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Campi comments: A crash course in collaboration

Posted Monday, Sep 8, 2008 at 4:50 pm in Company News, Messages From Our Leaders

Today’s edition of Automotive News includes the following commentary by John Campi, Chrysler LLC Executive Vice President and Chief Procurement Officer:

A crash course in collaboration: Makers and suppliers together can manage inevitable surprises

There is no doubt that the U.S. auto market has serious problems. Systemic change, arguably an inevitable surprise, has hit the Detroit 3 especially hard.

Why do I refer to it as an “inevitable surprise”?

First, auto industry executives must have had their focus on something other than the world view of what drives automotive design and environmental concerns to have missed the global movement to more-fuel-efficient vehicles. Did those executives really think the United States would be spared the escalating price of gasoline?

Second, with gasoline prices at the equivalent of $10 to $11 a gallon in Europe, Japan and elsewhere, those executives were surprised when U.S. consumers made a massive move to more fuel efficiency when gasoline reached $4 a gallon here.

Let’s look at the cost side. For the first time in U.S. history, a reduction in demand within the auto industry has not been reflected in a reduction in demand for base metals with the associated price reductions. Instead, we see unprecedented price escalation in base metals, driven fundamentally by the escalating demand from Brazil, Russia, India and China.

That is another inevitable surprise.

Win-win

General Motors, Ford Motor Co. and Chrysler LLC use many of the same suppliers. The common practice for cost reduction generally has not been a collaborative effort seeking a win-win scenario. In fact, all three have been somewhat abusive with their demands. That has led to an atmosphere of distrust, making it difficult for automakers and suppliers to work together on common issues.

As we look at the volume adjustments that are being made, Chrysler did the best job of anticipating the downward market (initiated, I might add, by the leadership and vision of a nonautomotive guy named Bob Nardelli), by making the tough decisions to remove capacity and volume projections in the later part of 2007.

GM and Ford made those moves only after being hammered by the market shift in the first half of 2008. The impact to the supply base is being amplified by the swiftness of the volume drops in parts requirements.

Many of the suppliers in question may find it difficult to recover from the financial impact of the reduced volume exacerbated by the unprecedented rise in raw material costs unless they can collaborate with the vehicle makers.

Suppliers and vehicle makers must share in the management of those inevitable surprises. Ultimately, consumers will have to pay for more expensive products. Like it or not, we are facing a period of increased inflationary pressure.

Now more than ever, vehicle makers and suppliers must work together to find a solution that can provide a win-win scenario.

Chrysler’s challenge

As has been stated repeatedly, we at Chrysler want to work in fierce collaboration with our suppliers to drive waste out of the supply chain and enable both parties to share the savings in a manner that helps offset the economics we face.

This is why I have stated a goal of 25 percent reductions in supply-base cost as an imperative during the next three years. That will be a collaborative effort between our suppliers and Chrysler.

The internal focus for Chrysler’s procurement organization will be in three areas: schedule stabilization, complexity reduction and improved management of change notices. All three initiatives speak to issues that our Chrysler management team must execute.

Change notices are random acts of violence in the supply chain. Limiting the frequency of change notices (barring changes made to react to safety concerns) to a couple of set points in the development cycle and focusing our efforts on looking for savings in the design phase and not post-launch will stem the violence.

We must conduct business in a manner that is very different from what we have done in the past. Our efforts, when done appropriately, will garner a cost improvement impact of more than $1,000 per vehicle.

The character of any individual or company is tested only during times of stress. Clearly, all of us in this industry will be tested during the next 12 to 18 months as we work through the economic transition that our industry and nation are experiencing.

Suppliers that offer world-class tech-nology and world-class quality and have access to low-cost capital and a global footprint will weather the storm better than others. In fact, those are just four of the important reasons Chrysler selected Denso as a supplier of choice. However, that doesn’t mean Chrysler is not interested in working with other suppliers.

At Chrysler, we will focus on supporting those suppliers with the greatest need as we work our way through these difficult times. Each request will be managed individually with special attention to the strategic position of the supply base and the needs of our company.

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Campi comments: A crash course in collaboration

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