Chrysler's turning up the heat on its suppliers to reduce the cost of parts by 25 percent over the next three years. That's not just new parts, either, but everything. A widget that hasn't changed in any way must drop in price by 25 percent in three years time. The automaker's also making changes to its own operations to help with the effort and save money on components. Sharing common pieces over a larger range of models will help, as will reducing expensive late engineering tweaks. Chrysler is also sharing its production schedule with suppliers to smooth out planning and reduce overtime and raw material costs for suppliers.
It should come as little surprise given the big-box provenance of Bob Nardelli, but Chrysler is pushing its suppliers to match the bargain prices from suppliers in countries like China, India and Mexico. The cost reduction stiff arm will likely lead to further investment in low-cost countries, and the automaker itself has added engineering locations in Shanghai and Chennai, as well as beefed up its Mexico engineering operation. It seems that this push to get suppliers to gut prices on parts that are already being produced, along with Chrysler's encouragement to send operations to places where labor costs are extremely low, will lead to more US-based layoffs as the OEMs shift their locations. Seeking efficiencies and cost reductions on parts in the pipeline is one thing, but with this Wal-Mart style move to browbeat suppliers into cost reductions, will there be anyone left to buy the cars that the parts go in after all the jobs leave?
[Source: Automotive News - sub req.]
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Reader Comments (Page 1 of 2)
bakka @ May 19th 2008 11:09AM
Low wage countries are not the answer. Give it a couple of years and the Chinese will demand wage increases so they too can become consumers. It will come full circle.
geo.stewart @ May 19th 2008 1:51PM
Nardelli in full swing.
of course thy can cut costs 25% by reducing materials approx 40-50%.
so now , that jeep liberty could be 25% smaller and have no sound deadening materials instead of the piece of paper it has now.
Can you tell I've got one as a rental now?
Duders @ May 19th 2008 11:12AM
With the current worldwide energy crisis, the dependency on outsourced parts won't be too good a thing for chrysler when it costs many multiples more then it does today to ship parts and cars across the pacific. I know walmart understands this. That they can't get pots made for .99 and sell them for $30 anymore because it's not going to be financially viable. I'm not saying that within three years it's going to cost more to ship, but it will in the near future.
Duders @ May 19th 2008 11:14AM
@ Bakka:
Exactly what I forgot to mention in my post. Those two factors combined will not allow Chrysler, or any other company, do this.
Vintage @ May 19th 2008 11:18AM
Because Chrysler needs even cheaper interiors...
D. Clark @ May 19th 2008 12:25PM
Do you think that is possible? :)
The 100+ articles ripping apart their vehicles for being cheap in all aspects and the lowest JD Power scores for all brands obviously fell on deaf ears.
Chrysler has hit rock bottom and is now starting to dig.
Judy Zik @ May 19th 2008 12:41PM
No kidding. This is a really bad move. No more last minute engineering changes. So if they figure out a way to improve something or fix a problem before it hits the customer it will have to wait for a refresh. This is only going to make Cerbyler's current embarrassing lack of quality even worse. You don't get better quality interiors and good reliability scores by squeezing your parts suppliers to build the same parts for 25% less money. Ford and GM seem to be making the right choices to turn things around. Cerbyler on the other hand seems to be making some huge mistakes that are going to sink the company. You can get away with building crap for awhile but sooner or later it is going to catch up to you.
Xcountryflyer @ May 19th 2008 2:51PM
Not sure how saying you will build better interiors while also saying cutting costs go together. If it is about finding better deals for better materials, I'm all for that, but if its just the same money pie per car and the slices for each part of the car get smaller--that's bad news. Chrysler's interiors are the worst of the industry.
Frank @ May 19th 2008 11:28AM
It's a shame it's gotten to this. Beating up on suppliers to save bucks when you will end up going overseas anyway. It wasn't always tghis way at Chrylser. Back when the "dreat team" ran the place they had the best relations of any automaker with it's suppliers, thanks to Thomas Stallkamp. Here's a link if you wish to read about it:
http://forums.industryweek.com/showthread.php?t=1544
Quote from the link:
"When he was head of purchasing for Big Three automaker Chrysler Corp., Thomas Stallkamp used to think all the time about collaborating with his key supply chain partners. As the nucleus of its own supply chain hub, Chrysler was in a good position to demand whatever it wanted from its suppliers. Like the other major automakers, Chrysler existed in a marketplace where just a few U.S. companies (Chrysler, Ford, General Motors) got to be the king, and all the links to their supply chains occupied progressively lower ranks.
...
In the 1990s, when Chrysler was staring down one economic crisis after another, it became clear that a new approach to supplier management was needed. That led Stallkamp to look closely at the approach up-and-coming computer maker Dell was taking by forming tightly knit partnerships with its most important suppliers, an approach known as the extended enterprise. These types of collaborative partnerships are characterized by shared goals and rewards, clearly defined roles and responsibilities, and open lines of communication.
For years the American OEMs have been facing an expanding threat from Japanese automakers, so fittingly Stallkamp seized on a concept that dates back to the post–World War II days in Japan: the keiretsu. A keiretsu is an integrated group of companies that function as a joint partnership—kind of like a supply chain. Stallkamp cites the example of Toyota and its relationship with two Tier One suppliers, Denso and Seiki. "Instead of treating them as distant and independent entities, Toyota shares product planning and proprietary cost information with these two companies," he explains. :Both companies assume complete responsibility for developing the components that they are assigned on a Toyota project," with employees from each of these three companies often working in each other’s facilities.
The key, Stallkamp emphasizes, is that Toyota trusts its suppliers to meet their development and production deadlines. "Working jointly and in such close cooperation with its own keiretsu is one way that Toyota is able to leverage its development of new products and come to market more quickly than the domestic American automakers," he observes. Stallkamp introduced that idea of establishing and fostering a closer relationship with Chrysler’s own suppliers at his company, where an Americanized version of the keiretsu became known as Chrysler’s extended enterprise.
“The extended enterprise is a philosophy that we implemented which integrates selected suppliers in the whole supply chain," Stallkamp recalls. "Instead of looking at them as separate links in the chain, we concentrated on the chain itself and on managing that concept. Instead of managing the chain in little segments, we tried to do it holistically."
That led to the formation of Chrysler’s SCORE (Supplier Cost Reduction Effort) program. For the automotive industry, SCORE went beyond high concept and actually delivered on what the academics had been punditing about for years—a living-and-breathing model of strategic collaboration with supply chain partners. By seeking cost reduction solutions from its suppliers rather than demanding across-the-board price cuts (a tactic then in vogue at rivals General Motors and Ford), Chrysler not only rebounded from an economic crisis in the early 1990s but in fact achieved cumulative savings of $5.5 billion throughout the decade thanks to SCORE.
The natural tendency of companies when they get in trouble is to become more adversarial, but the opposite approach—partnering with your suppliers to develop collaborative relationships—is the best course of action, Stallkamp believes.
Many people mistakenly thought that SCORE was just a cost reduction program, he notes. "It was actually an idea generation program." For instance, Chrysler’s research and development (R&D) costs were the lowest percentage of sales of any automotive OEM, and yet the company was able to introduce more new vehicles than its competitors. How? By tapping into the R&D capability of its suppliers. Since Chrysler was awarding long-term contracts to suppliers who could meet defined targets, those companies came to view Chrysler as the best company in which to invest their limited R&D resources. It became a win-win situation for all those involved."
Frank @ May 19th 2008 11:32AM
Of course after Dumbler took over Chrysler, they grenaded this whole process I posted above and replaced it with what they familiar with - an adversarial relationship.
robert bell @ May 19th 2008 11:34AM
another indication that Chrysler is being whipped into shape for a sale to a foreign company so Cebrebus can move their money to the next target.
Nothing wrong with controlling and cutting costs, but we all know that quality and fit and finish is going to suffer; that is the last thing Chrysler needs given its deficits in those categories vs. both Ford and GM.
Bet the boys at TATA can't wait to get their hands on the Jeep brand and to buy a ready built dealer network to import their low cost products into the U.S. Jaguar was just the opening salvo.
Arthur003 @ May 20th 2008 8:40PM
If Chrysler IS sold to a foreign company, I would prefer it be the Renault-Nissan combine, since Carlos Ghosn successfully turned around Nissan and improved its fortunes while reaching a consensus with those inside Nissan about the need for radical solutions to save Nissan from bankruptcy ... a clear indication of the people skills that Nardelli doesn't have.
Pips @ May 19th 2008 11:36AM
great, cheap parts getting even more cheaper, i think i would rather buy a chinese car than a chrylser now.....
icu812ru469 @ May 19th 2008 11:39AM
Chrysler already uses the cheapest interiors in the industry, how can they squeeze 25% more cheapness out of it? I guess they'll use even thinner plastics and instead of steel beams, they'll use rubber beams instead. Hey, why have crumple zones, use rubber zones, have the vehicles bounce OFF the other vehicles...
Chris @ May 19th 2008 11:44AM
didn't this guy screw up the last place he was?
Gstill @ May 19th 2008 12:30PM
Nardelli didn't completely screw up Home Depot when he was there, it's just that while he was in charge, Lowe's took a big chunk of the market share and moved up to being a real competitor of Home Depot.
I don't think he has to worry about that happening with Chrysler, they don't have much market share left to give up.
gforce @ May 19th 2008 11:58AM
This is part of the Autoblog post:
"Chrysler is also sharing its production schedule with suppliers to smooth out planning and reduce overtime and raw material costs for suppliers."
That actually sounds a little bit more like the SCORE program to me, so perhaps this scenario is actually a move back to that type of approach. It doesn't sound like they're just going to beat the cost reductions out of the suppliers.
D. Clark @ May 19th 2008 12:20PM
As you can see no new investments or new technology is going into the vehicles. This is a sign that Cerebrus is preparing for a sale or already in negotations.
J M C 3 @ May 19th 2008 12:59PM
Good observation.I was thinking the same thing.No vision for the future.just cost cutting Nardelli style.
He did a similar thing at Home Depot .To cut costs He got rid of professional full time employees and hired a bunch of part timers with no experience.It looked good on paper for a short time (to bean counters) but ultimately it broke moral and sset the company back.
gforce @ May 19th 2008 1:25PM
On what basis do you make the "no new investment/technology" comment? Not on reality apparently, since they've already announced a number of running technical and appearance improvements for the '09 models, significantly upgraded interiors for the Compass/Patriot for '09, and they've already announced that improving the mid-sized cars is a top priority. They've also announced the separate "Project D" platform which will be used as a basis for cars further into the future.
Saying something out of ignorance does not turn it into reality.