Chrysler's new purchasing chief maintains the company is moving fast to fix or replace its troubled suppliers, and is aiming to share more parts makers with Fiat, says SupplierBusiness

Daniel Knott also set forth an aggressive plan for reducing purchasing costs through synergies with Fiat as the U.S. company unveiled its 5-year plan last week in Auburn Hills, Mich.

Chrysler, under Fiat control since June, has moved sourcing away from 60 troubled suppliers representing 5 percent of the annual purchasing spend and it has "jump-started" efforts to optimise its supply base, Knott said.

The number of suppliers on Chrysler's watch list in 2010 is expected to be reduced by 50 percent, according to Knott, who also unveiled plans for an aligned Chrysler-Fiat Group Purchasing Organisation.
At its peak earlier this year, over 150 suppliers were on Chrysler's financial watch list - representing 34 percent of the annual spend. Knott said Chrysler avoided substantial costs in 2009 through aggressive case management of the problem suppliers.

Meanwhile, he said that Chrysler and Fiat are moving quickly to use more common suppliers. By 2014, Chrysler expects that the number of shared suppliers with Fiat will rise from 52 percent to 65 percent. The two companies have a combined US$68 billion in purchasing might - US$40 billion for Fiat and US$28 billion for Chrysler.

"Purchasing power has more than doubled," said Knott.

Shared suppliers will have a chance to compete for greater volumes and drive common solutions, he said.

Nearly US$3 billion in savings by 2014

Synergy will mean savings. Knott forecast parts cost reductions through new dedicated teams, collaboration with Fiat and its suppliers, and component sharing that will lead to new sourcing opportunities across global platforms.

The targeted cumulative savings for the 5-year span are nearly US$3 billion in direct materials and US$400 million in indirect materials. He forecast savings through cost reductions and synergies of 2.5 percent in each of the next three years and 2 percent increases in both 2013 and 2014.

That translates to gross savings of US$600 million next year; US$765 million in 2011; US$825 million in 2012; US$710 million in 2013 and US$750 million in 2014.

Higher prices of raw materials will reduce those cumulative net savings to about US$2.9 billion through 2014.

Almost half of overall savings are expected from synergies through aligned teams and weekly synergy meetings. The two companies plan to develop shared strategies for all major commodities and major suppliers.

Knott, who cited several examples of savings already realised through the new relationship, said Chrysler expects to achieve greater insight into global supplier capability and to leverage best-cost country opportunities as well as maximize value engineering and parts communication.

Chrysler will leverage Fiat's regional sourcing offices in Shanghai, China; Turin, Italy; and Chennai, India.

Improved quality and better supplier relations

Knott also promised an "unwavering commitment to part quality" through increased resources and "rigorous compliance with supplier quality guidelines". He also said that supplier relationships would be "significantly improved through increased communication and streamlined internal processes."

In May, Chrysler had the lowest ranking in Planning Perspectives Inc.'s annual survey of supplier relations in the U.S. industry.

Knott, who was most recently head of vehicle engineering, said the purchasing department has been realigned to fit Fiat's structure. Chrysler's former organisation included departments for Chassis & Interior; Commodity; Electrical & Powertrain; Indirect; Operations; Raw Materials & Structural Components; and Supplier Relations.

The new organisational structure mirrors Fiat's structure precisely, consisting of Departments for Metallic; Mechanical; Chemical; Electrical; Services; Indirect; Technical Cost Reduction; Supplier Quality Engineering; and International.
This article was supplied to just-auto by SupplierBusiness, an IHS Global Insight company.