Editor's note: An earlier version of this story gave an incorrect figure for Chrysler-Fiat's annual expenses for parts and materials.
DETROIT — Chrysler Group's purchasing boss says his company has put "teeth" into its effort to encourage its largest suppliers to buy more parts from minority businesses.
If the big suppliers fail to do so, Dan Knott says, it could mean lost business with Chrysler.
Knott, 51 -- who oversees a large portion of the $90 billion in annual parts spending at Chrysler-Fiat -- said suppliers are scored annually on their "minority sourcing performance," or how much business they do with companies owned by women and members of minority groups.
The minority sourcing score normally represents 5 percent of the Tier 1's overall score with Chrysler, which helps determine whether a purchase contract is signed. But if the Tier 1's minority sourcing score is zero, the minority score is elevated to represent 20 percent of that Tier 1's overall score.
"Now we're putting some real teeth into it, and we can influence the Tier 1/Tier 2 behavior through the Tier 1's. We just have to be smart about how we're doing it," Knott said.
Last month Knott was named the chairman of the Michigan Minority Supplier Development Council, a post he will hold through 2013. He replaced Tony Brown, Ford Motor Co.'s head of purchasing, in the position.
Last year Chrysler introduced its program to encourage Tier 1 suppliers to increase their spending with minority-owned businesses. In its first year, the program increased Chrysler's annual spending with minority suppliers — Tier 1 and lower — by $915 million to a total of $4 billion, Knott said, and increased the share of its total spending going to Tier 2 minority suppliers by 80 percent to a total of $1.9 billion.
During a conference in February, representatives from domestic and foreign automakers and suppliers told the Original Equipment Suppliers Association that automakers typically had minority spending targets of 8 to 10 percent of their overall spending, with targets for their Tier 1 suppliers of 5 to 10 percent.
Knott's Michigan Minority Supplier Development Council, which has about 750 members, is affiliated with the National Minority Supplier Development Council. The group is a privately funded, nonprofit, corporate services organization that supports minority business enterprises, in automotive and other industries. It is not associated with the Original Equipment Suppliers Association.
"I applaud what Chrysler is doing," said Jerome Harvey, president and CEO of Harvey Industries, a minority-owned supplier in suburban Detroit that makes metal and polymer castings for the auto industry. "I happen to be a diverse supplier, and they're holding me accountable as well for having some diversity in my [business]."
Knott said he and Chrysler-Fiat CEO Sergio Marchionne believe that a diverse work force and supplier organization lead to better products.
"We're trying to create a business model that represents our customer, which is critical," Knott said. "The other part is: Are we supporting our local communities?"