Stages of New Supplier Relationship Stage I Reduce number of suppliers Get suppliers to deliver parts just-in-time Improve supplier quality Stage II Involve suppliers in product development Involve suppliers in process improvement Suppliers have business for the life of a model Share in the rewards as well as risks

Accomplishments Development time reduced from 234 to 160 weeks Development costs per vehicle declined by 20-40% Fewer engineering hours needed per vehicle (ER&D) Can purchase hard tools 40+ weeks later than before – and still allow hard tools to be cut after prototypes are completed Number of new models developed increased from 4 to 6 with the same total size engineering staff Profit per vehicle increased from $250 to $2110

Development and Launch Costs (percent)

Product Design Engineering Changes Product Design Typical Project Potential Timeline Engineering Changes Efficient Product Development Processes

Catalysts for New Relationship With Suppliers Benchmarked Honda Integrated NPD teams Selected suppliers based on history of good relations, track record for quality, and meeting cost targets Acquisition of AMC AMC used these practices too (by necessity) François Castaing is made chief engineer Glenn Gardner from Diamond-Star Motors became head of re-launched LH program

Retail Customers 50 million Retail Customers 50 million Vehicle Dealers 50, ,000+ Vehicle Manufacturers Tier I Suppliers 1,500 1,500 Tier II Suppliers 50, ,000+ Tier III and IV Suppliers 250, ,000+ Global Automotive Value Chain

Implications of Presourcing and Target Costing Choose suppliers early in vehicle’s concept development stage Full responsibility given to supplier for designing, prototyping, and manufacturing the component Pre-qualified suppliers are selected for NPD teams Design to target cost

Target Market Price $20,000 Less:Profit Fixed Costs Manufacturing Costs Transportation Warranty $11,750 Target Material Cost $8,250 Individual component cost targets Target Costing

SCORE Needed to motivate suppliers and build trust Four senior leaders visited key suppliers Senior leaders overruled engineers on suppliers’ suggestions Focused on improving DCX and lower tier suppliers first Offered to share the savings with suppliers SCORE incorporated into suppliers’ overall performance rating – suggestions should lead to cost reductions equal to 5% of the supplier’s sales, plus reductions in weight, parts, warranty claims Suppliers could share cost-savings or raise their performance rating

In 1999, 7,900 Electronic submissions resulted in $2.8 billion of suggestions Score On-Line

Enhanced Supplier Involvement Suppliers’ engineers in residence at DCX Supplier Advisory Board from executives of 14 top suppliers Annual and quarterly meetings with 150 top strategic suppliers Suppliers investing in dedicated assets (plant & equipment) Suppliers offered longer commitments (life of model)

Chrysler- An American Keiretsu? DCX has little or no equity in its supplier base Career overlaps between Japanese companies and suppliers But it’s harder for DCX to drop an underperforming supplier and it can benefit from Toyota’s and Honda’s upgrading efforts DCX still has four times as many suppliers in the U.S. as Toyota does in Japan Initiatives have not penetrated to lower supplier tiers