A recent posting by David Blanchard in his Industry Week blog Chain Reactions commented on Chrysler’s recent decision to cancel its contract with Tier One supplier Plastech, which not only caused Plastech to file for bankruptcy protection, but also required Chrysler to temporarily shut down production at four of its own final assembly plants. David references the past history of efforts by former Chrysler executive Thomas Stallkamp to initiate a multi-year initiative of strategic collaboration among its suppliers, similar to an Americanized version of Toyota’s kiretsu framework, and how this apparent new era of Bob Nardelli, so completely eradicates these efforts.
I could not agree more.
Any management professional who studies companies that truly manifest both innovative, as well as industry competitive supply chain will soon come to understand that the majority of these companies view their suppliers as an integral part of the fabric of their overall value-chain network. As such, these suppliers contribute to innovation and reap the same rewards as their customers. If cost reduction is a goal, it is a shared goal. The same is true in product innovation.
But, as an industry observer, it’s still amazing how this tenet escapes certain North American automotive OEMs. Is it any revelation that so many of the North America OEMs now find their Tier One suppliers have either filed for bankruptcy, seek private equity funding, or have just gone away. I read a statistic about two years ago that up to $50 billion in Tier one automotive assets was for sale, while private equity waited to pounce. Certainly there are issues of legacy of high health care, pension and other labor costs, but solutions have taken far too long.
Now some of you out there would argue that these are the natural forces of the market at work, and if these companies could not compete, they should go away. But many foreign manufacturers (Toyota, Honda, Hyundai, Kia, and others) have a successful and growing manufacturing and market presence in North America. They have transplanted the tenets of supplier collaboration to all of their global value-chains. The evolving auto manufacturers in China and India are showing an eagerness to also mature their supplier collaboration practices.
Perhaps Mr. Nardelli and Chrysler’s new management team need to understand that running a company, including its value-chain purely by the numbers, at the expense of valued suppliers, is a very short sighted strategy.