1999. GM benefited by having direct control of its parts-making operations and from economies of scale.

Chrysler Corporation (now part of DaimlerChrysler AG), partly in response to its desperate financial condition in the 1980s, began leveraging its capabilities through extensive outsourcing. The company then reduced the number of redundant participants in its vast supply chain, providing more work for the remaining participants in return for lower prices. Remaining participants were also given increased responsibility for quality and just-in-time delivery. With this approach, Chrysler reduced its costs, its in-house inventories, and the number of product defects and increased the efficiency of its internal assembly lines. In an attempt to gain even more benefits from its suppliers, Chrysler is increasingly involving them in product development and mandating annual improvements in production efficiency. This has resulted in further cost reductions and faster development of increasingly innovative products.

Relationships between OEMs and suppliers in the U.S. auto industry have traditionally been adversarial. Products were designed with little input from suppliers; suppliers were selected by competitive bidding based almost solely on price; and purchasing agreements allowed suppliers little flexibility. Although the transition from an adversarial approach to a partnership arrangement with a free flow of ideas has been exceedingly difficult, Chrysler has made substantial progress. Instead of competitively rebidding supply contracts every two years, most of Chrysler's agreements now extend over the life of the model, and sometimes beyond. Essentially, Chrysler's business is the supplier's to keep as long as the supplier performs well on the current model and meets cost targets on the next.

The results of this approach have been dramatic (Dyer, 1996):

  • New vehicle development time was reduced from 234 weeks in the 1980s to approximately 160 weeks in the mid-1990s.

  • The cost of developing a new vehicle dropped by an estimated 20 to 40 percent.

  • Chrysler's average profit per vehicle increased from $250 in the mid-1980s to $2,100 in the mid-1990s.

  • Under the old system, 12 to 18 months of the development process were devoted to soliciting bids, analyzing quotes, rebidding, negotiating contracts, and tooling suppliers for production. Additional time was required to solve problems encountered by suppliers who, having bid successfully, attempted to manufacture components they had not designed. Under the new system, suppliers are involved throughout the process, from initial concept through

The National Academies of Sciences, Engineering, and Medicine
500 Fifth St. N.W. | Washington, D.C. 20001

Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement