Sometimes it's tough to tell where Chrysler Corp. ends and its suppliers begin. Every year, the automaker integrates itself a little more tightly with its parts makers. In fact, Chrysler procurement chief Tom Stallkamp says he might drop the word 'purchasing' from his vocabulary. Instead, he prefers to focus on managing the flow of materials that make their way into Chrysler products. On April 1, he spelled out his theories to Staff Reporter David Sedgwick in Auburn Hills, Mich. Edited excerpts follow:
What's uppermost on your mind these days as you work with Chrysler's suppliers?
My objective right now is to get the word 'purchasing' out of our title. We're trying to concentrate less on 'purchasing things,' and more on managing the supply chain and managing the flow of material from the chain into our plant.
That's where most of the savings have come from already, and where most of it will come from in the future. A lot of aggressive companies are concentrating on supply chain management, not just the act of buying things. We're weeding out the chain, making the various tiers talk to each other better and communicate better.
Right now, they don't like to talk. The second tier doesn't like to talk to the third tier, and the third tier doesn't like to talk to the fourth tier. That's the way the industry has grown up. What we're trying to do is streamline the chain and work on communication between these tiers and sharing of costs.
How far down that road have you gone?
We just had a meeting last week talking about the next minivan. We can tell you the strategy of who supplies what on that vehicle up through 2003 or 2004. We can tell you what major changes we want to make in the supply base and set up the sourcing and presource it - without having even conceptualized the vehicle.
You mean you can already tell us who your suppliers will be in 2003 and 2004?
We've gone through everything we buy. It may sound ridiculous, and some people think we've gone too far, but we've written a strategy on literally everything we buy, from steel to the threads and zippers on our seat covers. It states who the current suppliers are, who we want to be supplying us in 2001 or beyond, and where we want to take the commodity.
How many first tier suppliers do you now have?
We've gone from 3,000 in 1985 to about 950 right now, and we're on our way to 600 by the year 2000. These are Tier 1 suppliers. Those who fall out may show up as second tier or third tier suppliers, or the companies may buy each other and consolidate.
Will you reach a resting point in 2000?
I think 600 is as low as we'll go. We now have 150 companies supplying 90 percent of the $40 billion that we buy now. The industry is already concentrated. What we're focusing on now is managing and working with those suppliers to run the whole chain - all the way back to the raw material.
How many Tier 1 suppliers are working on the current minivan, and how many do you expect on the next one?
We have about 325 on the current one. And we don't know the answer yet for the next one because we don't have the design yet. But we do need to make a dramatic reduction in the number. Equally important is where they are located. Are they closer to us? Transportation savings have really been ignored by the industry, but our profit improvement has been based on minimizing our transportation costs. So it may be that the number of supplier companies goes down, but the number of supplier locations broadens.
What percentage of your purchases are competitively bid? What percentage is target priced, where you decide in advance how much you will spend for a part?
All of our new models and new parts are target priced. Competitive bidding is really a minority of it - probably less than 20 percent. And those are only the things that are true commodities, or things that have been viewed as being so competitive that we need to keep following a commodity market. But we use target pricing not only for all our new parts, but also for equipment and facilities. We're starting to use target costing to buy a paint shop. That used to be done purely through competitive bidding.
What sort of problems do you run into in target costing?
The issue of how much money do you have available for a project. It may not be enough to do what you did in the past, but that's how much you have to spread across the project. So first you ask yourself, can we do it? With the Prowler, we said we couldn't afford to do it for more than $75 million. We took that $75 million and divided it by all the things in the car. Then we went to suppliers and said, 'This is all we have - will you work with us?'
Are suppliers more willing to share their own cost information with you, once you move away from competitive bidding?
Some of them still hold back as a competitive thing. They are willing to share their low cost information. They're becoming increasingly more open to sharing labor cost information.
There is no reason to fear sharing information. It's what you do with that information that has caused some people to be afraid. If you find out a supplier is only paying $4 an hour for something, you can't go back and use that to get them to lower their price. But you have to use it to manage the whole chain. It might help us administer something in the third or fourth tier down.
An area of concern is referred to as 'capturing the profits' in the chain. We want to get out of that. The object is not to capture the supplier's profits, but to lower costs so we can lower the final cost of our product. We know we've got to make our products more affordable in the future.
They must be comforted that you're not going to use the information to beat them bloody.
We have a track record on that. As long as our cost-reduction programs continue to show the savings they do, and we show that we don't whip people, then I think we're building trust. People are reticent to share information because of the way it was abused by the OEMs. We've got to show that those days are gone and we're trying to work on this together, rather than being adversarial.
Speeding up the communication process is another issue. How can you get information through the chain faster?
One way is electronically. Another is using a common format. We would tell you what we've released, what we want you to ship us, and you would use that same thing to release to the next level down. Another way might be through longer-range planning meetings with strategic suppliers. We would share our information about where we want to go, such as by bringing in suppliers on our current minivan to tell them, 'We want you to be on the next one. But we need to start working on design improvements now.'
You recently sponsored a meeting with the three major brake manufacturers - ITT, Bosch and LucasVarity - and their suppliers. What was that all about?
We never used to bring in competitors - or people who thought they were competitors - to talk together about cost management. But we found out it's an eye-opening way to see how screwed up the supply chain is.
People that we had desourced because of quality reasons appeared later on in another supplier's supply chain. You've got to ask yourself, if they weren't good enough to supply you, why are they still in your chain?
Communication doesn't exist on things as simple as how many parts you need today. We tell the first tier every day how many parts to ship. But has the second tier told the third tier how many to ship?
We got them all in a room, and they all started sharing ideas, and it came out that there is an inordinate amount of waste in the system. We think that we are streamlined enough and centralized enough to make supply chain management our major initiative going forward.
Have you had similar meetings since then with other suppliers?
We've had plastics seminars involving the raw-material suppliers. That is one of our 'extended enterprise initiatives' that we have under way. We have about 54 different initiatives. They all border on some type of supply-chain management.
We have a quarterly roundtable with 12 of our largest CEOs, and it's been very instrumental in improving communication between suppliers. Most people are concentrating on communications between the OEM and the supply base. We're concentrating on communication between suppliers and ourselves.