Gobble or be gobbled is a way of life for suppliers.
One supplier that has fought fiercely - and successfully - to remain independent is Cummins Engine Co. of Columbus, Ind.
In their book, The Engine That Could: 75 Years of Values-Driven Change at Cummins Engine Com-pany, Jeffrey Cruikshank and David Sicilia detail Cummins' growth from a tiny Indiana machine shop to a global diesel engine producer.
Along the way, Cummins has been to the brink of failure. The following excerpt from The Engine That Could describes one such point and how Chrysler Corp. - itself fresh from a brush with disaster - helped to keep Cummins afloat in the 1980s.
During the 1970s, Cummins' business was booming, but high inflation, government emission regulations, the pending deregulation of the trucking industry and tougher competition convinced Cummins CEO Henry Schacht and President Jim Henderson that the company would have to restructure itself to remain viable for the long term.
Cummins executives developed a survival strategy that led a joint venture with J.I. Case Corp., a producer of agricultural and light construction equipment, to design and build smaller, fuel-efficient diesel engines. The venture, Consolidated Diesel Corp., or CDC, operated in a former textile plant near Rocky Mount, N.C.
CDC sold the so-called B engines for use in cranes, graders and other vehicles. But volume was much too low for the engines to turn a profit, so Cummins embarked on a search for a high-volume customer. Chrysler was interested.
Cummins managers believed that Rocky Mount's products would be superior in their class. At the same time, they had to recognize that prices for the new models would not be lower than prices for comparable engines from competitors, and that OEMs might well balk at paying more for a Cummins engine - especially when those OEMs felt that a 'generic' engine was best suited to their needs.
What marketing stance should Cummins adopt? Initially, recalls Jim Henderson, the company decided to avoid the 'generic' trap - which would guarantee low margins indefinitely - and push its new midrange engines on two strong selling points: fuel economy and power-to-weight ratio. Later, as the new engines proved themselves in the field, durability was added as a selling point.
But the most important challenge was to find brand-new OEMs to take the new Cummins engines. Without new customers to take Cummins' half of the CDC output, the entire small-engine project surely would go under - perhaps taking the parent company with it.
At the top of the list of Cummins' targets were the pickup truck businesses of the Big 3. GM listened politely to the Cummins pitch at regular intervals in the 1980-1984 time frame, but consistently expressed its satisfaction with its own Detroit diesel 6.2-liter and with the Caterpillar 3208 diesel engine that it was using. Ford was intermittently interested, asking (early in 1982) if Cummins could design a special five-cylinder diesel. (The existing six-cylinder B was too long to fit in the Ford pickup's engine compartment, and Ford feared that a four-cylinder would not be powerful enough.) Cummins, although reluctant to drift from the standard B configuration, was well aware of Ford's clout in the market, and quickly agreed to the experiment. In short order, engineering produced two working five-cylinder engines. Ford, although interested, still declined to sign on. It continued working on its own in-house diesel program, and eventually chose a Navistar diesel for its pickups.
Starting in the fall of 1981, the Cummins new-business development group, headed by Jim Farrar, began pitching the B engine to Chrysler. In some ways, Chrysler was the least likely candidate to take the new Cummins engine. The company - which had narrowly escaped bankruptcy at the beginning of the decade -was then a distant third in the pickup trade, with a market share consistently under 10 percent. Unlike GM and Ford, Chrysler had no diesel pickup at the time and no plans to offer one.
But this, Cummins suspected, was a field of opportunity. The pitch continued for almost four years. Finally, in April 1985, Chrysler agreed to offer the turbocharged six-cylinder B engine in its Ram pickup. Significantly, the automaker also expressed its eagerness to market the diesel as a Cummins engine. Both decisions reflected the fact that Chrysler had little to lose in the pickup field and saw the Cummins relationship as a potentially strong selling point.
As a final clincher for Cummins, the Chrysler organization was proving extremely easy to work with. This, says Farrar, may have been a result of Chrysler's recent brush with extinction:
'In this period of time, Chrysler was looking for help in every way possible. Anybody that could help them had a good relationship with them. So we developed a fantastic rapport with them. They saw us as helping them everywhere they turned around. We had a product that worked, and the thing took off, and it started adding volume. Not only that, it drew so much showroom traffic that their gasoline penetration started going up, too.'
But there was one hitch, early on: Chrysler had no in-house engineering resources available to take on the challenge of 'up-fitting' the Cummins engine into the Ram pickup. The struggling Detroit giant told Cummins that unless Cummins was willing to take on the task of engineering the B into the Ram, the deal was off. (According to Jim Henderson, Chrysler also felt that diesel-powered pickup sales would be too low [perhaps 5,000 to 6,000 per year] to justify a substantial engineering investment on Chrysler's part.) This was a highly unusual role for Cummins - whose heavy-duty customers rarely asked for similar services - but the timing was right (new-business development was at the top of the agenda), and the need was urgent. A separate contract was drawn up, eventually totaling some $1.2 million, and signed in May 1985. 'We set up an engineering facility in what used to be called Plant 10,' Jim Farrar recalls, 'brought in about 20 or 30 vehicles and went to work on the engineering.' Detroit-based specialists relocated temporarily to Columbus, and Cummins engineers moved to Detroit for the duration. In December 1986, final drawings were released into the Chrysler system.
Within months, Chrysler was back with another request. The automaker's plants were operating at capacity, and for this and other reasons, the pickup program was once again in jeopardy. Could Cummins figure out a way to deliver an engine-transmission combination ready to be installed onto the Ram chassis?
Between August 1987 and the summer of 1988, Cummins organized a new Detroit-based subsidiary called Cummins On-Time Assemblies. COA received engines from Rocky Mount, configured them to meet the eight standard Chrysler specifications, married the engines with Chrysler transmissions, attached the necessary belts and wiring and dropped off the completed assemblies at the nearby Chrysler plant. The first completed assembly was delivered by COA to Chrysler on August 3, 1988.
This was yet another service born of opportunity and necessity. As Jim Farrar explains:
'Again, this was a service we charged for, and was one of those things that would not have happened had Cummins not been out searching for new businesses. We saw this as another opportunity to do more than just make money off the engine. In fact, at one point in time, we were making more money off the engineering and the On-Time Assembly operation than we were making off the engines that we were selling to Chrysler.'
But the Chrysler volume - which went from zero engines in 1986 to almost 20,000 engines in 1989 - was a crucial step in making the midrange engine venture, one of Cummins' most daring rolls of the dice, a success. (According to a Chrysler press release from 1989, Chrysler guessed that it would receive orders for 10,000 Cummins-equipped trucks for the 1989 model year. It actually received 19,000, of which Cummins was able to supply 17,000.) It provided a critical bridge to the day in the early 1990s ... when yet another Big 3 truck manufacturer agreed to sign up with the B engine.
Reprinted by permission of Harvard Business School Press. Excerpt of The Engine That Could: 75 Years of Values-Driven Change at Cummins Engine Company by Jeffrey L. Cruikshank and David B. Sicilia. Copyright 1997 by The President and Fellows of Harvard College. All rights reserved.