More MBS CoverageTRAVERSE CITY, MI – Chrysler Group underscores its strategy of encouraging suppliers to reach “reward” status by announcing two such overachievers have been awarded contracts for an ’09 cross/utility vehicle.

Johnson Controls Inc. will supply seats and Magna International Inc. will provide the rest of the cockpit for a CUV slated to come to market in late 2008, says Peter Rosenfeld, Chrysler executive vice president-procurement and supply.

All three partners say the comparative wealth of time will yield benchmark results in new technology, innovation and the fine tuning that can make or break an interior.

Chrysler invited four of its best suppliers to compete, concept-wise, on what they envisioned for the interior, within rough guidelines, including cost, on technical features.

Chrysler purchasing chief Peter Rosenfeld.

Rosenfeld says by letting the suppliers take the ball and run, using their own expertise and market research, the results were surprisingly innovative – and he suspects far more creative and intuitive than if the auto maker had directed the project.

He admits Chrysler never really gave suppliers carte blanche before to use their own market research to anticipate what will delight customers.

Chrysler’s new strategy comes, oddly, as General Motors Corp. is going the opposite direction.

For several years, the No.1 auto maker was attempting to hand off complete interior responsibility to companies such as JCI and Magna. Within the past year, GM has scrapped that approach, assuming control once again of interior development. (See related story: GM Scales Back Interior Strategy)

With Chrysler’s new initiative, JCI and Magna emerged from the exercise with the go-ahead for a project that technically would not go out for bids in the traditional manner for another year, after which time the quotes still would have to be compared and a decision made before work could begin.

Instead, the suppliers now have 15 months of additional time to design, prototype and test new technology to weed out glitches prior to launch. They have time to develop new tooling or utilize carryover tooling and re-use components.

Short lead times and late changes are the enemy of a quality interior, says Mark T. Hogan, president of Magna International, which will supply everything but the seats.

“If we can settle down and design early, do the prototype development, we can be more refined,” he says.

Hogan says knowing the interior targets, the competition and what it will take to be the benchmark far in advance helps guarantee a hit. He calls the Chrysler process “the epitome of what an auto manufacturer needs for high-quality vehicles that meet customer expectations.”

Keith E. Wandell, JCI executive vice president and president-Automotive Group, says early involvement and collaboration that allows suppliers to provide expertise is “absolutely the way to go.”

Wandell credits Chrysler with being ahead of the curve with the new approach that enables suppliers to enjoy engineering efficiency and provide innovation at less cost by reducing the burden of single-entity engineering and development time.

Rosenfeld says Chrysler has developed a new scorecard system for its supply base over the last several years, but the idea of categorizing suppliers according to results, and allowing all to compare relative performance and status, is only about four months old.

Essentially, each of the roughly 900 parent company suppliers is measured under four indices: cost, quality, technology and supplier delivery performance.

The outstanding performers are identified as Highly Integrated Partnership Organizations or HI-POs (not all 240 component sets have HI-PO rated suppliers) and fall in the reward zone. They account for about 10%-15% of the mix. Most fall in the middle category, with less than 10% labeled poor performers and falling in the “re-source” quadrant, Rosenfeld says.

Scorecards are updated monthly, at a minimum. Performance is measured against targets. Suppliers can view their cards online for a report of how Chrysler sees them, and how they compare with their peers.

Already the site is getting about 200,000 hits a month, Rosenfeld says. Newcomers attend training sessions.

There are perks for operating in the rewards zone. These performers retain business unchallenged; receive the right of refusal on additional business outsourced from under-performing suppliers; have first crack at future business by pre-sourcing to a target price; and will receive “last call” opportunity when new business is competitively bid. And they can be picked for early development of future vehicles.

Robert J. Schott, Chrysler vice president-worldwide procurement and supplier commodity strategy-Chrysler, Jeep, Dodge, describes it as a transparent and objective system that allows Chrysler to reward the strong, work with those trying to improve and weed out the weak. “We’re taking the emotion out of it.”

Purchased materials make up 60% of the total cost of a new Chrysler vehicle.

Being a HI-PO supplier does not offer protection against the need for constant improvement or across-the-board price cuts in the future.

But suppliers have the benefit of a substantial long-term book of business, Rosenfeld says.

While JCI and Magna are the first HI-PO suppliers of record, the plan is to roll the system out to all commodities, Schott says.

Rosenfeld says there is no failsafe in case a HI-PO supplier hits turbulence after a contract is awarded. And Hogan says suppliers also have backup systems, as new technology doesn’t always work as planned.

Mercedes counterparts are using some scorecards now, Rosenfeld says, but some things are measured differently.