This is the fourth installment of a Ward’s 7-part series stemming from interviews with the purchasing departments of GM,, , Toyota, and Nissan.
AUBURN HILLS, MI – A new day has dawned for the purchasing arm ofLLC, and John Campi promises a shakeup never before seen by the automotive supply community.
Campi arrived in January as Chrysler’s executive vice president-procurement – after three years at Home Depot Inc. – and quickly is executing some revolutionary ideas for change.
Detroit-based auto makers (including Chrysler) have earned a reputation for dealing harshly with suppliers by demanding annual component price cuts. This dynamic has shaped the OEM-supplier relationship in North America for more than a decade, with little positive effect, Campi says.
In his new role, Campi will continue to expect much from suppliers, but he wants even more from his own company. He is focusing unequivocally on Chrysler as the cause of production-scheduling problems that have nagged suppliers for years and forced a number of them into bankruptcy.
Campi is even willing to give money back to suppliers if Chrysler can’t get its own house in order.
“If I can’t help the supply base become more profitable while we become more profitable, then we fail,” Campi tells Ward’s. “We’ve had years of trying to take from the suppliers to help our profitability in this industry in this city, and it’s a failed concept. It cannot work.”
Campi presented a new way of doing business at a recent Original Equipment Suppliers Assn. town hall meeting. The program has no name.
“This city has been prolific in putting names to everything they do,” he says. “I’d rather not name it. I’d rather just execute. This is something that should be a way of life in the supplier relationship.”
The overriding principle of the system requires Chrysler and its suppliers to take 25% of the cost structure out of the supply chain. Campi considers that 25% to be waste caused by Chrysler because of instability in the auto maker’s production schedule, late engineering changes and other bad habits that ripple through the supply chain.
“I know the kind of costs suppliers sustain when I don’t give them sufficient lead time, and they have to expedite or change their schedule or readjust and do a lot of what I call the non-value added, the rework, if you will,” Campi says. “There’s a huge amount of cost we drive. My wiggle in a schedule is a whiplash through the supply chain.”
Once Chrysler stabilizes its schedule, the auto maker will expect a price cut under the theory that the supplier’s cost structure should be significantly improved.
“The only part I’m looking to extract from the supplier is a percentage of that savings they will incur,” he says.
For a specific example, Campi refers to a pickup-truck frame.
“If I give you as a supplier five days on which frame I need and in which sequence, you have to stockpile frames to make sure you have available what I’m asking for,” he says. “If I give you a 30-day schedule that never changes, now you can smooth your entire supply chain, so it’s sequenced with lots of lead time.”
If, hypothetically, the frame costs Chrysler $200, Campi figures 5% (or $10) of the cost stems from the inability to maintain an accurate production schedule.
If Chrysler proves to the frame supplier it can maintain for 90 days at least an 80% accuracy rate in setting the production schedule, then the auto maker will demand a price cut of $5 per frame, Campi says. That amounts to half of the $10 in waste that has been eliminated. The frame price would stay at $195 until the time comes to renegotiate the contract.
The cost to Chrysler will be dear if it fails to meet Campi’s scheduling goals. For the first offense, the auto maker will pay the supplier a penalty.
“The second time I do it, it doubles,” he says. “The third time I do it, it triples. The fourth time I do it, we go back and give you all the money back that we took in price, and we revert back to the old piece price.”
Beyond that 5%, plenty of waste is generated by needless complexity in vehicle design. For instance, Chrysler could make do with fewer pickup frames.
“Instead of 48 frames, I need four because I’m more thoughtful of how I designed the vehicle, and I tried to standardize those components that have no bearing on the feel and functionality to the consumer,” Campi says.
With one particular product review with a supplier, Campi says Chrysler has identified up to 70% in cost savings “by simply making some changes in our complexity.”
As for the program’s timeframe, it’s already under way, and CEO Bob Nardelli and Vice Chairman Tom LaSorda are supportive. “They are 100% onboard,” Campi says of his bosses. “I have freedom to act, and that’s what I’m doing.”
But Campi is finding a harder sell throughout the rest of the company. “There are pockets of people who don’t believe because they haven’t seen any results yet. We have teams working on schedule stablization,” he says. “We’ve already proven the concept in Toledo in our supplier-park activities, which is a good step.”
“I’m having to educate people on how we have to do business,” he says. “I keep telling them, ‘we have met the enemy, and it is us.’”
Following his town hall meeting with the OESA, Campi says he perceives suppliers as reluctant to embrace the concept. “I don’t think they believe me yet,” he says. “I’m having a challenge with getting the message properly positioned.”
– with Eric Mayne