The automotive parts supply chain in North America is changing like never before as domestic auto makers attempt to source more parts overseas and the foreign transplants seek more parts within the region. Meanwhile, suppliers – many of them in distress – remain crucial to the success of new vehicles being launched. This is the final installment of a Ward’s 6-part series stemming from interviews with the purchasing departments of Nissan,, , GM, Toyota and .
It took nearly a decade for the formerCorp. and -Benz AG to form a consolidated, globally engaged procurement organization after the German parent acquired the Detroit auto maker in 1998.
As the two companies prepare to go their own way in the coming months, unraveling the purchasing group may prove extremely difficult – and may not occur at all. That’s because the two achieved certain efficiencies as a single entity and ditching them now just because the “merger of equals” is ending makes little sense.
“Where we have been able to have common programs or sharing things, we don’t see why that wouldn’t stay,” Robert Schott, vice president-procurement for Chrysler Group, tells Ward’s.
“Whether we can do that (with) new contracts or not is another story,” he says. “To say we are the same organization on a go-forward basis isn’t necessarily the case, but we don’t see any immediate negative effects at all.”
Schott says Chrysler and Mercedes-Benz, despite the forthcoming separation, will remain under a “global procurement umbrella.” His goal is to “be fair to the suppliers” as Chrysler manages the transition and to continue using the External Balanced Scorecard to rate suppliers based on their performance in quality, technology, delivery and price.
“We want to look at objective data in how we pick suppliers,” he says, referring to the scorecard. “We use that to separate the suppliers and manage the good ones.”
Meanwhile, Mercedes has adopted a similar process for evaluating its suppliers. “So it’s conceivable they would use the same process going forward, and we just use it out of two databases,” Schott says. “I don’t see a radical change in the management of the supply base from what we’ve done in the past. I think we will leverage where we can going forward… with Mercedes.”
There is good reason for Chrysler to maintain a sense of unity with its former parent as it navigates through a difficult restructuring process and contract talks with the United Auto Workers union starting this summer.
Chrysler wants to convey a sense of stability to its suppliers even though its top purchasing executives are leaving.
Peter Rosenfeld, who has been in charge of Chrysler Group purchasing since 2003, resigned shortly after Cerberus Capital Management LP announced in May it is purchasing 80% of Chrysler.
And Thomas Sidlik will retire from DaimlerChrysler AG’s management board when the sale is complete in the third quarter. Cerberus plans to eliminate Sidlik’s duties as head of global procurement and supply.
Chrysler’s new executive vice president-procurement and supply is Simon Boag, who rejoins Chrysler following a 15-month stint as head of production planning for the Mercedes Car Group. Before joining Mercedes, Boag was vice president-assembly and stamping operations for Chrysler. Boag came to Chrysler in 2005 fromCorp.
It’s too early to say whether a new purchasing chief foreshadows a round of painful price cuts for Chrysler suppliers. For now, Schott says the top priority is carrying out Chrysler’s Recovery and Transformation Plan.
Chrysler executives are frequently asked whether the purchasing unit will lose anything as the separation occurs.
“The answer is, no, because we have contracts in place right now, and they go through the ’07, ’08, ’09 timeframe,” Schott says. “From that standpoint, we are fine. We are the one who had most of the volume in this situation.”
Schott returned to the Auburn Hills, MI, headquarters in 2004 from a 4-year purchasing assignment in Germany with Mercedes and is confident the two auto makers can continue to cooperate effectively in procurement.
“How can Chrysler and Mercedes-Benz purchasing work together?” he asks. “I think my relationship with (Mercedes), because I lived there, will help bridge that. And we can leverage that to the maximum level allowable.”
From the logistical side, Schott says Chrysler and Mercedes will continue to process routine purchase orders separately, as they have for years.
As of early June, Schott said the details needed to be worked out with regard to Chrysler and Mercedes continuing to share technology and collaborating on purchasing.
If, for instance, a supplier presented a new technology that both auto makers wanted, would one contract serve both or would the deal require individual contracts?
“Legally, I don’t know,” he says. “We would need to run that scrimmage with the attorneys to see if, in fact, we could be sitting at the same table having one negotiation with a supplier. But there will be some technology sharing on a go-forward basis.”
He says Chrysler intends to keep its 10-member supplier advisory council, which serves as a sort of test bench for purchasing initiatives the auto maker is considering. The council has been in place for three years, with rotating membership.
In the area of interiors, Chrysler is attempting to bring suppliers on board earlier in vehicle development, and the design staff is steering more interior purchasing decisions to certain suppliers they favor, according to a speech by Ralph Gilles, Chrysler design vice president with responsibility for color and trim, at the recent Ward’s Auto Interiors Show in Detroit.
Schott says he speaks often with Gilles, and they agree supplier expertise can do much to improve Chrysler products. “As we deem that we don’t necessarily have a core competency (in interiors), or we want to leverage the supplier’s expertise or confidence, we will bring the suppliers in earlier,” he says.
As part of that strategy, Chrysler is pursuing the “full interior,” which Schott says entails one company producing the seats and another supplier being responsible for the rest of the interior.
Schott says Chrysler has been attempting to source vehicle interiors in this manner for the past three years, but the process now is being formalized and could be deployed globally.
The first vehicle employing the strategy – a high-volume program for North America – launches next summer, and Schott says interiors from that point forward hopefully will be sourced in that manner.
“We as a company and we as a procurement operation have changed our process because we need to change with the times,” Schott says of Chrysler purchasing, design and engineering working more closely with suppliers.
The lines of responsibility still need to be more clearly defined, but Schott says it is conceivable a Tier 1 supplier, such asCorp. or Johnson Controls Inc., could be called in to help design an interior for a future vehicle.
“Those suppliers – the JCIs and Lears – sell to more customers and have a good insight into what the technology is and what the customers want,” Schott says. “They have a lot of research and market study, so we want to leverage that.”
Other suppliers likely in the running for such business includeInternational Inc.’s Automotive and SA of France.
The supplier chosen to oversee the rest of the interior beyond the seats would not necessarily produce all the door trim, headliner, flooring or instrument panel, but likely would play a role in sourcing those parts and integrating them into the finished product.
The key benefit, Schott says, is a pleasing, aesthetically harmonious passenger compartment with excellent fit and finish and color consistency.
Oddly, competitorCorp. is moving in the opposite direction. The auto maker tried several years ago to outsource interiors to suppliers, only to find it had lost too much control of interior development. That design oversight now rests with GM.
“I think it all gets down to different philosophies. I don’t know GM’s that well,” Schott says. “I’m comfortable with our philosophy that, with the supplier relationships we have and how we want to improve them, we’re able to run it that way.”
And the impact on the bottom line? “We’ve been able to meet our targets using this sourcing philosophy,” he says. “Our position is we will stick with it, and hopefully each time we source a new program we get smarter at it.”