Chrysler forecasts $3B in savings through joint purchasing deals
New purchasing chief outlines carmaker's procurement plans
Dave Hannon -- Purchasing, 11/5/2009 2:00:59 PM
Chrysler and Fiat plan to share more suppliersOfficials from the Chrysler Group this week outlined its broad plans for the company's turnaround, including a detailed outline of its purchasing overhaul and strategy that Chrysler officials expect will save the company almost $3 billion in the next five years through joint purchasing deals with its new owner, Fiat.
In the presentation, newly appointed Chrysler purchasing chief Dan Knott gave a detailed look at changes in Chrysler's purchasing organization and strategy that focus primarily on leveraging supplier relationships and spend across Fiat's automotive and manufacturing units.
Chrysler's total spend is around $28 billion, while Fiat's is significantly larger, at $40 billion. To leverage that combined spend, the two organizations plan to increase their shared suppliers from 52% in 2010 to more than 65% in 2014. According to Knott's presentation, the key elements of Chrysler's purchasing plan include:
- Supply base optimization driven through an aligned Chrysler-Fiat Group purchasing organization
- Part cost reduction through new dedicated teams, collaborating with Fiat Group and suppliers
- Component sharing creating new opportunities across global platforms
- Unwavering commitment to part quality through increased resources and rigorous compliance to supplier quality guidelines
- Improving supplier relationships through increased communication and streamlined internal processes.
To foster more collaboration between the two firms' purchasing teams, Chrysler's purchasing organization is going to be overhauled to mirror that of Fiat. Chrysler also plans to leverage Fiat's regional sourcing offices in regions such as China, Korea and India. (See also: Fiat Group to increase India auto parts sourcing)
Chrysler also plans to realize savings from organizational changes to better leverage Fiat's organization. These plans include:
- Aligned teams holding weekly synergy meetings
- Developing shared strategies for all major commodities and major suppliers
- Achieving greater insight into global supplier capability and leveraging best cost country opportunities
- Maximizing value engineering and part communization.
Chrysler will create a cross-functional and dedicated technical cost reduction group and process that will focus on working with suppliers to generate and execute ideas. That group will include 24 purchasing staffers and 40 engineers.
All totaled, Chrysler expects the changes will bring about a
2.5% gross savings for each of the next three years and 2% in the two after
that. The direct materials savings alone will reach nearly $3 billion, while
indirect savings should bring another $400 million in savings, Chrysler
officials said. 
Chrysler's planned savings from procurement changes will lead the company to profitability
Combining those savings with a host of other initiatives, Chrysler expects to be able to break even in 2010 and post a net profit in 2011. It also said it plans to pay off all of its government loans by 2014.
Knott's presentation wasn't only a forward-look, however. He pointed out that Chrysler faced some daunting supplier-related issues in 2009. At one point this year, 150 of its top suppliers, representing 34% of its total spend, were on the financial watch list. In May, before its deal with Fiat was finalized, Purchasing.com reported that Chrysler had received approval from a bankruptcy court to pay its suppliers.
With that in mind, Knott's plan as outlined includes expanding Chrysler's supplier advisory council, more frequent communication with suppliers and a new supply chain management organization to "optimize inventory to meet demand." The company will also add more than 80 supplier quality experts to its organization next year and increase training and engagement with suppliers.
Who is Dan Knott?
While it's not clear when Dan Knott joined Chrysler's purchasing organization, it appears to be a recent move. Former purchasing head, Scott Garberding, who was named purchasing chief less than a year ago, was moved to head of world class manufacturing in only in September.
Knott's selection is a nod toward the company's focus on new product development. As recently as October, Knott was listed as a "head of vehicle engineering" in this video, in which he helped fellow exec Ben Winter explain the tailgating features of the Grand Caravan. And in January, Knott was appointed to the post of vice president of the Jeep Product Team to lead development of all Jeep vehicles. Prior to that role, Knott served
as vice president of product development core components, processes and international engineering.
Sidlik to retire from DaimlerChrysler
02/09/2010How Chrysler will cut costs
02/07/2001Chrysler gets OK to pay suppliers
05/06/2009Chrysler to offer 'Employee Pricing' in July
06/21/2006
Now Playing: 
