Chrysler throws out purchasing rulebook

Chrysler purchasing chief John Campi
DETROIT — New Chrysler LLC purchasing czar John Campi is tossing out the rulebook for dealing with parts suppliers.

He's making good on his vow to source more work in India and other low-cost countries. For example, Chrysler says it will shift a big chunk of information technology work from local suppliers to Tata Consultancy Services in Mumbai, India. Nothing too unusual there; India is a hub for IT contracting.

But another India gambit has suppliers shaking their heads. UAW officials in Toledo, Ohio, report that Chrysler will drop Johnson Controls Inc. as its Jeep Wrangler seat maker beginning in 2010, replacing JCI with a supplier in India.

Seats traditionally are made near auto assembly plants so they can be delivered just in time to be bolted into vehicles. They're bulky to ship long distances and need careful handling so they're not scratched or damaged.

Campiís way
New Chrysler purchasing chief John Campi has
-- Contracted for Jeep Wrangler seats from an Indian supplier
-- Tried to pull tools from Plastech rather than work with GM and Ford on a workout of the supplierís financial problems
-- Outsourced a major chunk of Chrysler IT to Tata Consultancy Services of India

India or ... Indiana?

No assembly plant in North America imports seats from overseas. And no Indian company makes automotive seats in North America. So the new supplier, which Chrysler did not name, is untested on this continent.

Of course, the Indian company could buy a tried-and-true plant near Toledo — say, in Indiana — and assemble parts from India there. But there's no indication of that yet.

Campi, a trusted longtime lieutenant of Chrysler CEO Bob Nardelli, is convinced Chrysler can save money and possibly improve quality if it can find more suppliers outside North America. Today, the vast majority of Chrysler's $40 billion procurement budget goes to North American vendors. It trails rivals General Motors and Ford Motor Co. in buying parts from China.

Responding to e-mail questions, Campi said Chrysler is operating in a global marketplace with an unbalanced "sourcing portfolio" relying on North America.

"Sourcing parts from around the world presents unique logistical challenges, but they can be overcome," he said. "In fact, I would like to see more partnerships with our existing suppliers because that's the easiest road to success."

To find new suppliers, Chrysler is expanding its purchasing staff outside North America, Campi said. Chrysler also is increasing engineering activities in China, India, eastern Europe and Mexico.

Financial urgency drives the 63-year-old Campi. Chrysler posted a net loss of $2.92 billion between the time that private equity firm Cerberus Capital Management LP bought Chrysler last Aug. 4 and the end of the third quarter, according to a recent financial disclosure by former parent Daimler AG.

Cerberus disputes that figure, but there's no question that falling sales are squeezing Chrysler's finances.

Breaking taboos

Facing red ink, Campi has not hesitated to break Detroit purchasing taboos in pursuit of a lower-cost Chrysler. Witness the recent showdown with plastic parts supplier Plastech Engineered Products Inc.

When Plastech sought another bailout from the Detroit 3 last month, Chrysler broke ranks with GM and Ford. Chrysler not only refused to pump money into troubled Plastech but also tried to transfer the automaker's molds and machines to competing suppliers. Typically in the past, the automakers stayed together to share the pain to avoid costly parts interruptions.

Chrysler's tactic backfired. Plastech — a large, minority-owned company in suburban Detroit — rushed into U.S. Bankruptcy Court and won a ruling that prevents Chrysler from removing the tools. But Campi has not given up.

At a special meeting with suppliers last month, Chrysler purchasing managers told vendors to stay ready because the Chrysler molds and business would be coming their way, said two supplier executives who were there.

Chrysler gave no explanation of how the carmaker would get around the Bankruptcy Court's ruling.

Campi declined to comment on the Plastech situation.

The urgency of Campi's global sourcing quest is understandable, says John Casesa, a longtime industry analyst now with his own auto consulting firm, Casesa Shapiro.

But going too fast creates risks, especially when Chrysler challenges time-tested ways of dealing with distressed suppliers or sourcing delicate parts such a seats from abroad, Casesa said.

In the early 1990s, former GM purchasing chief J. Ignacio Lopez proved that point. When he bid out proprietary part designs to garner the lowest prices, Lopez launched a brutal price war that created lasting animosity between GM and its suppliers. The industry is still struggling to heal the wounds.

Campi has called for an end to the divisiveness, but some suppliers think his recent actions don't match his words.

"Radical changes in the sourcing process create risks," says Casesa. "Chrysler certainly can't afford a Lopez experience." 

You can reach David Barkholz at dbarkholz@crain.com

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