Chrysler's dirty little secret

While Chairman Eaton and company continue leading their charmed life (see p.62), supplier chief Thomas T. Stallkamp let it be known that all is not well in Chrysler's shrinking community of outside suppliers. It seems the company's celebrated Supplier Cost Reduction Effort (SCORE), in which each Tier 1 supplier tries to cut at least 5% out of its costs each year, is yielding decidedly mixed results.

The good news: SCORE has generated $2.5 billion in savings since 1993, and Mr. Stallkamp thinks that another $9.8 billion can be slashed by 2005.

The bad news: So far only a small group of suppliers are meeting or exceeding the 5% target. Nearly three-quarters are underSCORING, which means their annual savings are 3% or less. Chrysler, which has a reputation as the warm-and-fuzzy OEM when it comes to supplier relations, may be about to lower the boom on the underachievers.

"We are going back to those 72% and telling them it's time to get with the system," says Mr. Stallkamp.

But he hopes that doesn't encourage another wave of supplier mergers. For example, Chrysler buys antilock brakes from ITT Automotive, so they're a Tier 1, right Sometimes.

On a seating system Chrysler buys from Johnson Controls Inc., ITT supplies the tracks on which it slides forward or backward.

"This is why merger-mania is stupid," Mr. Stallkamp says. "If you only talk to the first-tier guys, you miss the fact that ITT is selling seat tracks to JCI for $100 a piece. No company is going to buy an entire supply chain and control his costs because it's impossible."

So the consolidation among suppliers is bad?

Not exactly, according to Chrysler's purchasing honcho.

"The JCI-Prince deal was good, but for everyone of those I can name two or three that shouldn't have been done," Mr. Stallkamp adds. "There's always a place for the good small guy in the third or fourth tier, but I don't want Magna to buy a small nut and bolt company somewhere."