Apr 25, 2009

Chrysler to fall next – to rock the supply chain boat

Stories floating around cannot be ignored. Especially when they come from sources you trust. More often than not, they turn out to be true. The DailyTech news feed reports the following about Chrysler.

“Chrysler, according to a report by The New York Times, is preparing a Chapter 11 bankruptcy filing under government supervision, and will likely file as early as Monday.  The government had offered Chrysler $6B USD in loans if it could complete a merger deal with Fiat, but Fiat has refused to commit to such a deal until the UAW makes steep concessions (which appears unlikely) or the company washes its debts via bankruptcy.”

 

Chrysler11This weakness and the bankruptcy filing (if any) will have major ramifications of Chrysler’s entire supply chain. The effect will also have ripples into the supply chains of other car makers since many of them have common suppliers. This bears more significance since Chrysler has been improving its supply chain structure over time.

Here are few of the steps they have taken which might impact the supply chain in case of an imminent bankruptcy.

    Identifying Problems in New Product Development

    Chief among the concerns facing Chrysler management was a realization that the company's new product development process was inadequate. Developing a new platform, upon which a series of car models could be based, typically required more than five years and fixed costs well over $1 billion. In early 1989, the recently-launched L/H family sedan program (which later became the Chrysler Concord, Eagle Vision, and Dodge Intrepid) was already running a projected $1 billion over budget at a time when the firm was in dire financial straits.

    Benchmarking Study of Honda

    During the mid-1980's, Chrysler had undertaken an extensive benchmarking study of Honda Motor Company. At the time, Honda was expanding its manufacturing and sales presence in the United States faster than either Toyota or Nissan. Chrysler saw Honda as both a formidable competitor and an example of success in the automotive industry. One factor that was carefully studied during the benchmarking exercise was Honda's supplier relations.

      The L/H Program Developing a New Approach

      Chrysler decided to use the re-launched L/H program as the test model for a radically different approach to product development, including a new way of dealing with suppliers. The steps taken by Chrysler in changing their supplier relations were not always by design  trial and error played an important role in the process. However, one consistent factor throughout was the strong commitment of a group of key managers to making the changes work.

      Development of SCORE and Chrysler's Extended Enterprise

      In undertaking the L/H project, several changes were made which broke with tradition. First, to shield it from corporate bureaucracy, the team was moved it away from Chrysler's Highland Park headquarters. Second, to speed critical decisions and eliminate sequential decision-making, a true multi-functional team was established with full authority over the program. Third, it was decided that the L/H program offered a perfect opportunity to experiment with new methods for working with suppliers, drawing on Honda, AMC, and Mitsubishi lessons.

      Key senior management, including Lutz, Castaign, and Gardner were strong advocates of a new approach to supplier relations and supply chain management. Another was Thomas Stallkamp, who in early 1990 had replaced a champion of competitive bidding as Chrysler's new head of purchasing.

      Institutionalizing the Changes

      The transformations that had taken place in Chrysler's product development and supplier relations under the L/H program were recognized as just the beginning, and a major corporate overhaul would be needed to ensure the firm's future success. As a first step, Chrysler extended the SCORE program to the rest of the corporation in 1991.

      Other challenges of remaking the corporation would become the responsibility of a new leader, as there was a changing of the guard at Chrysler. In March 1992, the Board of Directors named Robert J. Eaton as Vice Chairman and Chief Operating Officer of Chrysler. Robert Eaton was an outsider, hired away from GM, where he had been responsible for GM Europe. Less than a year later, Lee Iacocca stepped down as Chrysler Chairman and CEO, and Robert Eaton was elected by the board to fill both posts effective January 1, 1993.

      Click the links for the full case. The case study is from the University of Michigan.

      Apr 25, 2009

      Chrysler to fall next – to rock the supply chain boat

      Stories floating around cannot be ignored. Especially when they come from sources you trust. More often than not, they turn out to be true. The DailyTech news feed reports the following about Chrysler.

      “Chrysler, according to a report by The New York Times, is preparing a Chapter 11 bankruptcy filing under government supervision, and will likely file as early as Monday.  The government had offered Chrysler $6B USD in loans if it could complete a merger deal with Fiat, but Fiat has refused to commit to such a deal until the UAW makes steep concessions (which appears unlikely) or the company washes its debts via bankruptcy.”

       

      Chrysler11This weakness and the bankruptcy filing (if any) will have major ramifications of Chrysler’s entire supply chain. The effect will also have ripples into the supply chains of other car makers since many of them have common suppliers. This bears more significance since Chrysler has been improving its supply chain structure over time.

      Here are few of the steps they have taken which might impact the supply chain in case of an imminent bankruptcy.

        Identifying Problems in New Product Development

        Chief among the concerns facing Chrysler management was a realization that the company's new product development process was inadequate. Developing a new platform, upon which a series of car models could be based, typically required more than five years and fixed costs well over $1 billion. In early 1989, the recently-launched L/H family sedan program (which later became the Chrysler Concord, Eagle Vision, and Dodge Intrepid) was already running a projected $1 billion over budget at a time when the firm was in dire financial straits.

        Benchmarking Study of Honda

        During the mid-1980's, Chrysler had undertaken an extensive benchmarking study of Honda Motor Company. At the time, Honda was expanding its manufacturing and sales presence in the United States faster than either Toyota or Nissan. Chrysler saw Honda as both a formidable competitor and an example of success in the automotive industry. One factor that was carefully studied during the benchmarking exercise was Honda's supplier relations.

          The L/H Program Developing a New Approach

          Chrysler decided to use the re-launched L/H program as the test model for a radically different approach to product development, including a new way of dealing with suppliers. The steps taken by Chrysler in changing their supplier relations were not always by design  trial and error played an important role in the process. However, one consistent factor throughout was the strong commitment of a group of key managers to making the changes work.

          Development of SCORE and Chrysler's Extended Enterprise

          In undertaking the L/H project, several changes were made which broke with tradition. First, to shield it from corporate bureaucracy, the team was moved it away from Chrysler's Highland Park headquarters. Second, to speed critical decisions and eliminate sequential decision-making, a true multi-functional team was established with full authority over the program. Third, it was decided that the L/H program offered a perfect opportunity to experiment with new methods for working with suppliers, drawing on Honda, AMC, and Mitsubishi lessons.

          Key senior management, including Lutz, Castaign, and Gardner were strong advocates of a new approach to supplier relations and supply chain management. Another was Thomas Stallkamp, who in early 1990 had replaced a champion of competitive bidding as Chrysler's new head of purchasing.

          Institutionalizing the Changes

          The transformations that had taken place in Chrysler's product development and supplier relations under the L/H program were recognized as just the beginning, and a major corporate overhaul would be needed to ensure the firm's future success. As a first step, Chrysler extended the SCORE program to the rest of the corporation in 1991.

          Other challenges of remaking the corporation would become the responsibility of a new leader, as there was a changing of the guard at Chrysler. In March 1992, the Board of Directors named Robert J. Eaton as Vice Chairman and Chief Operating Officer of Chrysler. Robert Eaton was an outsider, hired away from GM, where he had been responsible for GM Europe. Less than a year later, Lee Iacocca stepped down as Chrysler Chairman and CEO, and Robert Eaton was elected by the board to fill both posts effective January 1, 1993.

          Click the links for the full case. The case study is from the University of Michigan.