Chrysler Suppliers Need Board Approval

The Chrysler Group has discovered a clever yet simple way to identify and nurture its best suppliers, while weeding out the weak performers.

Last year, Chrysler formalized boards of directors that are responsible for each component, representing a significant shift in the company's procurement strategy.

The boards consist of up to five members, with each having their job performance rating and financial incentives tied to the performance of their respective suppliers.

“For every component we have an engineer, a buyer, a supplier quality specialist and supply specialist, and in those cases where it is a consumer-discernible product — seats would be a good example — someone from the design office also sits on that board of directors,” says Peter Rosenfeld, Chrysler executive vice president-procurement and supply.

The goal of the new system is to reward the best suppliers, while meeting the annual performance goals set by the auto maker.

“Rather than saying, ‘You must have three suppliers and no more,’ we tell the group, ‘Your goal is to improve the average performance of your suppliers by 10%.’ Now it is that team's choice to determine how best to do that,” Rosenfeld says.

The team can decide either to provide more business to suppliers that meet the criteria or to source to an entirely different supplier, if it helps the board meet its target.

“You could get rid of your worst performing supplier, and therefore your score would automatically go up — it's simple mathematics,” he says. “If you don't have anybody that's good enough, you start looking elsewhere, whether it's China, Eastern Europe, Texas or wherever.”

As of last year, Chrysler had re-sourced $6 billion worth of business from struggling suppliers to better performers.

Each supplier's scorecard is posted on Chrysler's internal Internet. “Joe Buyer can go on the Internet and look at his slate of suppliers and see how it is impacting his personal performance,” he says. The buyer then meets with the board to decide a course of action for a particular supplier.

“And it's his choice: ‘Is it a lost cause and am I going to get rid of that supplier? Should I reward a supplier that is doing really well with more business because if I did I improve my scorecard and therefore I have the opportunity for advancement or not?’”

The new arrangement removes dictates that the company must have a certain number of suppliers in certain locations. “It works itself out,” Rosenfeld says.

Chrysler is setting its various board goals for 2006. Rosenfeld expects to have the new goals established by the end of July, providing enough time for the boards to communicate them to their suppliers.

Chrysler Group purchasing — by the numbers