Suppliers Critical to Chrysler's Success

By John Hall

February 16, 2012 at 11:32 AM

Chrysler Group LLC has a history of comebacks, including the storied Lee Iacocca era of the 1980s. Though it has stumbled following many of those turnarounds, the smallest of Detroit’s automakers is turning heads more than ever before since its bankruptcy and the collapse of the U.S. economy in 2008.

On February 1, the company announced its $225 million profit posted for fourth-quarter 2011 and total net profits of $183 million in 2011-- its first full year of positive earnings since 2005, according to The New York Times. News of the turnaround was amplified only days later by a Chrysler-sponsored Super Bowl commercial narrated by actor Clint Eastwood, an ad widely praised for its positive affirmation of an American economic rebound.

There are a host of reasons for Chrysler’s turnaround. One of them is more efficient manufacturing processes. In 2010, controllable manufacturing cost savings came to nine percent, a percentage point higher than projected, according to the company’s annual sustainability report.

Chairman Sergio Marchionne made public even more ambitious forecasts for the automaker, projecting $65 billion in increased revenues (18% gain) and $1.5 billion in 2012 profits, according to The New York Times.

In spite of the welcome news, huge challenges lie ahead for all American businesses, and the automotive industry is no exception. The 800-pound gorilla: Globalization. According to a recent report by IDC Manufacturing, a Framingham, Mass.-based firm that provides strategic business technology and application advice for the manufacturing industry, the American automotive industry must be able to adjust to rapidly changing consumer demands and keep plants updated with the most current information technology.

Another key to Chrysler’s success today and in the future, is its suppliers. And a careful reading of Chrysler Group’s annual sustainability report shows the company is committed to fostering a diverse, motivated and sustainable supply base that chooses Chrysler Group as its preferred customer, partnering with industry peers to develop policies, messaging and training for suppliers that will ensure sound working conditions and promote respect for human rights, assessing its supply base to identify strengths and opportunities in all aspects of sustainability, and reinforcing its commitment to work with diversity businesses (its 2011 was 14.5% of all suppliers).

Knott_Daniel_C2001.jpg

Leading those efforts today is Detroit-born Dan C. Knott, Senior Vice President, Purchasing and Supplier Quality, Chrysler Group LLC, and Chrysler’s corporate sustainability officer. Knott is responsible for all worldwide purchasing and supplier quality activities, including both product-related components and indirect suppliers and services. He joined Chrysler in 1988 as a senior engineer in the company’s air/fuel emission systems. In 2006, Knott was named No. 23 on Motor Trend's Power List, which recognized the 50 most influential men and women in the automotive industry.

My Purchasing Center recently interviewed Knott about the company’s turnaround, and how its supplier base will continue to be vital to the company’s future.

2009 seems to be fair game as a benchmark for the beginning of industry turnarounds. How would you describe Chrysler’s turnaround since the economic downturn of 2008?

We are very proud of how far we’ve come since we emerged as a new company in 2009. Anyone who has seen the products we have put out in the marketplace over the past two years can understand why I am proud of the cars and trucks we have delivered. I am also extremely proud of our people. The Chrysler team has demonstrated remarkable spirit and energy to get this company back on its feet. We still have a long way to go; but the good news is that we are delivering on our promises, which is critical in this market. It is also critically important to our employees, dealers, suppliers and customers.

What are some of Chrysler’s key supply chain milestones or benchmarks?

Our production volumes have increased each year since 2009. This year our goal is to ship 2.4 million vehicles--20% more than the 2 million we shipped in 2011. This will require a tremendous amount of support from our suppliers, but it also offers them a great opportunity to grow their business to meet our capacity demands. The fact that we have been able to achieve our planned production numbers for the past three years is a testament to what we’re capable of when we work together. 2011 presented huge challenges for us in terms of the health of our supply chain. The tragic earthquake and tsunami in Japan and the flooding in Thailand demonstrated to us the need to collectively work together to manage risks. We were able to move forward with minimal disruption to production schedules thanks to quick action, transparency and constant communication.

Has the way your company purchases materials been part of the reason for its success? If so, in what ways?

Approximately 70% of the content of Chrysler’s vehicles comes from our suppliers. So it is absolutely critical to the success of our business that we align ourselves with the right partners that can bring us innovation and superior quality. We are constantly assessing what we can do to strengthen the relationships we have with our supply base. Ultimately, I ask my team to remember that their interactions with our suppliers should be person-to-person, not company-to-company. Each buyer needs to have a good relationship with the supplier representative they are sitting across the table from in order to get the best performance out of that supplier and for them to get the best performance out of us.

What role, if any, have your suppliers played in the turnaround?

When we reinvigorated our supplier relations efforts in 2009, we knew we had a lot to fix. Suppliers have pushed us and helped us to become a better customer from the start. We hold monthly supplier town halls, for example, in which we present various topics to the supply base and they get a chance to talk to us about areas that we can improve and processes that need to be streamlined or changed. That honest feedback and open communication has been incredibly helpful to us. We also ask suppliers to come forward with innovation and technology to help us put better cars and trucks on the road. We’re still a long way from where we’d like to be, but we have the momentum headed in the right direction. We truly look at our relationship with suppliers as a partnership. It’s going to take a strong effort from both sides.

Any advice for procurement and supply management executives in your space in the year to come?

Anyone who lived through the challenges of the automotive industry knows that we can’t return to the old way of doing things. We can never accept the type of behavior that does something because “that’s the way we’ve always done it.” Buyers are on the front lines, working hand-in-hand with suppliers, forging relationships and directly contributing to the success of our company. I encourage our organization and also our suppliers to embrace what we call the “Guiding Principles.” This set of principles helps to remind us that on a daily basis we need to operate with transparency, collaboration, a sense of urgency, integrity and accountability. I think if both sides adhere to these principles it will put us in a position for long-term success. This foundation and this way of thinking can be applied to any industry or operation. 



Tags: Strategic sourcing Supplier relationship management Direct materials sourcing Automotive industry
Category: News Article

John Hall

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John Hall is a freelance writer who reports on commodities markets and procurement and supply management topics for My Purchasing Center. His website is jhallmedia.com


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