health and safety issues.
v
Impact on long
term job stability.
v
The degree to
which the Corporation's resources can be allocated to further capital
expenditures, the overall financial stability of affected facilities and the
impact on related facilities.
v
The effect on
employment, and job and income security costs, on both a short and long term
basis.
1. These criteria must give equal weight to the
full impact of
a sourcing action on UAW/GM represented employment levels
and the job and income security of UAW/GM employees.
2. Transfer pricing profits are specifically
excluded from
consideration in making sourcing decisions.
3. Only appropriate return on investment and
burden can be
considered.
EXPLANATION: When
evaluating potential sourcing actions many factors must be considered. The
Corporation has agreed that both short and long term job security costs must be
considered. In addition, equal weight must be given to the impact on job and
income security of UAW/GM employees.
The International Union's position on costing for sourcing
decisions, titled "The Cost to Manufacture versus the Cost of
Acquisition" is included at the rear of this educational outline. In
brief, the principle to be followed when comparing the in‑house cost
versus the outside, is that the in‑house cost analysis (cost to
manufacture) should only include elements of cost that are directly affected by
whether or not we make the part(s). If an element of cost would remain if the
part were purchased, it should not be included. Conversely, the cost to
purchase (cost of acquisition) should include the seller's price and all
in‑house costs that would continue to be incurred if the part were to be
purchased.
D. Following
the development of the sourcing criteria, the National Sourcing Committee may
form Joint Task Forces to ensure full implementation of such criteria
throughout the Corporation and, on an as needed basis, to address any specific
sourcing areas of concern identified by the Union. Pertinent criteria will be
applied consistently in comparisons of internal and external supply capability.
EXPLANATION: The
sourcing criteria developed by the National Parties is to be used by all
GM Plants, Groups and Divisions; they are not free to "develop
their own rules". In addition, the criteria must be applied fairly and
consistently when comparing in‑house versus outside suppliers.
E. The International Union and where
appropriate the local union will be
provided full and timely access to all appropriate data,
including financial information, that is pertinent to evaluate product
competitiveness and contemplated sourcing.
EXPLANATION: Management's
obligation to provide data to evaluate potential sourcing actions is not
limited to outsourcing, it applies to insourcing and future product sourcing as
well. When a local union requests sourcing information, the GM Department
should be contacted and made aware that the request has been made.
F. If the Local Committee cannot resolve a
sourcing issue, it may file a
grievance at the second step of the grievance procedure.
EXPLANATION: Violations
of management's sourcing commitments and obligations contained in the Agreement
are subject to the grievance procedure and are arbitrable. Paragraph
46 (1) defines the powers of the Umpire in arbitration including the
"remedy" for violations of Appendix
L. Special note should be taken of the absence of the "direct and
immediate" requirement in determining whether or not employees were affected by
violations of Appendix L versus the Subcontracting provisions. (Compare 46[l][3]
with 46[l][4]).
Grievances charging a violation of Appendix L should be
filed at the second step of the grievance procedure and thereafter processed
through the subsequent steps.
G. In addition, the following specific
commitments have been made to address sourcing ‑ related job security
concerns of UAW members.
EXPLANATION: The commitments, procedures and structure that
follow (Insourcing, Outsourcing and Future Product Sourcing provisions) were
negotiated for the express purpose of providing increased job security for UAW
members through the proper handling of sourcing matters.
INSOURCING
I.
Appendix
L establishes a procedure to address insourcing.
A. The Local JOBS Committee will discuss the
practicality of insourcing, in
whole or in part, work previously outsourced or new work
which the
Committee identifies as that which might be performed
competitively
within the location based on the criteria outlined in Appendix
L.
EXPLANATION: As
with all plant level sourcing issues, the responsibility for addressing the
insourcing of work falls on the Local JOBS Committee. This responsibility
includes evaluating the potential for returning work or introducing new work
into the unit.
B. To assist in this process, the
International Union will be furnished a
complete list of work similar to that currently performed at
the local that has been (1) outsourced from that location or (2) is currently
performed by non GM/UAW suppliers for General Motors. These lists will be
updated and expanded to include supplier expiration dates and will be furnished
within 90 days following the effective date of the Agreement. Thereafter, the
parties will initiate efforts to insource particular work consistent with the
aforementioned criteria to create prospects for growth and to provide jobs for
Protected employees and employees on layoff.
EXPLANATION: Work
eligible to be insourced includes work previously outsourced, new work, and
work similar to in‑house work currently being performed by non‑GM/UAW
suppliers for General Motors. There are no restrictions in the Agreement which
would preclude or limit any of this work from consideration. Within 90 days of
the effective
date of the Agreement, the Corporation must provide the International
Union with an updated and expanded list of work as defined above, including
supplier expiration dates.
The local parties may initiate efforts to insource work to
create growth and to provide jobs for Protected and laid off employees using
the agreed upon criteria. Also, as previously outlined, the Agreement requires
that sufficient information will be made available for the Local JOBS Committee
to intelligently evaluate costs and other relevant factors in order to reach a
fair conclusion as to the feasibility of insourcing work.
C. If it is established that certain work can be
performed competitively judged by the above criteria, management will adopt the
Committee's proposal and barring unique or unforeseen circumstances, bring the
work in‑house.
EXPLANATION: Prior
to the 1990 Agreement management retained the right to determine whether or not
they would accept the Committee's proposal(s) to insource work. This could have
occurred even if the Local JOBS Committee put forth a better proposal than the
outside supplier!
This provision of Appendix
L removes management's unilateral (Paragraph 8) rights in this regard. The
Agreement now requires that if a potential insourcing opportunity can be
performed competitively, judged by the jointly developed criteria,
management will adopt the Committee's proposal and bring the work in‑house.
v
Exceptions
to this requirement could only occur in ”unique or unforeseen circumstances”.
The International Union's position on costing for sourcing
decisions (including insourcing) titled "The Cost to Manufacture versus
the Cost of Acquisition" is included at the rear of this educational
outline.
D. The Union shall thereafter obtain any
necessary approval or ratification
within 30 days of the decision to bring the work in‑house.
EXPLANATION: Changes
made in a Local Seniority Agreemen4 Shift Preference or any other local
agreements that were ratified initially, require ratification by the local
Union membership and may require approval by the International Union and the
Corporation.
v
Changes in
the local rules for Implementing Paragraph 71 for example, are purely a local
matter and would not require the approval of the International Union and the
Corporation.
It is recommended that in the event the local discussions
result in an understanding to insource work, the local union insist there be a
management commitment in writing that if the local union membership ratifies
any agreement requiring ratification, that the work in question will be placed
in that plant with a projected time table and a manpower estimate, at the very
least
Any required approval or ratification should be completed
within thirty days.
OUTSOURCING
I.
This portion
of Appendix
L applies to the outsourcing of work from UAW‑General Motors
locations in the U.S. regardless of where the work is destined.
A. Outsourcing as used herein means the
Corporation's sourcing of work from
GM/UAW locations, including work connected with current, new
or
redesigned vehicles, fabricated parts, powertrain and
component products.
EXPLANATION: This
portion of the language clearly defines what would be considered outsourcing.
This definition applies to work connected with current, new or redesigned
vehicles, fabricated parts, powertrain and component products that is:
v
Sent to an
outside supplier (Ie.: Johnson Controls, Rockwell, etc.)
v
Sent to a
GM plant in another country (ie.: Canada, Mexico, Singapore, etc.)
v
Sent to a
GM plant represented by another union (Ie.: CAW, IUE, URW, etc.)
There are no exceptions to this definition.
Temporary outsourcing in any form including "spot
buys" and "factory assist" is subject to all of the terms and
conditions of Appendix
L including the notification provisions. The only exception would be in the
case of machinery breakdowns or other catastrophes wherein compliance with the
150 day requirement would result in a
disruption of the Corporation's operations, however, written
notification and discussion with the union must still take place.
Questions have arisen regarding the definition of outsourcing as it applies to
sequencing and repacking or kitting of material for the production process
which is done by bargaining unit employees and is subsequently eliminated. The
most obvious example is material being repacked or sequenced in plant, where
the decision is made to simply move the repacking or sequencing to an outside
supplier. This is outsourcing and is covered by Appendix
L. Other situations are not as obvious and are not necessarily outsourcing.
For example, changes to shipping and packaging that may result in work content
being changed or eliminated. However, if the work function or work
content being
done as bargaining unit work is relocated to an outside
supplier, it is outsourcing.
Included at the rear of this educational outline are
settlements made during the term of the 1990 Agreement regarding sourcing
notification requirements in "second tier supplier" situations and
other special circumstances (joint ventures, etc.).
B. When a request for a quote is initiated, the
International Union and the local Union at the affected location(s) will be
advised in writing by the Corporation.
EXPLANATION: This
provision was added in 1993 bargaining. Its purpose is to alert the appropriate
parties that quotes are being requested which could possibly result in an Appendix
L notice being issued. Local unions should take advantage of this early
notification by discussing the work in question with local management.
C. At such time as the quotes have been received
and an outsourcing decision is contemplated, the International Union and the
local union will be given 150 days written notice, or longer advance notice,
when possible.
EXPLANATION: Management's
contractual requirement is to notify the
Union when they are contemplating outsourcing. At the
point the notice is required, the decision to outsource has not been made ...
it is only being contemplated. It is a violation of the Agreement to conclude
an outsourcing decision prior to complying with all notification
requirements, including the 150 day minimum advance written notice. (This will
receive further explanation later in this Outline.)
D. The notice will include the reason for the
outsourcing, a description of the work involved, the number of jobs affected on
both a short‑term and long term basis, if known, at both the affected
facility and any other General Motors‑UAW represented facility, the
identification of the sourcing authority, and all financial information.
EXPLANATION: The
language describes a "checklist" to be followed by management in providing
proper notification to the Union. Management must provide, with the notice
all supporting information including financial, that they are considering in
their contemplation of outsourcing. The information furnished must be in
sufficient detail to permit a fair understanding and evaluation of an factors
involved.
The Union agreed that information furnished by the
Corporation regarding sourcing and the discussions in connection with such
information may require that the Union keep the information confidential until
the Corporation consents to its’ release. the Agreement does not
anticipate that the company will deny information to the Union on the basis
that it is confidential. Rather, it provides that the Union will keep such
information confidential.
It is the position of the International Union that the clock
does not start on the 150 day period described above until all appropriate
information required by the Agreement has been made available to the Union.
E. Proposals to keep the work in‑house will
be made by the Union with 90 days of the receipt of the written notice.
EXPLANATION: The
Agreement provides that the Union may make a formal proposal in matters dealing
with outsourcing. Generally this will fall in the area of operating efficiency.
Special note should be taken that the responsibility for making a proposal is a
joint responsibility of the local JOBS committee. The opening sentences
of Appendix
L reflect the Corporation's commitment to work with the Union to
accomplish the objectives set forth in this Appendix.
In the event operating efficiency is the key issue affecting
the contemplated outsourcing decision, the Union has 90 days from the date of
the notice to make proposals to resolve the matter. Such proposals should
involve a true evaluation of costs applicable to the specific operations and
the effects of JOBS and other costs.
F. When such an outsourcing decision is
contemplated and within the control
of the local management, the written notice will be given to
the Chairperson of the Shop Committee. A copy of such notice will be sent to
the Director of the General Motors Department of the International Union and
the Vice President, Personnel, North Americans Operations, for the Corporation.
EXPLANATION: Self‑explanatory.
Local management Is responsible for providing notification on contemplated
outsourcing that is controlled at the local plant level.
G. When such a contemplated outsourcing decision
is initiated by any other
sourcing authority of the Corporation at a level external to
the affected location(s), that sourcing authority will provide sufficient
advance written notice to allow the designated management representative at the
impacted location to comply with the notification procedure. The written notice
will be given to the Chairperson of the Local Union Shop Committee. Also, a
copy of such notice will be given to the Director of the General Motors
Department of the International Union and to the Vice President, Personnel,
North American Operations.
EXPLANATION: Self‑explanatory.
When the sourcing authority for contemplated outsourcing is external to the
affected location(s), that sourcing authority is responsible to provide local
management with the proper written notice so local management can comply with
the notification procedure in a timely manner.
H. Additionally, International Union and local
union input will be sought by the Corporation and its Groups and Divisions as
early as possible in the outsourcing decision making process. The intent of the
evaluation period and Union input being sought as early as possible is to allow
for more thorough discussion and to permit the parties to better assess the
impact of outsourcing on the long term job stability of employees and the
financial viability of given Corporate locations.
EXPLANATION: This
paragraph defines the purpose and intent of the notification of contemplated
outsourcing to the Union. The Corporation is not to simply go through the
mechanics of providing notification 150 days before they plan on signing a
contract with an outside supplier. Rather, as described in the opening
paragraph of Appendix
L, management should be approaching the Union long before any decisions
need to be made in sincere effort to provide job security to their employees.
I. The sourcing authority will not enter into
a contractual relationship with a non‑UAW/GM supplier until such time as
the designated management representative of the impacted location provides
written verification that the above notification procedure and discussion by
the JOBS Committee has taken place.
EXPLANATION: The Agreement clearly prohibits management from entering
into a contractual relationship with an outside supplier before they have
complied with all of the terms of the notification procedure, including
the 150 day period. It is a violation of the express language and the intent of
Appendix
L for the sourcing authority to even indicate to a supplier that “the work
will be theirs as soon as the 150 day expires”. For management to be beyond
contemplation in any form or fashion before they have complied with
these terms is improper and should be challenged.
J. If it is established that certain work can
be performed competitively, judged by criteria listed earlier in this Appendix,
management will, barring unique and unforeseen circumstances, keep the work in‑house.
EXPLANATION: Prior to the 1990 Agreement; management retained the right
to determine whether or not they would accept the Committee's proposal(s) to
retain the work in question. This could have occurred even if the local JOBS
Committee put forth a better proposal than the outside supplier! This provision
in Appendix
L removes management's unilateral (Paragraph 8) rights in this regard. The
Agreement now requires that if the potential outsourcing can be
performed competitively, judged by the jointly developed criteria management
will adopt the committee's proposal and bring the work in‑house.
v
Exceptions
to this requirement could only occur in "unique or unforeseen
circumstances."
The International Union's position on costing for sourcing
decisions (including outsourcing) titled "The Cost to Manufacture versus
the Cost of Acquisition" is included at the rear of the education outline.
K. The Union should thereafter obtain
any necessary approvals or ratification within 30 days of the decision to keep
the work in‑house.
EXPLANATION: Changes
made in a Local Seniority Agreement, Shift Preference or any other local
agreements that were ratified initially, will require ratification by the local
union membership and may require approval by the International Union and the
Corporation.
v
Changes in
the local rules for implementing Paragraph
71 for example, are purely a local matter and would not require the
approval of the International Union and the Corporation.
v
Contact
your General Motors Department Servicing Representative for any clarification
you may need regarding which agreements require ratification or approval by the
International Union and the Corporation.
It is recommended that in the event local discussions result
in an understanding to retain work, the local union insists there be a
management commitment in writing that the work will not be outsourced.
L. The Corporation agrees to a full disclosure
to the International Union of the procedure utilized in sourcing activities.
EXPLANATION: The Corporation utilizes various procedures for
sourcing determinations such as their Competitive Analysis Guide, NAO Sourcing
Policy, World Wide Purchasing Policies, etc. In many respects these policies
are inconsistent with Appendix
L. In all cases Appendix
L must govern.
FUTURE
PRODUCT SOURCING
I.
This section
was new to the Sourcing language in 1990 and provides greater opportunity to
place future product work into UAW/GM plants.
A. International Union input to early sourcing
decisions will be sought by the Corporation's Groups and Divisions. In that
regard, the International Union will be notified in writing by the appropriate
Group or Division upon "Group Concept Initiation Approval" to proceed
with a new redesigned vehicle, subsystem or component part.
EXPLANATION: The Corporation has agreed to be pro‑active in seeking
early International Union input on future product sourcing.
This will include notifying the International Union
in writing at the point that "Group Concept Initiation Approval" is
given by the Group or Division.
v
This
notice is required in all instances involving new or redesigned vehicles,
subsystems or component parts. The notice is also required at a similar point
in the product development process for those components, etc. that do not
receive "Group Concept Initiation Approval".
B. Following the notification, the members of
the National Committee shall
have the responsibility for overseeing the interface with
individual vehicle platforms and the powertrain division. The union
representative for each car and truck division, powertrain, and the ACG will
work with members of their respective organizations so as to gain information
and knowledge and to provide input into sourcing discussions and sourcing
determinations for those organizations.
EXPLANATION: In
1993 bargaining, the Corporation agreed to the establishment of UAW future
product sourcing representatives at the Car and Truck Divisions, Powertrain,
and ACG at the group level. These representatives are responsible to report to
the International Union.
The purpose of the written notification and the addition of
the sourcing representatives is to have input into sourcing discussions and
determinations to advantage every opportunity to use internal resources.
NOTE: See pages 10 through 12 of this
Outline which outlines the Corporation's commitments regarding sourcing. These
commitments apply to future product sourcing as well.
C. When there is a need for a Union platform
representative to interface with a component division relative to sourcing
discussions at their platform, the contact should be made through the
divisional industrial relations contact for that component division.
EXPLANATION: Due
to the number of component divisions and the complex management
structures, contacts at the Divisional Labor Relations level will be
assigned to provide the UAW future product sourcing representatives, described
above, assistance in reaching the appropriate management personnel in that
division.
D. The Corporation agrees not to use the results
of such discussions to obtain more attractive contract terms from outside
suppliers in lieu of keeping the work in‑house.
EXPLANATION:
This is self‑explanatory.
It is a violation of the Agreement to "whipsaw" the UAW against
outside suppliers. This type of conduct on management's part should be
immediately challenged.
E. If requested, higher level meetings or
discussions on these matters will be scheduled.
EXPLANATION: The
Corporation has agreed to "higher level" meetings and discussions in
recognition of the fact that there are circumstances and issues which arise
from time to time that require high levels of authority to address and resolve.
F. The implementation of this process should
provide parties with the
mechanism to take advantage of every opportunity to use
internal resources and create jobs for Protected employes.
EXPLANATION: This
sentence states the purpose and goal of the Future Product Sourcing of Appendix
L. If approached properly and in good faith, this aspect of the sourcing
relationship between the parties provides the greatest opportunity.
CLOSING
PARAGRAPH
I.
The closing
paragraph was significantly modified in 1990 bargaining to clearly outline the
purpose of Appendix
L and describe how job security is
provided .... through action!
A. The commitments expressed in this Appendix
are intended to contribute
significantly to our co‑operatively working together
to provide General
Motors employes in the United States improved job security
by growing the business.
EXPLANATION: This
closing paragraph is a re‑affirmation of the commitments found throughout
Appendix
L. Every management person in General Motors would agree that improvements
In operational effectiveness (cost, quality, productivity, etc.) do not happen
as the result of a "wish"! Neither does job security for our members.
Job security for our members, in the context of sourcing, will only occur as a
result of General Motors working with the UAW and living up to the commitments
outlined in this Appendix.
ADDRESSING
PROBLEMS
I.
Any problem
encountered by Local Unions in obtaining information or in otherwise enforcing
the Language of Appendix
L should be raised with your Regional Representative. If the Regional
Representative needs assistance, it will be provided by the General Motors
Department's Servicing Representatives and Appendix L Staff.
November 19, 1992
To: All
Industrial Relations Directors
From: D.
W. Munger
Subject: Sourcing Notification Requirements ‑
Special
Circumstances (e.g. Joint Ventures
and "Second
Tier Supplier" situations)
Recent discussions with the UAW have resulted in a
refined understanding of the appropriate notification which should be given to
the Union when certain sourcing events occur which are not specifically
addressed by Appendix
L.
In situations where the sourcing authority is a non‑GM/North
American Operations (NAO) entity, in which GM holds an ownership interest (i.e.
joint ventures, subsidiaries, etc.), the parties have agreed that notice of the
potential sourcing event will be provided to the Union on the appropriate
standardized form (see attached) recognizing that the timing requirements and
certain other provisions of Appendix
L are inapplicable. This is in accordance with the parties' mutual
objective of working toward retention of any work that can be performed
competitively in‑house.
Further discussions addressed the "Second Tier
Supplier" issue, which is encountered when a GM location is impacted by
the sourcing decision of an unrelated entity which sells its end product to GM.
Typically, the GM/NAO location impacted
in such a case supplies a component or service to
the unrelated entity which is incorporated into the end product sold to GM/NAO
by that entity. The parties have agreed that when such a case arises, GM can
assert sufficient control of the sourcing decision to allow handling of the
potential sourcing event in strict accordance with the provisions of Appendix
L. Therefore a notice should be issued with the appropriate data.
Please carefully review the attached memo and
notification form in their entirety. The noted procedural changes must be
implemented to assure uniform administration of these understandings.
D.
W. Munger
Director,
Job Security
and
Sourcing
attachments
MEMORANDUM OF UNDERSTANDING
NOTIFICATION OF POTENTIAL
SOURCING
(NOT SPECIFICALLY COVERED BY
APPENDIX L)
The parties have discussed at length the issues
surrounding the appropriate communication of changes in production and purchase
arrangements with any Non‑GM/North American Operations sourcing authority
(i.e., subsidiaries, affiliates, captives, joint ventures, transplants, etc.).
Specifically, these discussions focused on the lack of notification provided to
the Union regarding decisions made by these sourcing authorities which resulted
in loss of work for GM/UAW locations.
The parties have agreed that, going forward, the
International Union and the Local Union will be provided notification and
pertinent data regarding such changes in product ion/purchase arrangements on
forms designated by the National parties. Recognizing that such arrangements are
outside the procedural purview of Appendix
L, it is nevertheless important that the parties seriously work to retain
production work whenever there is opportunity to do so. In this regard, the
parties have jointly committed to dedicate their efforts to this end.
International
Union North American Operations
United
Auto Workers General Motors Corporation
Date
Date
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Financial
Tools and Techniques for Sourcing Decisions
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
7.1 SECTION INTRODUCTION
Section Objectives: After completing this section, participants will be
able to:
• Describe the cost to manufacture versus the cost
of acquisition process.
• Describe the cost considerations using the
current cost system.
Selected Topics: 7.1 Section Introduction
7.2
Cost to Manufacture vs. Cost of Acquisition
Financial Tools and Techniques
for Sourcing Decisions 7-1
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
7.2 COST TO MANUFACTURE VS. COST OF ACQUISITION
Traditionally the cost to manufacture versus the cost
of acquisition has been referred to as make versus buy analysis. As the scope
of the sourcing decisions expand, more accurate terminology would be to refer
to the process as cost to manufacture versus the cost of acquisition. Competitive
analysis should not be used for making sourcing decisions.
Manufacturers are often faced with the decision of
whether to manufacture or acquire from an outside source the parts and
subassemblies. The decision should be based on both quantitative and non‑quantitative
factors. More generally, the choice may not be fundamentally whether to
manufacture or acquire; it is how best to use available facilities. These
factors should also be considered for insourcing of parts and sub‑assemblies.
Several
factors that should be considered include:
0
JOBS Bank Cost
0 Layoff Costs
0 Underutilized Facilities
0 Costs Associated with Outside
Purchasing
0 etc.
Financial
Tools and Techniques for Sourcing Decisions 7-2
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Cost To Manufacture By definition, "adjusted factory cost" is
the GM designation for total factory cost that excludes depreciation on
existing investments and existing special tool charges.
The economic evaluation method described in Section 5
should be used as a technique for decision making. Discounted cash flow/return
on investment (DCF/R0l) is not to be confused with return on investment.
DCF/R0l is the internal rate of return generated by a particular project or
investment. Return on investment is the net profit divided into the total
assets of the business.
The overall impact to the Corporation should be
considered and not solely the impact on the individual purchasing G M Unit.
There should be analysis done by both the buying and allied supplying units as
to the profitability to the Corporation and not that of the individual units.
Transfer pricing cannot be used as the method for sourcing decisions.
Key
Assumptions Most fixed costs will remain fixed whether the part is
manufactured
or not
When there is idle facilities or unused capacity, an
appropriate
approach would be to add production or
insource
to absorb a portion of the fixed costs.
Financial
Tools and Techniques for Sourcing Decisions 7-3
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Quantitative Factors That
Should Be Considered Include:
¨
Cost to manufacture
¨
Unused capacity
¨
Cost that will remain as a result
of releasing the business (idle facility costs)
¨
Future investment costs
¨
Quality
¨
Responsiveness
¨
Profitability of remaining
products
¨
Variable profit of the product
¨
Costs that will be incurred to
deal with the new source
¨
Layoff; SUB Costs
¨
JOBS Bank Cost
Non‑financial
Factors That Should Be Considered Include:
¨
Impact on the people remaining at
the facility
¨
Impact on the misplaced workers
¨
Impact on the community from in
which the work is removed
Financial
Tools and Techniques for Sourcing Decisions 7-4
,
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Competitive
Analysis
Purpose
Cost
to Manufacture vs. Cost of Acquisition
|
|
A method for making sourcing decisions, both
insourcing and outsourcing, based on all relevant costs to the decision.
|
|
Purpose
Financial
Tools and Techniques for Sourcing Decisions 7-5
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
COSTS INCLUDED IN ANALYSIS
Cost to Manufacture
|
UAW's Position
|
Management's Normal Position
|
|
Direct
Material
Direct
Labor
Variable
Burden
Engineering
(As it specifically
relates
to the part)
|
Direct
Material
Direct
Labor
Variable
Burden
*Engineering
*Fixed
Burden
*Commercial
|
*The
UAW does not count because the costs remain.
Cost of Acquisition
|
UAW's Position
|
Management's Normal Position
|
|
Purchase
Price
**Transportation
**Purchasing
Activities
**Engineering
**Receiving
**Inspection
**Warranty
**JOBS
Bank Costs
**Layoff
Costs
**Area
Hire
**Scrap
**Fixed
Burden
**Tooling
and Equipment
(Tools
are usually owned by GM)
|
Seller's
Price
|
** These are costs to GM which should be added
to the purchase price, if they are incurred. Other costs should be included as
appropriate.
Financial
Tools and Techniques for Sourcing Decisions 7-6
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
MANAGEMENT'S STATED POSITION
(Per September 22, 1992 Letter)
|
|
When evaluating potential sourcing issues related to individual
parts or components, the following steps must be followed;
¨ Determine whether the product line with which the
part is associated is competitive on a total operating cost basis, or a
reliable plan exists to become competitive.
¨ If the product line is competitive, the cost to
manufacture that part is determined on a cash flow basis.
¨ If the product line is not competitive, determine
if this is a unique case where a cash flow analysis might be appropriate,
such as where a long term JOBS bank is present.
The following costs
should be considered:
-Direct Material -Variable Burden -Engineering
-Direct Labor (A) -Other Burden (B) -Commercial
(A) The
utilization of JOBS Bank employes can offset some direct labor cost on a
cash flow basis.
(B) Incremental
burden costs are considered when making a cash flow analysis.
NOTE: Existing depreciation, amortization,
commercial and current retiree benefit costs are not incremental to the
decision and should not be included in a cash flow analysis.
|
|
|
|
The UAW is in total disagreement with Management's position stated
above. For example, Appendix L of the GM/UAW National Agreement does not
place the requirement on any part, system or sub‑system that its
entire product line be competitive on a total operating cost basis. The
language in Appendix L clearly excludes from consideration certain
inappropriate burden costs that would be included in a total operating cost
analysis.
Moreover, the Corporation is unable to provide definitions for
terms used in their stated position such as: product lines, long term JOBS
Banks, long ‑term versus short term strategies, purchase price
adjusted for design differences, etc.
For these reasons,
(and others), Management's position should be ignored.
|
|
Financial
Tools and Techniques for Sourcing Decisions 7-7
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Example
Cost to Manufacture Versus Cost of Acquisition
Purpose
To
determine whether to manufacture or purchase a part.
Assumptions
·
The plant is operating at less
than full capacity.
·
There are 20 direct and indirect
employes. The volume is 200,000 units per year.
·
JOBS Bank Costs per employee is
$56,000 per year.
·
GM provides Engineering for the
outside supplier. GM owns the tooling and equipment used by the supplier. The
transportation cost is $.25 per part. The estimated purchasing cost is $.05 per
part. The receiving inspection cost is estimated at $.075 per part.
·
The supplier's price is $12.00
(assuming same quality, reliability in delivery, etc.)
·
Other relevant costs per unit:
Direct
material $7.00
Direct
labor 2.50
Manufacturing
Burden
- Variable 2.00
- Fixed 2.00
Engineering .50
Commercial .50
Total
Factory Cost $14.50
Based on the above information, should GM continue
making the part or purchase it?
Financial
Tools and Techniques for Sourcing Decisions 7-8
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Example
Cost to Manufacture Versus Cost of Acquisition
(continued)
The
cost of acquisition ($20.475) exceeds the cost to manufacture ($12.00).
Financial
Tools and Techniques for Sourcing Decisions 7-9
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
EXERCISE 7‑1
COST TO MANUFACTURE VERSUS COST OF ACQUISITION
Purpose
To
determine whether to manufacture or purchase a part.
Instructions
Read the assumptions presented below and determine if
you should manufacture or purchase the part. Answer the questions below.
Indicate the amount of the difference, if any, between the two decisions.
Assumptions
The
plant is operating at less than full capacity.
1 . Based on the financial information below,
should you continue making the part or purchase it?
Financial Information
A. There are 10 direct and indirect employes.
The volume is 80,000 units per year.
1
. JOBS Bank Costs per employe is $56,000 per year.
B. Engineering for the outside
supplier is provided by GM. Tools and equipment are owned and provided by GM.
It costs $.50 per part to ship from the supplier to this plant.
C. Other
Relevant Costs: Cost
(per unit)
Direct
Material $13.00
Direct
Labor 5.00
Manufacturing
Burden
- Variable 4.00
- Fixed 4.00
Engineering 1.00
Commercial 1.00
Total
Factory Cost $28.00
D. Suppliers Price
Assuming
same quality, reliability, delivery, etc. $23.00
Financial Tools and Techniques for Sourcing Decisions 7-10
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
EXERCISE 7‑1
COST TO MANUFACTURE VERSUS COST OF ACQUISITION
(Calculations)
Financial
Tools and Techniques for Sourcing Decisions 7-11
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
EXERCISE 7‑2
INSOURCING
Purpose
To
determine whether to insource or continue purchasing a part.
Scenario
The local JOBS committee has identified a potential
job to insource and management agrees to do a financial investigation. The
following information is provided to t9e Local Union representatives.
Assumptions
·
Floor space is available.
·
No employes from the plant are on
layoff or in the JOBS bank. Several hundred employes are in Area Hire (Cost per
employe in Area Hire is $52,500 per year).
·
Insourcing the job would create 80
jobs.
·
The plant would have to purchase
equipment and do some rearrangement.
·
GM provides engineering for the
outside supplier. The supplier owns all his own equipment and machinery and
would deliver the part at his expense for $0.5250 per part.
·
Volume is 38,250,000 per year.
Based on the other relevant financial information that
follows, should the part be insourced?
Other Relevant Costs Cost
(Per Unit)
Direct Material $.3100
Direct Labor .0930
Manufacturing Burden
·
Variable
.1075
·
Fixed
.1075
Engineering .0250
Commercial .0520
Total Factory Cost $.6950
Supplier's Price
Assuming the same quality,
reliability, etc. .5250
Financial
Tools and Techniques for Sourcing Decisions 7-12
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
EXERCISE 7‑2
INSOURCING
(Calculations)
Financial
Tools and Techniques for Sourcing Decisions 7-13
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Information Is Provided In Many Formats
On the next few pages are examples of how you might
receive financial information. The information comes in a variety of formats.
Each plant and/or division has their own format for providing financial
information.
The chart on page 7‑6 illustrates the different
cost elements that are needed to assist in making appropriate sourcing
decisions.
The purpose of showing the different formats is to
assist you in identifying what information is missing or not provided. You may
need to ask for additional information to properly perform the analysis.
The UAW Position is that the clock on the 120 days
does not start until we have all the required information.
Financial
Tools and Techniques for Sourcing Decisions 7-14
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Example
Information Provided By the Plant
Appendix
"L"
Sourcing
Decision/Cost Analysis
PART NUMBER(S) 16625542‑3 G‑CAR
R/D OUTSIDE DOOR HANDLE
199X VOLUME 85,540
TOTAL PIECESYEAR
$'S
PIECE
DIRECT MATERIAL $4.97
DIRECT LABOR $0.25
MANUFACTURING BURDEN $0.54
PLANT FABRICATING COST $5.76
MEMO: LABOR/LABOR
RELATED $0.49
GENERAL $0.16
PRODUCT ENGINEERING N/A
COMMERCIAL $0.29
OPERATING COST $6.21
ADJUSTMENTS ** $0.00
COST TO MANUFACTURE $6.21
OUTSIDE QUOTE (SELLING PRICE) $4.51
IN‑HOUSE PENALTY ($1.70)
ANNUAL COST PENALTY ($145,119)
@ BUDGET LEVELS
OFF‑STANDARD ($1.24)
IN‑HOUSE PENALTY ($2.94)
INCL. OFF STANDARD
ANNUAL COST PENALTY ($251,299)
** BUSINESS UNIT,
DIVISIONAL, ACG AND CORP. C.O. ASSESSMENTS
Financial Tools and Techniques
for Sourcing Decisions 7-15
Participant Manual
Section
7 – Cost To Manufacture vs. Cost Of Acquisition
Example
Information Provided By the Plant
(continued)
INVESTMENT SUMMARY
GM
PLANT OUTSIDE QUQTE
TOOLING $0 $0
FACILITY $0 $0
EXPENSE $0 $0
TOTAL $0 $0
5‑YEAR
DISCOUNTED
INVEST &
PCE COST $1,987,709 $1,203,653
WHAT RAISES A RED FLAG?
1 The direct material
exceeds the outside quote.
2. The manufacturing
burden is not split between fixed and variable.
3. General and commercial costs are for the same
purpose. This division breaks it down.
4. There is missing
information we would need. Let's refer to page 7‑6.
Financial
Tools and Techniques for Sourcing Decisions 7-16
Participant Manual
Answer
Key
ANSWER KEY
EXERCISE 7‑1
COST TO MANUFACTURE VERSUS COST OF ACQUISITION
1. Should you
continue making the part or purchase it?
Continue
to make the part based on the following calculation:
Cost To Manufacture
28.00 Total
Factory Cost
‑4.00 (Fixed
Burden)
‑1.00 (Commercial)
$23.00 Cost
To Manufacture
Cost Of Acquisition
$23.00 Purchase
Price
1.00 Engineering
(Supplied by GM)
.50 Transportation
(Paid for by GM)
4.00 Fixed
Burden
7.00 JOBS Bank Cost/Unit
$35.50 Total
Cost of Acquisition
The cost of acquisition ($35.50) exceeds the cost to
manufacture ($23.00).
Financial
Tools and Techniques for Sourcing Decisions Key-7
Participant Manual
Answer
Key
ANSWER KEY
EXERCISE 7‑2
INSOURCING
1 Should you
continue purchasing the part or insource it?
Insource
the part based on the following calculations:
Cost To Manufacture
$0.6950 Total
Factory Cost
‑0.1075 (Fixed
Burden)
‑0.0520 (Commercial)
$0.5355 Cost
to Manufacture
Cost Of Acquisition
$0.5250 Purchase Price
0.0250 Engineering
(Supplied by GM)
0.1075 Fixed
Burden
0.1098 Area
Hire Cost/Unit
$0.7673 Cost
of Acquisition
Note: On very high volumes,
partial cents are important.
The cost of acquisition
($0.7673) exceeds the cost to manufacture ($0.5355).
Financial Tools and Techniques
for Sourcing Decisions Key-8
