Chrysler to expand no-bid deals

Larry P. Vellequette
David Sedgwick

Published: October 29, 2012 6:00 am ET

Related to this story

Topics Automotive

DETROIT (Oct. 29, 1:30 p.m. ET) — Chrysler Group plans to bring key suppliers in early on product-development projects and de-emphasize competitive bidding, said Scott Kunselman, the automaker’s new purchasing chief.

With the new approach, which is common at Honda Motor Co. and Toyota Motor Corp., the automaker will award more no-bid contracts to favored suppliers. Chrysler and the suppliers will collaborate early to cut engineering costs, build trust and improve long-term planning.

The approach is another step in Chrysler’s efforts to improve supplier relations under Fiat management. Moreover, Chrysler wants to be a favored partner of newly empowered suppliers straining to produce more parts in a rebounding industry.

Boosting loyalty among its 3,000 suppliers is vital for Chrysler as it pushes its factories and suppliers to keep up with growing demand. The automaker has had 30 consecutive months of year-over-year sales increases. It is on track to increase vehicle shipments 20 percent in 2012, to 2.4 million units, and plans to boost production another 8 percent in 2013, to 2.6 million units.

“For the most part, the business we place today is through a quoting process. We will, moving forward, look to migrate to a presource arrangement,” said Kunselman, 49, who became Chrysler’s purchasing chief in April, succeeding the late Dan Knott.

But such no-bid arrangements are difficult to maintain, say supplier experts. They require substantial trust, transparency and discipline from the supplier and the automaker — requirements that grow harder to maintain as each side jockeys to improve its profits as the contract matures.

Tried before

The long-term, no-bid agreements give suppliers more predictable revenue, allowing them to invest with reduced risk. They also allow suppliers to join automakers’ engineering programs early, which typically enables them to cut costs. And suppliers say they provide their best technology to automakers that are loyal to them and offer the best profit opportunities.

For automakers, the no-bid agreements help ensure an uninterrupted flow of parts. This is a significant issue now for suppliers straining to keep abreast of rising production in North America.

Chrysler had a similar no-bid supplier program, called SCORE, in the 1990s under purchasing chief Tom Stallkamp, but it was abandoned about a decade ago while Chrysler was owned by DaimlerChrysler AG.

Under DaimlerChrysler and later Cerberus Capital Management, Chrysler returned to Detroit’s adversarial habits, using the bidding process to play suppliers against each other to get lower prices. One downside was that a supplier’s loyalty could drift easily to another customer.

Chrysler does a “very limited” amount of no-bid contracts now within the $40 billion it spends annually on goods and services. But Kunselman wants to expand the use of no-bid contracts specifically to improve the company’s relationships with suppliers.

“It’s a low number, and I want to take it to a higher number, because that will inherently advance me in the line, because I can let them predict better and have more stability in their plan through the presource process,” Kunselman said.

The no-bid contracts aren’t carte blanche contracts. Chrysler won’t award them for parts that have only one supplier, and suppliers that seek such a contract will have to open up their businesses to Chrysler cost engineers, Kunselman said.

“I need to have knowledge within the walls,” of the supplier, said Kunselman, who was Chrysler’s head of engineering before assuming the purchasing role. Cost engineers will have a specific task of doing cost analyses of presourced parts — looking at a supplier’s raw materials costs, labor costs, profit margin and what the specific part should cost to build.

“We’ll look to work together to reduce the costs, but at the end we have transparency,” Kunselman said. “That will give us the confidence to source ahead of time and not to seek a quoting process as the primary source of leverage.”

The Chrysler purchasing boss said he intends to roll out the no-bid contracts as the automaker ramps up for its “next big projects.” That could include several major launches scheduled for late 2013 and 2014, such as Chrysler’s coming lineup of commercial vans and planned replacements for its large sedans and minivans.

Neil De Koker, president of the Original Equipment Suppliers Association, said Chrysler’s new policy to negotiate no-bid contracts with suppliers is good news.

“It’s great,” De Koker said. “For years, suppliers have been asking for earlier involvement in programs, so that they can share their best ideas. It’s a win-win situation and we’re excited about it.”

De Koker noted that the new program encourages suppliers to invest in R&D and expand production capacity for Chrysler.

“Suppliers were very hesitant to do business with Chrysler because they were afraid Chrysler wouldn’t survive,” De Koker said. “Chrysler is stronger today, and there is more collaboration and trust.”

For a complete version of this story, see www.autonews.com.


Comments

Chrysler to expand no-bid deals

Larry P. Vellequette
David Sedgwick

Published: October 29, 2012 6:00 am ET

Post Your Comments


Back to story


More stories

Image

Cascade Engineering founder Keller to step down as CEO

September 16, 2014 8:33 pm ET

Cascade Engineering Inc. is undergoing a transition as President Mark Miller will also add the role of CEO, replacing founder Fred Keller, who has...    More

Image

Canadian, Mexican injection molders form auto supply joint venture

September 16, 2014 2:26 pm ET

A new automotive parts manufacturer will open in Querétaro, Mexico, through a joint venture between Canadian automotive supplier Papp Plastics and...    More

Image

Increased capacity in the US helps Zeon Chemical supply seals globally

September 16, 2014 9:46 am ET

The automotive industry continues to be one of the driving forces of Zeon Chemicals LP., which specializes in heat-resistant and oil-resistant...    More

Image

ZF finalizes deal to buy TRW, creating another global auto supply giant

September 15, 2014 1:09 pm ET

TRW Automotive Holdings, in a supply chain megadeal that has been in the works since mid-July, said Sept. 15 it has agreed to be acquired by German...    More

Image

Delphi CEO O'Neal stepping down

September 15, 2014 12:05 pm ET

Delphi Automotive plc announced that Rodney O'Neal will retire as CEO and president on March 1, 2015, ending his 43-year career at the global automoti...    More

Market Reports

Shale Gas Market - Analysis of North American Region

This report highlights the impact of shale-based natural gas on the North American plastics market and features an in-depth analysis of production trends in the United States during 2013 and a forecast for 2014 and beyond.

Learn more

Thermoformed Packaging 2014 Market Review & Outlook – North America

This in-depth report analyzes economic and market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as growth strategies being implemented by thermoformed packaging companies.

Learn more

Pipe, Profile & Tubing Extrusion in North America 2014

U.S. demand for extruded plastics is expected to grow by 3 percent in 2014, with PVC remaining the largest segment.

Plastic pipe will post the strongest gains through 2018, continuing to take market share from competing materials in a range of markets.

Our latest market report provides in-depth analysis of current trends and their financial impact on the pipe, profile and tubing extrusion industry in North America.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events