Chrysler Targets 25% Cost Reduction From Suppliers

Chrysler LLC Expects a 25% Cost reduction from suppliers over the next three years, but not before the OEM gets its own house in order, says John Campi, executive vice president-procurement.

“But in so doing, I do not want to negatively impact $1 or a percent of profitability out of the supply base,” Campi vows. And Chrysler will impose harsh penalties on itself if it fails to live up to its end of the bargain.

The initiative, which Campi later unveiled in Troy, MI, to the Original Equipment Suppliers Assn., calls for Chrysler to stabilize its production schedule with a view toward reducing complexity and late engineering changes.

Chrysler then will calculate the savings value of these moves in terms of component price and reduce that price by 50% of the amount saved.

The overall impact of these reductions is expected to equal 25% of the auto maker's supplier commitment.

Campi reveals the plan to Ward's in a stunningly frank assessment of Chrysler's operations. He says the auto maker is its own worst enemy on the supplier-relations front.

“We are probably one of the most expensive customers to every supplier we have,” he says. “We do not have stable schedules in our assembly operations. We whip the supply base back and forth.

“That puts that cost into their piece price and charges it back and I'm then eating that cost. So I'm looking at how I'm going to change my behavior (as an OEM) to reduce the cost footprint of my suppliers in a way that we can mutually share the benefit.”

But Campi, who joined Chrysler in January, says he will take no action until the auto maker demonstrates stable production over three consecutive 30-day periods.

“If I can get to, let's say, an 85%-90% stability for a 30-day period, I will have dramatically reduced the accepted cost that suppliers have to incur. When I can do that for a 90-day period … I'm going to go to the suppliers and say we are taking a reduction in piece price.”

The cost to Chrysler will be dear if it fails to meet Campi's goals. For the first offense, Chrysler will pay the supplier a penalty. “The second time I do it, it doubles,” he says. “The third time, it triples. The fourth time, we go back and give you all the money back that we took in price, and we revert back to the old piece price.”

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