A year after Fiat Chrysler CEO Sergio Marchionne blasted suppliers for their double-digit profit margins, the company has changed its tune and is adopting a more supplier-friendly approach in its purchasing operations.
FCA purchasing chief Tom Finelli told parts makers last week at the CAR Management Briefing Seminars in Traverse City, Mich., that the company no longer would hold its parts buyers to individual cost-saving goals.
Those targets had effectively tied the buyers' hands if a supplier sought pricing relief or offered a higher-quality component because failure to achieve cost-saving goals reduced the buyers' individual compensation.
"This sort of hit us across the face a few weeks ago," said Finelli, FCA's purchasing boss since August 2014. "We realized that our relations with suppliers were positive at the leadership level but were struggling at the buyer level."
The new policy takes effect in January. It was greeted warmly, if cautiously, by suppliers. A year ago in Traverse City, many of them were stunned when Marchionne said he wanted to "share" in suppliers' healthy profits.
"I'm not 100 percent sure it will help [FCA], but I think it takes a lot of pressure off of the buyers," said Tom Bommarito, FCA business unit director for supplier Flex-N-Gate Corp. "We have a lot of young buyers, and honestly, a lot of them are scared to death."
Bommarito said Flex-N-Gate does "a little over $1 billion a year" with FCA, selling parts such as pickup bumpers.
"These productivity givebacks year on year are really a struggle," he said. "It gets really contentious. Taking [the savings goals] up a couple of notches takes a lot of pressure off of the younger folks in the cubicles."
Finelli said FCA still aims to keep costs in check, but that teams of buyers would work together to meet goals. Buyers can miss their individual targets and allow higher prices, but their compensation wouldn't necessarily be cut if the team meets its goal.
The new plan also lets parts buyers choose a higher quality part, even when a lower cost one is available, he said.
Finelli said consumer-judged quality has replaced cost as the first consideration when FCA buys parts.
Before, cost was the first hurdle a supplier had to clear to stay in consideration.
In its annual supplier survey this spring, Planning Perspectives Inc. said FCA tied for last among six major automakers in the U.S. in supplier relations, getting nicked for slow payments and failing to help vendors cut costs.
Finelli said, "We felt that a dramatic shift was required."