The Chrysler Group wants to rewrite the rules for its suppliers, rewarding the best, and 
potentially booting the worst. 

The automaker intends to issue each of its suppliers a scorecard, based on a variety of metrics,
including but not limited to piece cost, a senior executive from the number three automaker 
explained at last week's Management Briefing Seminars, or MBS, in Traverse City, Mich. Chrysler 
believes the new approach will improve its access to newer technology, improve its quality - 
and still deliver competitive pricing.

"Let's agree that throwing darts is not the best way to select suppliers," said Peter Rosenfeld,
Executive Vice President of Procurement and Supply for the U.S. arm of DaimlerChrysler AG.  

Instead, Rosenfeld explained, the new Highly Integrated Partner Organization, or HI-PO, will 
focus on developing long-term relations with the industry's best suppliers, measured in terms 
of four key considerations: quality, technology and performance, as well as cost. 

"The goal is to pursue a select group that meets strenuous targets," the Chrysler EVP said.  

New crossover first experiment 

To underscore the new approach, Rosenfeld took the unusual step of announcing that both Johnson 
Controls and Magna International have been chosen to participate in the development of a new, 
but unnamed crossover vehicle, set to debut late in 2008.  

It's at least a year earlier than Chrysler would normally lock down contracts for the crossover 
project, but both firms fall into the so-called Reward Zone, and are eligible for what Rosenfeld
called "tangible benefits." Among other things, they will face less competition for future 
contracts, and will be more likely to be brought in early during the product development process.

Chrysler's announcement was welcomed by parts manufacturers, not surprisingly. In recent years, 
the relationship between the Big Three automakers and their suppliers has been testy, at best. 
"The focus has been on nothing but cost, even if it means we can't make money on what we sell," 
complained one Seminars attendee, asking not to be identified by name or company for fear of 
retribution.

But there's a growing sense that this penny-wise policy is pound-foolish, said Neil DeKoker, 
head of the Original Equipment Suppliers Association, another MBS speaker. "Increasingly, more 
of us are coming to realize that we cannot survive" without a more cooperative approach.

"The key to this whole thing is trust," said Keith Wandell, president of the automotive group 
at Johnson Controls. The benefits of Chrysler's HI-PO system, he added, were significant for 
both sides. Suppliers such as JCI would be able to benefit from improved economies of scale and 
more certain relations with Chrysler, said Wandell. 

Meanwhile, Magna CEO Mark Hogan suggested that by bringing suppliers in early, Chrysler will 
benefit, as well. "The enemy of quality and refinement," he warned, "is short lead times and 
late (product design) changes."

HI-PO or go

Not all of Chrysler's nearly 1000 suppliers are likely to be happy with the new HI-PO approach. 
While those who score well will fall into the Reward Zone, suppliers that don't meet Chrysler's 
new metrics could slip into the Resource Zone. And among other things, that means the automaker 
will consider looking for better alternatives. 

Better suppliers will "have the ability to grow at the expense of non-performing suppliers," 
added Bob Schott, Vice President of Worldwide Procurement. 

For the moment, said Schott, the new HI-PO process is limited to the Chrysler side of Daimler-
Chrysler, but "we're likely to spread it" to other operations, such as Mercedes-Benz and Smart, 
he suggested. It will help, said one insider, when Chrysler CEO Dieter Zetsche takes over 
control of the parent company early next year. 

The HI-PO approach has some similarities to the Japanese keiretsu system, Rosenfeld said, but a 
critical difference. "There's no equity stake," the Chrysler executive explained. Under the 
traditional keiretsu set-up, a carmaker like Toyota will have strong financial ties to their 
most significant suppliers. Even that system is under scrutiny, however. As part of its financial
turnaround, Nissan moved away from the classic keiretsu in order to improve costs and access 
newer technology.

Ford may be moving to set up its own HI-PO-style system, but on a very limited basis, according 
to Phil Martens, the automaker's North American product development director. The automaker is 
struggling to boost its hybrid vehicle production capacity, which is limited by the lack of U.S.
parts makers.

"We have to develop the supply base in the U.S. ," Martens said, adding that Ford will form 
strategic partnerships with a limited number of suppliers, rather than follow its normal sourcing
practices.

Several suppliers attending this year's MBS openly wondered whether Ford - or GM - would adopt 
a system like Chrysler's on a broader basis. Officials with the Big Two insist they've been 
trying to form less combative supplier relationships, though recent studies show that parts 
manufacturers still find the Big Two among the most difficult customers to deal with.

Source: http://www.thecarconnection.com/Industry/Industry_News/Chrysler_Reshapes_Supplier_
Strategy.S175.A9039.html1