Friday, February 15, 2008

Chrysler procurement shakeup raises engineering concerns

Chrysler's vice president for procurement, John Campi, wants to trim costs by scaling back parts testing. But at least one of his engineers worries about the consequences.

Last week Campi told The Detroit Free Press that he has challenged the company's testing protocols, saying to engineers, "If I have a supplier that's building products for the automotive industry today, with companies that you know, I don't want to hear why it has to take six months to do your testing when in fact it is a quality product."

One Chrysler engineer familiar with supplier and parts issues, who spoke with Michigan Messenger on condition of anonymity, expressed concern at cutting corners on parts testing: "Chrysler can't go to Home Depot to get their bolts. We use an engineered product."

CEO Bob Nardelli took the reins of Chrysler after a stint as Home Depot's CEO. At Home Depot, Campi was Nardelli's senior vice president of vendor management.

The Chrysler engineer worries that cutting back on testing could risk lowering the reliability of Chrysler vehicles. He explained that although parts suppliers manufacture for multiple auto companies, parts are engineered to unique specifications and are not interchangeable from one carmaker's product to another. "A water pump is not just a water pump. It has to meet a set of specifications that are unique to Chrysler," he said. "The engine goes down if the water pump fails."

In addition, vendors can make mistakes and their production processes can be inconsistent. Testing parts "verifies that the vendor has made them in accordance with our specifications and that takes time."

Current testing protocols can take up to six months. Their purpose is to find bad parts and to prevent them from getting into vehicles. A bad part can stop the assembly line or lead to costly vehicle recalls. When bad parts make it into cars on the road, it can lead to accidents, and injuries or death. To fix the problem, the company must replace the part in stock in transit, stock at the plants, stock at the dealers and customers' cars on the road. "It's a nightmare," the engineer said.

According to the engineer, the current protocols are necessary to meet federal safety requirements, EPA requirements and customer satisfaction requirements. He said that to meet those requirements "means that every part is tested thoroughly."

Chrysler offers a lifetime guarantee on its power trains and up to 10-year guarantees on various other components. Testing assures the company can deliver what it promises customers. "How do you make that claim -- how do you stand behind the product -- when you don't know if it meets your requirements?" he asked.

Global management for supply chains

Noel Tichy, who has known Nardelli for more than 20 years and worked with him at GE, told Michigan Messenger, "Obviously, Bob wants to shake up everything and procurement is a big piece of putting cars together." Tichy currently serves as director of the Global Leadership Program and is a professor of Management and Organizations at the University of Michigan Ross School of Business.

Shaking up Chrysler has meant bringing new management into an industry that Tichy describes as very "inward looking" when it needs to become more global to survive. Of the Big Three, Chrysler is most heavily invested in North American production when that is proving untenable. The maker will have to go abroad to expand markets for its products and find cheaper parts production, as other carmakers have already done. But those foreign-made parts will still need to be tested to assure they meet North American market standards.

Acknowledging the fundamental difference between retail supply-chain management and automotive supply-chain management Tichy said, "The difference is you are manufacturing a product. At Home Depot, you're buying stuff to sell in a store." He added, "But you are still managing a supply chain with suppliers in China and all over the world." He says that is where automotive supply chains are headed -- China.

Defending the practice of moving management across diverse businesses, Tichy cited his time at GE with Nardelli, under former CEO Jack Welch. "We moved people around more SIC codes in business than anyone on the planet. Jet engines, power generation, appliances, NBC, GE Capital. There are absolutely generic skills that cut across industries." SIC codes, standard industry classification codes, are used in business and government to categorize types of industries.

As for Campi's move from retail to automotive manufacturing, Tichy said, "How much transfer of learning there is from retail to automotive, we'll find out." He added, "That is yet to be determined."