TRAVERSE CITY, MI –purchasing chief Dan Knott says the days of entitlement attitudes at the auto maker are over as it remakes itself after bankruptcy, pledging cultural change aimed at sharing future prosperity with suppliers.
“We all got a wakeup call,” Knott says of the auto maker’s troubled supplier relations, which led to a string of underwhelming products and, ultimately, bankruptcy.
“We were reminded, yet again, that a large portion of our content comes from the supply base, and you better darn well have a pretty good relationship with them, because if you don’t, I’m not sure you can have the best cars and trucks.”
According to a recent study by Michigan-based Planning Perspectives,has shown improvement in its supplier relations since bankruptcy but last year still ranked last among North America’s Big Six auto makers.
Chrysler’s performance was classified in the “very poor” to “poor” range. Looking at some third-party evaluations, it could be argued a fair number of the auto maker’s older products rate similarly.
Knott’s remarks reiterate those of CEO Sergio Marchionne, who said recently Chrysler has an unspoken “social contract” to ensure the profitability of its suppliers.
Chrysler andexpect to spend a combined $90 billion on parts this year, up from $70 billion in 2010.
To illustrate the change in attitudes at Chrysler, Knott cites new ways to deal with the controversial topics of supplier innovations and cost overruns.
Too often in the past at Chrysler, suppliers would submit an innovation that would get lost in a black hole. If they did hear back from the auto maker, it often was too late in the development cycle.
But Chrysler now will help pay for innovation independent of a particular product program.
“We’ll pay the money up front. When it’s done, we’ll put it on a program,” Knott says, citing as one example Chrysler’s new telematics platform and entertainment system drawing good reviews.
Perhaps more importantly, suppliers are hearing back from Chrysler with a decision on prospective contracts faster than ever before. On two recent occasions, the auto maker responded to a supplier with a decision within six weeks. In the past, it would have taken as long as 180 days.
Knott admits Chrysler does ask for a clear delineation over use of intellectual property.
“I want the right to use it if something should happen to you (the supplier) going forward,” he says, recalling instances during the recession’s string of parts-maker bankruptcies when Chrysler built a product around an innovation only to discover it could not use it when the supplier went belly up.
“Supplier develops the IP; they own it. We develop the IP; we own it. If we develop it together, we share it,” he says. “It’s pretty straightforward, and I think it is fair.”
Chrysler also wants to respond more proactively to cost overruns due to high raw-material costs, despite a new-car market unreceptive to pricing increases big enough to offset recent jumps in commodity prices.
In return, however, the auto maker asks for transparency and commitments to productivity targets up front.
“The great news about our economy is, it’s getting better and we’re selling more cars. But in the purchasing world, that isn’t always a good thing for commodity costs,” Knott says, expecting them to continue rising through the fourth quarter despite some recent flattening.
Knott says he’s sympathetic to suppliers taking the brunt of the cost increases. As a good partner, he says he wants to make sure they remain profitable.
“What I ask for is transparency on the dialogue,” he says. “Let’s understand the levers we can use to mitigate those costs.”
If Chrysler must accept a price increase, so be it, Knott says. But expect to make productivity improvements in return. “We need to do it on both sides. It’s about accountability.”
Knott also expects further consolidation in the supplier sector going forward, which he considers a positive development. But he says Chrysler will not set targets for its parts makers coming together.
“There will be a natural consolidation as we commonize components, as we use common platforms, as we get synergies with,” he says, estimating the two auto makers will share two-thirds of their combined supply base.