Chrysler Corp.'s purchasing code - which treats suppliers like an extended family - has been given an early salute by DaimlerChrysler AG.
Purchasing will be one of the first operations to be centralized. And the new company has picked Chrysler CFO Gary Valade to run it.
'Purchasing is an area we need to focus on,' Valade said at the press conference last week in London. 'It will be fully integrated.'
During the transition, the purchasing departments of Chrysler and Daimler-Benz AG both will report to a joint organization led by Valade. Thomas Sidlik, Chrysler's executive vice president for procurement and supply, will remain in that role. Valade and Sidlik also get seats on DaimlerChrysler's board of management. Tom Stallkamp, the creator of Chrysler's purchasing philosophy, gets a high-profile assignment as president of DaimlerChrysler.
By the end of 1999, Daimler-Chrysler wants to exploit the added clout of its merger to cut annual purchasing costs by $300 million to $500 million a year. Valade did not indicate how the savings will occur.
Daimler-Benz's annual automotive purchasing budget is $20 billion. Chrysler's is $40 billion.
Suppliers expect DaimlerChrysler to seek volume discounts in return for huge global orders. The big winners most likely would be suppliers who already do business with both companies.
'Those of us who have manufacturing and engineering facilities on both sides of the pond will have an advantage,' said Frank Macher, CEO of ITT Automotive. The Auburn Hills, Mich., company sells antilock brakes and other parts to both automakers. Chrysler accounts for about 8 percent of ITT Automotive's sales, Macher said, while Daimler-Benz sales total 6 percent.
Another possible winner is TRW Inc., a major supplier of airbags and seat belts. 'We consider ourselves very fortunate,' said Ron Cutler, vice president of marketing for the Cleveland company.
Other suppliers may not be so lucky. 'If you are a regional North American supplier to Chrysler, I would be concerned,' said James McElya, president of Siebe Automo-tive in Southfield, Mich., a maker of tubing, sensors and other products.
He predicted the Chrysler-Daimler marriage could force more consolidation. 'Suppliers to Chrysler will quickly run out and try to partner with a supplier to Mercedes.'
One key issue is how many Tier 1 suppliers will do business with DaimlerChrysler. Before the planned merger, Chrysler had intended to shave 300 Tier 1 suppliers from its roster by 2000. Today there are 900. Last week, Valade said it is too early to set a target for DaimlerChrysler.
Although details on the new purchasing operation are sketchy, the recent histories of both automakers offer some clues.
Both companies have set up cooperative cost-cutting programs that let suppliers pocket some of the savings. In North America, Chrysler's SCORE program requires suppliers to propose cost-cutting ideas totaling 5 percent of annual sales. Suppliers keep up to half of any savings over that amount. Many Big 3 suppliers consider SCORE, also known as the Supplier Cost Reduction Effort, to be the industry's best system. A few years ago, Daimler-Benz launched a similar program called Tandem.
Both companies also have created experimental assembly plants that grant suppliers major responsibilities. In Brazil, Chrysler has tapped Dana Corp. of Toledo, Ohio, to produce a complete rolling chassis for the Dodge Dakota. It includes the floor pan, suspension, axles, brakes, driveshaft, transmission and exhaust system.
Meanwhile, Daimler-Benz has picked several suppliers to install components for the Smart car at its assembly plant in Hambach, France.
Neither Chrysler nor Daimler-Benz has transferred such radical assembly techniques to traditional plants in their home markets. But Daimler-Benz has launched another experiment in Vance, Ala., where a core group of 18 suppliers deliver ready-built modules for the ML320 sport-utility.
For example, ZF Friedrichshafen AG assembles the axles, differential, the constant-velocity shafts, hubs, brake rotors and calipers. George Telenko, ZF's vice president of axle systems, calls Vance a laboratory for Daimler-Benz suppliers.
'It's an experiment,' Telenko said. 'You can call it a cookie-cutter design for future activities.'
Aside from its experiment in Brazil, Chrysler does not appear quite as ready to give suppliers so much responsibility. Early this year, for example, Chrysler executives said they were not prepared to let a supplier design an entire vehicle interior.
Chrysler also reserves the right to integrate other major component systems, Telenko said. Recently, ZF proposed to assemble a built-up axle for the next-generation Jeep Grand Cherokee, paralleling its work with Daimler-Benz. After some initial interest, Chrysler rejected the proposal, Telenko said.
But Chrysler does expect its suppliers to engineer their own components. And Chrysler gives suppliers considerable input in the early stages of vehicle design.
In part, that is why suppliers appear pleased to see Chrysler executives in charge of worldwide purchasing at DaimlerChrysler. TRW's Cutler predicts Chrysler will give suppliers more authority to design entire component systems in future generations of vehicles.
'We know already that Chrysler is starting to move in that direction,' Cutler said. 'I don't know how long it will take, but they are moving step by step.'