Home > Articles > Software Development & Management

  • Print
  • + Share This
This chapter is from the book

Comparing the Two Approaches

On the surface, the GM/Lopez approach might not appear that different from the Chrysler Extended Enterprise approach in the results achieved. Both were cost-reduction programs, and both served their initial purposes in the short run because both companies reduced their cost base. But the differences are much more than just style and approach. The arbitrary nature of Lopez's demands created deep-seated animosity within the General Motors supply community that impacted their development of new products. Although some current prices were reduced, suppliers began to talk about turning down future contracts because their profitability was in question. Lopez's successor quickly moved to rebuild the element of trust, to avoid widespread defection from General Motors. More than 25 percent of the parts being procured had been resourced to new suppliers under Lopez in the short period of nine months he had been in power. Industry and financial analysts have cited this action as one of the reasons GM's quality deteriorated during this period. This resourcing created turmoil and dislocation in a system that was already fragile from a quality standpoint.

The Chrysler Extended Enterprise system encouraged continuity by having suppliers work toward defined targets on future programs as well as current ones. The targets for new models were based on market-driven prices supported by the projected selling price of the new vehicle. If a firm could meet those targets, it was awarded the business on a long-term basis. It could count on Chrysler not to arbitrarily change its mind and demand more concessions, as long as the objectives were met. In this manner, the stability of the commercial relationship was more secure. Stability meant less need for protection actions, such as front-loaded profits. If the contract was long term and the customer was predictable and reliable, the supplier's profits could be more evenly spread over the period. Suppliers viewed the Chrysler business as a better place to invest their limited development money.

Chrysler began to enjoy greater investment in new products because of the stable and defined relationships promoted there. Chrysler was able to introduce more new models faster using less of its own capital because suppliers were more inclined to bet on their futures. As previously mentioned, this then led to business relationships founded on predictability and fairness.

In a way, it was fortunate for General Motors that Lopez defected back to Europe when he did. If he had been permitted to continue, the animosity his approach created might have led to a major dislocation in supply at GM. There is a place where the short term meets the long term, and Lopez was on his way to destroying both with his unique relationship-management style.

  • + Share This
  • 🔖 Save To Your Account