Q - Have you discovered many efficiencies in combining the purchasing functions of your new company?
A - There are a lot of good purchasing people on both sides of the Atlantic, and we need to work together to come up with a new and better way. We'll look back 10 years from now and say, "Boy those guys had a great opportunity." We've got a couple thousand people over in Stuttgart who look at the world a little differently than we do, and we look at it differently than they do, and you come together and you say, "Hey, there's some things we can do here." We are looking for a third way.
Q - But where are you in terms of rationalizing purchasing?
A - Our commodity managers in commercial vehicles and Mercedes-Benz pass-car and oldCorp. pass-car in Auburn Hills are sitting down and going through: Where do you source things? Who are your suppliers? We are trying to go through that on a logical basis, and we are going to come up with a plan. We define commodities as seats, engines, transmissions, axles, wheels, etc.
Q - Is there still too much waste in the supply chain?
A - There is waste throughout the whole system. What the extended enterprise does is focus everyone's attention on getting the waste out. We are after the waste, not your profit margin, and there is a huge difference. When we compare the suppliers who give us the most cost reduction, we also find that they are the most profitable because they get the waste out. So the people who get it, get it.
Q - How are you doing with SCORE (Supplier Cost Reduction Effort)?
A - We started off with $200 million (in savings) in the first year, and last year we booked $2.1 billion. Our goal for '99 is $2.2 billion, and we're tracking pretty well.
Q - Got any success stories you'd like to share?
A - I'll give you an example. We only ask that as a ground rule we get 5% in SCORE reductions. We have some suppliers that are well over that. One supplier did 125% of the business with us, so we got all of the parts for free plus another 25%. It was Seton Leather.
Q - How did they manage that?
A - It's the extended enterprise. They went into warranty, our assembly plants, our seat suppliers. They went through the whole supply chain and gave us cost reductions, cost avoidances to the tune of 125% of the business they did with us. If we just went out and said, "Give me 5%," we'd get 5%. But we wouldn't get six, we wouldn't get 125! So if we bought $100 million worth of leather from them, they came up with cost reductions and cost avoidances throughout the whole system from the cow to the customer of $125 million.
Q - But they still made money somehow?
A - They still made money. That's called productivity. I can make a speech on how great America is, but that's one of the things we've been doing in America. We are getting a heck of a lot more productive now when you think about what's been going on over the past 10 years. Ten years ago, we were the fat slovenly Americans who couldn't compete.
Q - What are they going to say about us 10 years from now?
A - We didn't do enough. I hope that's what they say. "Hey, they were on the right track, and they just didn't move it far enough." Either that, or they'll say, "How could people live on a buck-a-gallon gas?"
Q - Can you clarify your view of modularity? People outside your company look at DaimlerChrysler as a leader in modules, yet Gary Henson (vice president, large and small car, Jeep and truck assembly and stamping operations) recently gave a cautious view of modules.
A - To say that we are going to go modular, we'll do everything that makes sense. And making sense is more than just financial sense. We'll make sure it's right for our employees, our supply base. We don't want to be shipping air. I've seen some modules with a whole lot of air being shipped. So we are not running off the side of the boat on modules, and that's clear. But I wouldn't say we are conservative on modules.
Q - Does a small car have to be modular to be profitable?
A - That's an interesting question. I don't know why it would be more profitable modular versus not. I don't think there is a necessary correlation. I can see the theory. We get these big pieces from suppliers and we slap them together. In some cases that may make sense, but don't forget we've got some big assembly plants with our people in them. It's skilled labor we'd like to use efficiently, and I don't think the most efficient way is to lay people off and get modules. If the supplier can supply a module that can add value and it's better than doing assembly plants and we have an alternative use for people, that's fine. It's a long way to your answer, but if it made sense with small cars why don't you do it on the big car, too?
Q - Are you more willing to source tonow that they are separate from GM?
A - No, because that would take business away from someone else. That's not theway. We have key suppliers, we call them in early on programs, we work with them. We don't throw things up for bid on a new program. For to get more business, they are going to have to be better than the suppliers that we already have, markedly better.