DETROIT -- Chrysler Group is pressing its big suppliers to buy more parts from minority-owned suppliers.
Dan Knott, 51, Chrysler's head of purchasing, said the company is measuring how much business its Tier 1 suppliers do with companies owned by women and members of minority groups.
If their efforts are minimal, the Tier 1s could lose business with Chrysler, Knott said.
Here's how it works: The Tier 1 supplier's 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, indicating minimal effort to find minority suppliers, 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 1s. 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.
In 2011, 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 -- purchases from Tier 1 and lower -- by $915 million to a total of $4 billion, Knott said,
Chrysler also 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.
"I applaud what Chrysler is doing," said Jerome Harvey, 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?"