Making General Motors and America More Competitive Through Financial EDI and EFT
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golden pages 5/28/96 9:24 PM Page 1
Making General Motors and America More
Competitive Through Financial EDI and EFT
Charles E. Golden
The following speech was presented could serve to reduce our costs. This
by Mr. Golden at the Third Annual was particularly important to us when
Corporate-to-Corporate EFT/EDI we compared our costs to those of the
Conference. Japanese auto makers and found that
we were not competitive. We saw that
Introduction the U.S. manufacturers could not
Good afternoon. I would like to thank achieve competiveness by continuing
Dan Ferguson for the opportunity to to operate independently from their
speak to the conference today on EFT supplying partners.
and EDI. Judging from the breadth of With work from members like GM,
the conference agenda, you have cov- Ford, Chrysler, and mutual suppliers,
ered almost every subject related to the AIAG became the vehicle to push
EDI that I can imagine. Therefore, I for standardization as a means for
want to share with you briefly this productivity improvements. Through
afternoon some of GM’s experience numerous efforts, AIAG members still
in developing an EFT system—which work out business conventions for
I must also say is still evolving after electronic transaction standards,
four years of implementation. Per- which are ultimately submitted to
haps you may benefit from our expe- ANSI for adoption.
rience. In addition, I want to talk to
you from a different perspective: that Early Financial EDI at GM
of management policy towards the GM’s first venture into financial EDI
electronic interchange of business- and EFT, outside of direct deposit for
information in general. From an over- payroll, began in 1982 with the col-
all management perspective, the ques- lection of wholesale vehicle receipts
tion is: Can Electronic Data Inter- from the banks that finance our deal-
change contribute towards reducing ers. In 1984, Buick had started a pilot
costs and restoring America’s indus- Background program to replace its paper invoices
trial competitiveness? The answer for The automobile industry is no with electronic communication with
us, and I believe the answer for most stranger to EDI. In fact, we at GM its dealers and financial institutions.
companies, is yes. I also believe, how- have had some form of EDI in place Also in 1984, many other initia-
ever, that this technology has not been for the past 25 years. Domestic auto tives were underway at GM to pro-
exploited by all of us to the extent its manufacturers had for a long time mote EDI and improve efficiencies.
potential would merit. their own proprietary standards pri- GM acquired EDS and began the hard
marily for use in production schedul- work of integrating EDS’ systems
ing. In the early 1980s, however, the expertise throughout our manufac-
Automotive Industry Action Group, turing and support processes. Our
known as AIAG, emerged as an asso- Saturn project was then announced.
ciation that linked the auto manufac- We wanted Saturn to benefit from 75
turers and their suppliers together in years of auto manufacturing experi-
order to standardize an electronic ence and yet to use a clean slate
mode for repetitive business transac- approach not inhibited by the current
tions. We believed it to be counter- environment. Saturn would thus
productive to insist on the continua- become an ideal spawning ground for
Charles Golden is Treasurer for tion of proprietary standards when many EDI applications.
General Motors Corporation. standardization across the industry
EDI FORUM 1golden pages 5/28/96 9:24 PM Page 2
Figure 1 Improving GM’s Payment System
EDI Payment System Objectives
We began to define what an EDI pay-
ment system should look like. First,
because our ultimate goal is to elimi-
nate paper communications with our
suppliers, the new system had to be
integrated into an overall EDI corpo-
rate trade cycle to be successful (See
Figure 2).
Second, our new EFT system had
to be secure from the ``hacker’’ or
other problems. We had to be
absolutely 100% certain that what
we transmitted ended up at the sup-
plier with no unauthorized interrup-
tion in between.
In addition, our suppliers needed to
receive benefits similar to those
enjoyed by GM in order to encourage
their participation. We decided to
Improving GM’s Payment System Figure 2 System Objectives share the float savings with our sup-
With these earlier initiatives under-
pliers. In spite of some float loss to
way primarily in the receivables area,
GM, we believed the benefits of pro-
the Financial Group at GM wanted
ductivity improvements, and the ben-
to further enhance cash management
efits for cash management of know-
by improving GM’s payment system
ing (rather than guessing) when a
and the productivity of the employ-
payment would clear, made the sys-
ees involved in the payables process.
tem worthwhile. Our suppliers would
This meant looking for ways to use
also enjoy this cash management ben-
EDI to improve communications with
efit through greater certainty of tim-
our suppliers.
ing of payment receipt from GM.
At the time, the cash manager’s role
Reduced bank processing costs were
was usually defined as float manage-
also a consideration. Finally, our sup-
ment—that is, shortening the time for ment and encourage EDI initiatives in
pliers would have the opportunity to
collecting receipts from customers other areas—from requests for quotes
further reduce costs through the elec-
and lengthening the payment time line to shipping and receiving advices—
tronic application of remittance infor-
to suppliers. However, in looking at which were too labor-intensive and
mation to their accounts receivable
the cash systems, we realized that their inefficient.
ledgers.
efficiencies could be vastly improved We believed that converting our
by reducing the administrative effort payment system from a paper system
GM’s EFT System
involved, and that the savings from to an EDI system would not only help
In the GM EFT system, the opera-
this area were often many times larger us manage GM’s cash more effectively
tional flow is basically the same as the
than could be achieved by focusing on and reduce GM’s costs, but that it
paper check process, with the GM
further minute adjustments to our would help our trading partners. The
paying location sending electronic
float experience (See Figure 1). same labor-intensive payables process
instructions to GM’s originating
Although processing receivables and GM suffered from was being repli-
banks with authorization to make
payables are necessary business func- cated at our suppliers with the paper
good funds available on a specified
tions, they do not add value to our we sent them—clearly, a duplication
date at the supplier’s bank account
products. By reducing the effort of inefficiencies. In addition, the inter-
(See Figure 3). The remittance detail
required to accomplish these neces- mediary banking system also suffered
information either goes with the pay-
sary—but non-value added—tasks, from paper costs. Helping our banks
ment to the supplier’s bank for elec-
we saw a tremendous opportunity for and product suppliers reduce ineffi-
tronic application to the receiver’s
the Financial Staff to improve GM’s ciences was important because our
accounts receivable or is mailed from
productivity. More importantly, by suppliers’ costs are ultimately GM’s
the originating bank if the supplier’s
applying EDI to this important leg of costs.
bank is not electronically capable.
the entire Corporate Trade Cycle, we
One point that was crucial to our
realized that we would both comple-
2 EDI FORUMgolden pages 5/28/96 9:25 PM Page 3
Figure 3 GM’s EFT System
ment originator, he will find the data
unintelligible because we also encrypt
this information.
Furthermore, we use a process
known as key management, which
means that only parties accessing the
system by means of a physical key are
able to decrypt the payment instruc-
tions and calculate the message
authentication code.
Is this a belt and suspenders
approach? In an electronic world, we
do not think so. We think it represents
effective and necessary security.
Figure 4 System Security
Remittance Information
We have not yet been able to meet our
objectives with regard to remittance
information—that is, for it to be
totally electronically transmitted to
the supplier—even though our sys-
tem is designed that way. Too large a
number of our remittance advices are
still provided in hardcopy through the
mail from GM’s originating banks
(Refer to Figure 5). In fact, we find
that the most common reason for a
supplier’s not participating in our sys-
tem is that his bank is not EDIcapable
and cannot receive remittance data.
Acceptance of electronic delivery of
remittance information through the
banking system has been much slower
than we expected.
As a result, we are taking steps to
system was to get a core group of System Security offer a range of options for the deliv-
capable originating banks to become As I mentioned, we considered the ery of remittance data, which will
dedicated partners with GM and EDS objective of system security to be of encourage our suppliers to participate
in developing and supporting the sys- utmost importance. We want to make and which will accommodate the
tem. The current six banks include sure that funds intended for a com- banks until they can make greater
Chase Manhattan, Citibank, First pany are in fact credited to that com- progress. As one option, we are con-
Chicago, Manufacturers-Detroit, pany’s bank account. Three existing sidering the use of Value-Added Net-
National Bank of Detroit and Pitts- forms of security technology were works, which the supplier can access
burgh National. These banks have all innovatively applied to the GM EFT to obtain his remittance data. In addi-
been extremely supportive and have system. First, to assure that the pay- tion, GM’s existing network for com-
shown that they are not only inter- ment and remittance information is municating with suppliers may be an
ested in participating with GM but protected from the hacker or fraud alternative for transferring the infor-
also in pursuing EDI initiatives as an perpetrator, our EFT files are authen- mation electronically. We are even
important line of business for the ticated (See Figure 4). In this process, exploring electronic paper or FAX as
bank, a criterion on which we place a value is assigned to each electronic a temporary solution.
great importance. node in the transmission and a mes- In the long run, we would like to
Now I would like to cover a few of sage authentication code—an eight- provide the remittance information
the major issues we had to deal with— digit alphanumeric—must be verified electronically bundled with the pay-
and for that matter some we’re still by the receiving bank. ment. However, the speed with which
dealing with—in designing and imple- Even if a hacker intercepts a trans- we are able to accomplish this will
menting GM’s EFT system. mission from GM or our bank pay- depend on the progress the banking
EDI FORUM 3golden pages 5/28/96 9:25 PM Page 4
Figure 5 Current Remittance Detail Flow
Float
Float is always an emotional issue for
financial people—as it should be. In
the GM EFT system, we decided to
essentially neutralize the float issue by
adjusting EFT payment terms relative
to check terms to reflect float. GM
found that its float on average was 3.6
calendar days. We opted to share the
float with the supplier, so that where
we would have mailed a check on the
10th of the month we now make an
EFT payment three days later on the
13th. Consequently, with EFT a GM
supplier is on average six-tenths of a
day better off in terms of the avail-
ability of good funds.
The float issue and its significant
economic ramifications have pre-
vented many companies from moving
to EFT. In designing your own system,
however, there are many ways to
``neutralize’’ the float issue. For ease
in implementation, GM chose to set
blanket terms rather than negotiating
Figure 6 with each of its thousands of suppli-
GM EFT Payment Per Month
ers. Another viable option for many
companies is to negotiate terms with
each supplier.
However, don’t lose sight of the fact
that the bigger savings associated with
EFT are productivity improvements,
bank transaction costs savings and
the certainty of knowing when the
payment will clear. These benefits are
more difficult to quantify and may be
underestimated when compared to
the easily quantifiable change in float.
EFT Teamwork
One of the major implementation fac-
tors is teamwork among the various
functions within your own company
and with your suppliers. When we
started our system in 1986, we
``skimmed off the cream’’ in a sense.
Our purchasing people signed up first
industry makes in accepting a stan- Banker’s EDI Council, which is under suppliers who were the most willing
dardized format and the comfort of the auspices of the National Auto- with little help required to get this
suppliers in operating in this manner. mated Clearing House Association done.
We, along with other corporates, (NACHA). We support the council’s In early 1989, we felt momentum
would like to encourage the banking mission, particularly the objective to was slowing. It was time to review the
industry to get on with this process so meet the EDI needs of its corporate roles of the respective functions to
that it does not become a prolonged customers. rekindle the EFT effort. We met with
bottleneck. To that end, we are our purchasing people and operating
encouraged by the formation of the groups for feedback on their difficul-
4 EDI FORUMgolden pages 5/28/96 9:25 PM Page 5
Figure 7 GM EFT Payments Per Month
EFT payment must be accepted by
new suppliers if they are to do busi-
ness with GM.
The point here is that EFT and EDI
system implementation takes more
than having the right technical sys-
tems. It takes a lot of concerted team-
work with both internal and external
constituencies.
Status of Supplier Participation
Now let’s look at some hard numbers
that show the progress of our efforts.
Today, more than 5,300 suppliers out
of an estimated 15,000 total eligible
suppliers have agreed to receive pay-
ments electronically, and payments
have reached 21,000 per month (see
Figure 6).
Figure 7 shows the dollars paid
Figure 8 monthly via EFT and those dollars as
Corporate Trade Order/Shipment/Billing/Payment Cycle
a percentage of total dollars paid to
our suppliers. In 1989 we averaged
more than $1 billion paid each month
via EFT, and by year end 44% of our
supplier dollars were made via EFT.
For first quarter 1990, we have aver-
aged $1.3 billion monthly.
Our goal is for 60% of the dollars
paid to suppliers to be made through
our EFT system by the end of 1990.
Going forward, we are studying the
optimal percentage of dollars to be
paid via EFT, since some items such
as workmen’s compensation and
other one-time payments aren’t
appropriate for the system.
Beyond EFT
We are aggressively moving to expand
EDI beyond EFT. As I stated earlier,
we believe that the benefits of EFT will
ties and, as a result, new goals were instead of the sales representative with only be fully realized when incorpo-
bought into by our purchasing and whom our purchasing agent usually rated into a totally electronic corpo-
financial staffs to increase participa- dealt. The suppliers’ financial people rate trade cycle—ultimately avoiding
tion of suppliers. We helped our divi- were much more interested in our the keying and rekeying of the same
sions in developing more targeted proposition than the sales depart- data into GM’s systems and our sup-
strategies to meet their goals. For ment. In some cases, we even pulled pliers’ systems.
example, we developed a marketing out cancelled checks to demonstrate Currently at GM, purchase orders
brochure for divisions to use in to a supplier that he would not expe- and materials release authorizations
approaching their suppliers. We rience a float loss by moving to EFT. are communicated to suppliers elec-
became smarter: We designated one Messages were included in check pay- tronically via the GM Network or via
division to contact each supplier on ments advising that EFT was available the Value-Added Network of the sup-
behalf of all units. Any new request and noting a GM contact. Most plier’s choosing. Likewise, prior to
to sign up for EFT was forwarded to recently, we have agreed with our pur- shipment, the supplier sends an
the supplier’s chief financial officer, chasing people that, effective July 1, advance shipment notice back to GM
EDI FORUM 5golden pages 5/28/96 9:26 PM Page 6
Figure 9 Saturn’s EDI System
and warranty reimbursements.
Finally, we continue to expand direct
deposit internally, with some
employee travel expenses now being
paid through the direct payroll
deposit system.
As you can see, EFT is only one link
in the EDI chain at GM, which plays
a key role in allowing us to produce
and sell cars such as this all-new and
beautiful 1991 Buick Park Avenue
(See photo).
EDI at Saturn
A sneak preview of the future of EDI
at GM can be seen at GM’s labora-
tory, Saturn Corporation. EDI plays
a particularly important role in Sat-
urn’s effort to produce a new world-
class quality car at competitive prices.
While GM is working on replacing
manual systems with EDI systems,
Saturn’s clean slate has allowed it to
design and implement the ideal EDI
system. Most of Saturn’s major sup-
pliers and all dealers are EDI-capable.
Information will flow electronically
between Saturn, its customers and its
suppliers via the GM Satellite System.
Let’s look at Saturn’s supply-side
EDI system (see Figure 9). Three to
seven days before parts are required
for Saturn production, an electronic
communication to the supplier
accomplishes a materials order. This
communication includes all the infor-
mation needed to create a barcoded
shipping label. The material shipped
to Saturn includes this barcoded
detail, which is scanned at the receiv-
The 1991 Buick Park Avenue ing dock and fed into Saturn’s finan-
cial and materials systems. At the time
the material is used, a liability is rec-
electronically (See Figure 8). groups are increasing the use of ERS ognized in Saturn’s payables system
Our North American car groups as we continue to move to centralized and payment is accomplished via an
currently operate under an evaluated accounts payable and purchasing sys- EFT system. Saturn will have the abil-
receipts settlement system, or ERS, tems. ity to make EFT payments daily. No
with about 90% of their direct prod- With Just-In-Time inventory prac- manual keying of data is ever required
uct suppliers participating. ERS tices expanding at GM, increasing for Saturn’s materials management,
replaces the invoicing process for freight paperwork would strangle a inventory, or payables systems. No
material shipments. In essence, the manual operation. We are involved in invoice is ever mailed. Suppliers have
receipt of material—and not an some form of EDI with over 125 air, access to Saturn’s systems if questions
invoice—triggers payment. Accord- truck and rail carriers, and we con- ever arise.
ingly, the ERS process is also known tinue to look for other EDI applica- Similarly, the Saturn dealer rela-
as ``invoiceless’’ payment. Our Truck tions for collections from and pay- tionship is rather unique in that Sat-
& Bus and Automotive Component ments to our dealers, such as rebates urn manages the dealer’s inventory. A
6 EDI FORUMgolden pages 5/28/96 9:26 PM Page 7
requirement for parts at a Saturn multinational companies an oppor- realized by implementing EDI
dealer is communicated via satellite tunity to achieve worldwide produc- throughout entire industries.
through Saturn’s systems to create a tivity improvements. Although EDI has made steady,
parts order with Saturn’s suppliers. respectable progress in corporate
The same electronic communications Summary America, its growth has not been as
channel processes warranty claims Though we are forging ahead aggres- exponential as that of personal com-
and eventually generates an EFT pay- sively with EDI, the momentum is puters.
ment for both suppliers and dealers. slow, for GM’s request that its trad- Part of the answer lies in that oft-
The collection process for Saturn vehi- ing partners be EDI-capable is an repeated phrase that American man-
cle sales is also entirely electronic, exceptional one. We believe that GM’s agers are more attuned to quick,
including the invoice to dealers and systems will only be fully imple- short-term returns than to investing
financial institutions. The only paper mented when electronic communica- for the long term. Although many
in the process is the Manufacturer’s tion becomes the norm—rather than companies have indeed invested for
Statement of Origin, a document the exception—in corporate America the long haul in EDI, that was not nec-
required legally for title purposes, and elsewhere around the world. I essarily the norm in the `80s. As we
which is mailed to the dealer. want to encourage you to focus on enter the `90s, the companies that suc-
financial EDI to improve the produc- ceed will be those who turn to the
Worldwide EDI tivity of your staffs and those of your basics of getting costs down and
Beyond the U.S., we are working to trading partners and, thus, to improve responding quickly to the market-
implement EDI systems throughout your competitive position. place in turning out quality products
GM’s operations worldwide. Why should something as simple as at a reasonable price. The electronic
GM of Canada already collects paying your suppliers electronically interchange of business data between
about 98% of its dealer receivables take as long to implement as it takes buyer and seller will contribute in this
electronically. Moreover, the com- GM to bring a new vehicle to the mar- process not only by helping to get
pany is paying about 66% of its sup- ket? It really should not! Then ask overhead costs down, but also by
plier payments electronically with yourselves why is change so slow to speeding up the entire cycle of trade.
funds moving through the banking evolve? This is important in a country like the
system and hardcopy remittance The decades of the `70s and the `80s U.S. that is geographically large, and
detail mailed. A pilot to move pay- saw the dramatic growth and accep- in today’s competitive environment
ment with the remittance detail tance of computers and telecommu- where the time to get a product to
through the banking system is under nications. Many clerical and time- market ahead of foreign competition
way. The bundled approach appears consuming tasks were clearly made is critical. Think ahead: EDI will
most desirable for Canadian EFT pay- more efficient by the use of the com- become even more important as
ments because of the fewer number of puter. Yet at the same time, in other worldwide markets homogenize and
major banks. GM of Canada is work- respects, the computer merely allowed regionalize. The European Economic
ing toward adopting the same ANSI the faster generation of paper docu- Community is a perfect example of
standards as the U.S. operations to ments to be manually processed. this. For you multinationals out there,
improve the existing EFT system and Among the computer-generated doc- EDI across and within current Euro-
to implement other EDI initiatives. uments are the common request for pean borders will be commonplace by
The European Commission is quotation, the purchase order, the bill the mid-1990s.
developing standards for customs dec- of lading and the invoice. These doc- EDI is not glamorous when com-
laration, commercial invoice and pur- uments are now usually computer- pared to the buying and selling of
chase orders. Standards for the mate- generated but not electronically com- companies, leveraged buyouts and
rials release, shipping notice and other municated—and that is what EDI is sophisticated financial engineering. It
transactions are expected to be avail- all about. Clearly, an entire volumi- involves upfront investments and
able in 1990. GM Europe is support- nous category of mundane, everyday time. It involves working with one’s
ing this effort in conjunction with its transactions remains essentially suppliers and customers to implement
European-wide EDI strategy. untouched by the computer revolu- systems to communicate electroni-
In Mexico, GM de Mexico is tion due to computer hardware, soft- cally in a compatible format. If you
actively involved in the effort to form ware, and telecommunications com- have thousands of suppliers and cus-
a Mexican equivalent of the AIAG, patibility problems. tomers, as does GM, the implemen-
and it appears likely that the Mexi- The creation of inter-company and tation process can become prolonged
can auto industry will adopt the ANSI inter-industry communications stan- and complex. There are no quick prof-
standards. dards have allowed the birth of the its to be made here. From a strategic
What does this all mean?—it is a current EDI movement. Significant and long-term perspective, however,
small world after all. EDI will offer potential overhead savings may be we must make a commitment to get
EDI FORUM 7golden pages 5/28/96 9:26 PM Page 8
out of paper communications and mented throughout the automotive tion should make other companies’
move towards the electronic mode for industry. I honestly do not know if this transition less costly than ours. The
reducing our overhead costs. This $200 figure is right. However, even at most significant mistake would be to
does not require the development of a fraction of this number, the savings continue to wait until tomorrow for
new technologies, but merely the use are tremendous. EDI involvement.
of existing technology to more fully American business overall could Survivors need to commit their
exploit the available cost reduction and should be using EDI to a much companies today for the future.
opportunities. greater extent. The groundbreaking Thank you.
The AIAG has estimated savings of work of GM and other companies
$200 per car if EDI were to be imple- that have tried to move in a new direc-
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