Chrysler Revives the Classic Spirit of Adversarial Relationships

Feb. 13, 2008
In the U.S. automotive industry, the idea of collaboration between the OEMs and suppliers usually boils down to: "If you'll keep your prices as low as we want, then we'll continue to buy from you." Certainly, that's not the way it ALWAYS works, but for ...

In the U.S. automotive industry, the idea of collaboration between the OEMs and suppliers usually boils down to: "If you'll keep your prices as low as we want, then we'll continue to buy from you." Certainly, that's not the way it ALWAYS works, but for the most part, the idea of working closely with suppliers seems to be completely foreign to their standard operating procedures. "Foreign" is the operative word in that sentence, since some Japanese automakers have done quite well with that type of win-win relationship.

Last week Chrysler canceled its contract with Tier One supplier Plastech, which not only led Chrysler to shut down production at four assembly plants, but also caused Plastech to file for bankruptcy protection. At one point, Chrysler was contemplating closing all 14 of its plants. Chrysler, of course, is still struggling to reestablish itself as an independent automaker, in the wake of the Daimler breakup and subsequent acquisition by Cerberus.

That got me to thinking about Thomas Stallkamp, who rose through the purchasing ranks to become president of Chrysler back in the 1990s, in the pre-Daimler days. I had the chance to interview him a couple times, and one of those conversations ended up in my book, Supply Chain Management Best Practices:

When he was head of purchasing for Big Three automaker Chrysler Corp., Thomas Stallkamp used to think all the time about collaborating with his key supply chain partners. As the nucleus of its own supply chain hub, Chrysler was in a good position to demand whatever it wanted from its suppliers. Like the other major automakers, Chrysler existed in a marketplace where just a few U.S. companies (Chrysler, Ford, General Motors) got to be the king, and all the links to their supply chains occupied progressively lower ranks.


n the 1990s, when Chrysler was staring down one economic crisis after another, it became clear that a new approach to supplier management was needed. That led Stallkamp to look closely at the approach up-and-coming computer maker Dell was taking by forming tightly knit partnerships with its most important suppliers, an approach known as the extended enterprise. These types of collaborative partnerships are characterized by shared goals and rewards, clearly defined roles and responsibilities, and open lines of communication.

For years the American OEMs have been facing an expanding threat from Japanese automakers, so fittingly Stallkamp seized on a concept that dates back to the postWorld War II days in Japan: the keiretsu. A keiretsu is an integrated group of companies that function as a joint partnershipkind of like a supply chain. Stallkamp cites the example of Toyota and its relationship with two Tier One suppliers, Denso and Seiki. "Instead of treating them as distant and independent entities, Toyota shares product planning and proprietary cost information with these two companies," he explains. :Both companies assume complete responsibility for developing the components that they are assigned on a Toyota project," with employees from each of these three companies often working in each other's facilities.

The key, Stallkamp emphasizes, is that Toyota trusts its suppliers to meet their development and production deadlines. "Working jointly and in such close cooperation with its own keiretsu is one way that Toyota is able to leverage its development of new products and come to market more quickly than the domestic American automakers," he observes. Stallkamp introduced that idea of establishing and fostering a closer relationship with Chrysler's own suppliers at his company, where an Americanized version of the keiretsu became known as Chrysler's extended enterprise.

"The extended enterprise is a philosophy that we implemented which integrates selected suppliers in the whole supply chain," Stallkamp recalls. "Instead of looking at them as separate links in the chain, we concentrated on the chain itself and on managing that concept. Instead of managing the chain in little segments, we tried to do it holistically."

That led to the formation of Chrysler's SCORE (Supplier Cost Reduction Effort) program. For the automotive industry, SCORE went beyond high concept and actually delivered on what the academics had been punditing about for yearsa living-and-breathing model of strategic collaboration with supply chain partners. By seeking cost reduction solutions from its suppliers rather than demanding across-the-board price cuts (a tactic then in vogue at rivals General Motors and Ford), Chrysler not only rebounded from an economic crisis in the early 1990s but in fact achieved cumulative savings of $5.5 billion throughout the decade thanks to SCORE.

The natural tendency of companies when they get in trouble is to become more adversarial, but the opposite approachpartnering with your suppliers to develop collaborative relationshipsis the best course of action, Stallkamp believes.

Many people mistakenly thought that SCORE was just a cost reduction program, he notes. "It was actually an idea generation program." For instance, Chrysler's research and development (R&D) costs were the lowest percentage of sales of any automotive OEM, and yet the company was able to introduce more new vehicles than its competitors. How? By tapping into the R&D capability of its suppliers. Since Chrysler was awarding long-term contracts to suppliers who could meet defined targets, those companies came to view Chrysler as the best company in which to invest their limited R&D resources. It became a win-win situation for all those involved.

That was then, of course, and Stallkamp left Chrysler years ago. What's the prevailing philosophy at Chrysler today? Here's Bob Nardelli, one-time head of Home Depot and current CEO of Chrysler, talking to a Wall Street Journal reporter: "We have to stay competitive. Our customers expect that. Obviously if are not financially sound, we certainly aren't in the business of subsidizing. No hard feelings, no animosity, just solid business practices."

Chrysler's sales in January, by the way, were down 12% from where they were a year ago. Solid business practices, indeed.

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