Changing from competitive bidding to target costing helped to shift the relationship with suppliers from a zero-sum to a positive-sum game and created an atmosphere in which OEMs and suppliers work together to achieve the target. This atmosphere has fostered a growing trust, which is essential for a successful partnership.
SCORE (the supplier cost reduction effort) continues to motivate suppliers to reduce costs and increase value. The program commits Chrysler to encouraging, reviewing, and acting on supplier ideas quickly and fairly and to sharing the benefits equitably. Suppliers are required to offer annual suggestions equaling 5 percent of their sales to Chrysler. Suppliers can claim up to half of the savings for themselves or share more of them with Chrysler to improve their supplier performance rating and perhaps obtain additional future business. Delighted suppliers throughout the chain have responded with a continuing flow of ideas for improvement.
To facilitate interactions, Chrysler established a common e-mail system with suppliers and schedules face-to-face meetings with them on a regular basis.
The late 1990s merger that created DaimlerChrysler is an example of the global trend toward consolidation in automobile manufacturing. Potential cost savings were a key motivator for the merger, and the new corporation immediately announced that it intended to optimize supplier performance further, building stronger relationships with key suppliers to more effectively manage the entire chain down to the raw material level. First-tier suppliers are expected to play increased roles in managing their own supply chains, producing better products at lower cost and taking the lead in programs, ranging from research and development to the design and production of complete modules.
Thus, Chrysler has achieved a temporary advantage over its competitors through careful outsourcing and management of an extensive supply chain. However, in so doing, they have also helped to create suppliers with extensive competence and muscle. This new situation raises several questions. Will Chrysler's supplier/partners, such as traditional seat suppliers Johnson Controls, Inc., and Lear Corporation, use their positions to seize a greater percentage of Chrysler's revenues and profits? If recent moves away from vertical integration were right for Chrysler, why has vertical integration by the seat suppliers increased their business success? Under what conditions is outsourcing better than vertical integration?
The answers to these questions appear to depend on complex, evolving, industry-specific business criteria, such as which manufacturer can provide the lowest cost capabilities and which capabilities must be