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A Completely Different Approach

I came into the job of running Chrysler's procurement and supply activity in 1990. After spending a career of almost two decades watching and participating in the harsh world of automotive procurement, I had decided it was time to try something different in management techniques. By the time 1992 arrived, the Chrysler Corporation was in full swing with its unique and different approach to managing suppliers. As mentioned earlier, Bob Lutz had given full corporate support to adopting a system utilizing the suppliers as partners with Chrysler in both production and development—that is, a collaborative approach to dealing with its supply base. Using a detailed proprietary goal and measurement system labeled SCORE, for Supplier Cost Reduction Effort, the company was wringing costs out of its system by soliciting and approving supplier ideas to change the old operating system. Suppliers were asked to outline ways in which doing business with Chrysler was creating costs in either their systems or Chrysler's systems. Instead of mandating reductions or price decreases, Chrysler offered to work with the supply base to implement submitted ideas that streamlined the business or eliminated redundant efforts and costs.

Although it took some time to get started, by 1992, the SCORE approach had been incorporated into a supply-management philosophy called the Extended Enterprise. The concept was to treat suppliers and dealers as independent extensions of the firm. Because their destiny and fortunes were directly linked to Chrysler's, the idea was to build a virtual team atmosphere in which all parties focused on reducing the cost of developing and producing vehicles. The constructive supply-side suggestions worked to reduce both the supplier's costs and those at Chrysler. There were no firm rules for submitting the ideas, and no area of the company was off-limits to outside ideas. An essential element was that the savings that resulted from these ideas were voluntary and up to the supplier to define and contribute. Chrysler did not dictate the amount nor the manner that savings were to be achieved. Instead, they turned the situation around and asked the suppliers to identify ways that they could reduce their costs in doing business through their own eyes, rather than from Chrysler's view. This was previously unheard of in an industry where the Big Three always dominated the control.

Chrysler encouraged its suppliers to contribute most of the savings in the way of price reductions, but it also encouraged them to keep some of them, to reinforce their profit margins and redirect it into their own businesses. This concept of sharing the savings with the suppliers was truly unique, and the supply base members quickly supported it. A relatively simple data system recorded and monitored the savings.

The approach required close cooperation among all areas of the company, especially procurement and engineering. These two normally separate departments jointly developed and shared the cost-reduction targets for SCORE. Weekly reports followed the submission of supplier ideas and were tracked to the appropriate internal area that would approve the suggestion. This prevented ideas from languishing in the system, as had previous attempts to solicit ideas from the supply base. This internal follow-up removed the skepticism that initially greeted the program. Chrysler's internal communications highlighted measurements of how suppliers were performing, and the mainstream media publicized the success stories, to help spread the word that this alternative program was working. The auto industry is a very close community, and word quickly spread about how the Extended Enterprise was working.

The Extended Enterprise concept also relied on the assumption that the business relationship would continue over time. Chrysler promoted the idea that as long as cost, quality, delivery, and technology targets were met, the business relationship would be preserved and not resourced. Instead of using traditional resourcing, if a problem in one of these areas occurred at Chrysler, the supplier was given a chance to correct it before an alternative supplier was introduced. Resourcing is a common practice in purchasing, in which an existing contract is terminated, and the production and revenue are moved to a new supplier.

The Chrysler system was in operation when Lopez arrived on the scene in Detroit. Although the Chrysler system had produced some significant initial savings that totaled more than $500 million in cumulative costs by mid-1992, some skeptics thought that this was low-hanging fruit and questioned whether it could be sustained. Many industry reporters and analysts waited to see if we could honor and hold to our promise of sharing the savings and respecting long-term commitments. The fortunes of Chrysler began to improve during this time because of both the cost reductions that SCORE and the Extended Enterprise produced, and the expanding volumes of minivans and sport utility vehicles. To continue its progress, Chrysler needed to accelerate its programs. The arrival of the Spaniard with a different approach at General Motors turned out to provide that acceleration.

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