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Business Gravitates to the Easiest Relationship

The fury and turmoil that Lopez's actions at General Motors created played into the hands of Chrysler. We never considered Lopez a threat or an enemy, but the press quickly turned our two vastly different approaches into a personal battle. This was helped along by the business press, but even more by suppliers who had previously been skeptical of the Extended Enterprise. They needed to be shown that companies could be trusted because the system in which they had operated for so long played on mistrust and suspicion. Chrysler had begun to build a different order of doing things, but it was so contrary to the existing norm in the industry that it took another push to convince the doubters. GM and Lopez provided that additional emphasis.

As General Motors turned up the heat on its suppliers for more price concessions, the general climate became much more supportive of what we were trying to do at Chrysler. The supply bases were very similar between the two companies, as they are in any industry, be it aerospace, retail, or financial services. Suppliers in a given industry tend to isolate themselves to that industry because of common products and services and lower overall cost. Most industry analysts estimate that the amount of common suppliers in the domestic auto industry in the 1990s was 80 to 90 percent, meaning that the same supplier would provide similar parts to each of the Big Three automakers. Gone were the days when each company built its own loyal supporting cast of suppliers. The efficiencies of spreading costs over all three major manufacturers resulted in a very concentrated industry.

The aggressive and controversial actions of GM drove suppliers to look more closely at the more collaborative model being promoted at Chrysler. The comparisons were obvious. The GM model was arbitrary and dictatorial, and it placed the supplier at a disadvantage by always threatening to resource the business if a lower-cost manufacturer were found elsewhere. Chrysler's model was collaborative, based on shared savings, and it encouraged the suppliers to be in charge of their own businesses. The comparisons between the two systems were dramatic, and these helped fuel the controversy in Detroit over which system could produce the largest and most lasting results.

The Big Three purchasing executives had been meeting for several years before Lopez arrived to discuss common ways to improve the industry in areas such as communications, quality initiatives, and other nonproprietary or competitive areas. One of these common areas involved a survey of the supply base members to determine the relative differences in suppliers' perception of the automakers. A consulting firm of university professors was hired to quantify the differences between the Big Three manufacturers and the rest of the recent transplanted companies. After much negotiation, the Big Three purchasing departments all agreed to use this independent group to survey the common supply base. They developed a statistically valid survey to be sent to thousands of people who dealt with the original equipment manufacturers (OEMs). The three companies funded the survey, and each was allowed its own separate questions, although there were approximately 14 common questions on such things as trust factors, level of engagement, arbitrary cost pressures, and similar business issues.

The results of the study2 confirmed what Chrysler believed. Relationships do matter, and there was a wide variance among the three Detroit manufacturers. It showed that there were large differences in the ways the domestic manufacturers approached their suppliers from the ways used by the newly arrived foreign-owned OEMs. The main difference was in the positive manner in which the foreign transplants established an atmosphere of trust and close cooperation with their suppliers.

Figure 1.1 shows the results for the critical category of supplier trust versus the benchmark in the industry, Toyota. While the Chrysler program was in effect, Chrysler consistently equaled Toyota. Only after the merger with Daimler-Benz in 1998 did it begin to fall as the emphasis became more traditional.

Figure 1.1Figure 1.1—Supplier Trust of Chrysler

Although the domestic manufacturers continued to rank lower than the foreign transplants, Chrysler scored significantly higher than General Motors in such areas as trust, fairness in relationships, ability to generate cost savings, and ability to build relationships. Chrysler believed this survey accurately reflected the attitude in the industry and validated that the company was on the right track for changing the system.

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