Executive View -- Life in the Fast Lane

Executive View -- Life in the Fast Lane

Under new purchasing chief Dan Knott, Chrysler is accelerating its efforts to fix supplier relations.

"I think we've gone from -- I'll call it 20 miles an hour -- to 100 miles an hour in a relatively short period of time," explains Dan Knott, Chrysler's head of purchasing, when he describes the pace at which Chrysler has been working to mend its tattered relationships with suppliers.

Knott, who was appointed head of purchasing in December, certainly has his work cut out for him. Planning Perspectives Inc.'s annual supplier working relations index ranked Chrysler last among the major North American automakers in 2008 and 2009 -- a big reason why Knott has made supplier relations one of his top "strategic focus areas."

"It's no fun working in a business where your partner and you are fighting," Knott says. "And my partner is the supplier."

Knott has hit the ground running. The company has reduced the time it takes to resolve supplier claims from an average of 287 days to 105 days. "And we're working hard to improve that even further," Knott adds.

"When I look at where we're trying to take purchasing, and where we're trying to take the company, at the end of the day it's about the best product."
-- Dan Knott, purchasing chief, Chrysler

In January, Knott rolled out a new policy changing the way Chrysler pays suppliers for performing engineering, design and development (ED&D) work on certain new-vehicle programs. Such ED&D work typically requires a large upfront investment by the supplier, and if the program is canceled or does not meet its volume projections, the supplier can take a loss. Consequently, Chrysler now is paying some suppliers a percentage of what they are owed at predetermined milestones before and after the vehicle begins volume production, particularly for ED&D work that is unique to Chrysler. The automaker will pay those suppliers the balance of what they're owed for their ED&D work six months after volume production begins.

Another priority has been addressing longstanding supplier grievances. Knott credits former purchasing chief Scott Garberding and other company leaders for resolving "a lot of those legacy issues" during the bankruptcy process in 2009, but he acknowledges that some unresolved issues remain.

"My objective is to get those fixed before we even start quoting new business, so we have a really clean slate going forward," Knott says. "Then I can judge each supplier based on the merits of their new-business quote versus the legacy issues they brought to the table at the same time."

Knott cautions that resolving those legacy issues "won't be a love-in." "It'll be fair, on both sides of the table," he says.

Rapprochement with suppliers is just one element of Knott's purchasing strategy. Emphasizing the potential synergies between Chrysler and its new partner, Fiat SpA, Knott's plan estimates that Chrysler can save up to $3.4 billion over the next five years by aligning the two automakers' purchasing organizations, sharing suppliers and components, and collaborating on purchasing strategies.

Still, Knott will need strong supplier partnerships to achieve his goal: Nearly one-fourth of that savings is projected to come from technical cost-reduction ideas generated by the supply chain. To ensure that Chrysler has a mechanism to funnel those ideas, Knott's plan calls for the creation of a dedicated technical cost-reduction team staffed with purchasing and engineering experts.

"In the past, suppliers would bring cost-reduction ideas, and at times we wouldn't have the capacity to execute them or we didn't necessarily have a champion in the company to execute them," Knott explains. "So we missed out on some of those value opportunities, and there was some level of frustration in the supply chain, because [they were saying], Look, I have all these ideas and you're just not taking advantage of them.'"

Knott, a Detroit native, joined Chrysler in 1988 as a senior engineer and rose through the ranks of product development to vice president-level positions in recent years. Prior to being appointed the interim head of purchasing in September, Knott was Chrysler's head of vehicle engineering and vehicle line executive for the A/B segment. Not surprisingly, Knott views his purchasing goals through the lens of his product development experience.

"When I look at where we're trying to take purchasing, and where we're trying to take the company, at the end of the day it's about the best product," Knott says. "I can have the best purchasing system, I can have the best purchasing team, I can write the best purchase order, but if I don't have the best product, it really doesn't matter."

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