Chrysler unseats its competition with supplier partnerships

Introduction:
Chrysler, American automotive company first incorporated as Chrysler Corporation in 1925.
It was reorganized and adopted its current name, Chrysler Group LLC, in 2009, and in 2014
it became a wholly owned subsidiary of Fiat SpA. It was for many years the third largest
(after General Motors Corporation and the Ford Motor Company) of the Big Three
automakers in the United States.
Early history:
Chryslers origins lie in the Maxwell Motor Company, Inc. (formed in 1913). The first
Maxwell car was made in 1904 by Jonathan Maxwell and Benjamin Briscoe, who in 1909
joined the short-lived United States Motor Company. With the collapse of this combine in
1913, Maxwell continued on alone until the postwar recession. In 1920, deeply in debt and
facing ruin, the company convinced Walter P. Chrysler, who had resigned from the Buick
division of General Motors, to join the effort to revitalize the company. In 1922 the Maxwell
company took over Chalmers Motor Car Co. (founded in 1908). In the following year
Chrysler bought control. Under Chryslers leadership, the company began to manufacture
competitive automobiles, beginning with a revolutionary six-cylinder vehicle that was
introduced at the 1924 New York Automobile Show. In 1925 the Maxwell Motor Company
became the Chrysler Corporation, with Chrysler as president. With the purchase of Dodge
Brothers, Inc. (founded in 1914), and the introduction of Plymouth in 1928, the Chrysler
Corporation became a major presence in the American automotive industry.
Along with General Motors and Ford, Chrysler played a key role in supporting the U.S.
military effort during World War II. By many accounts Chrysler led the pack, accepting
defense contracts even before the United States entered the war. Between 1942 and 1945
virtually all civilian car production was suspended, as the automotive industry turned its
factories to the task of filling defense contracts. Under the leadership of company president
K.T. Keller, Chrysler built more than 25,000Sherman and Pershing tanks during the course of
the war.

Source: (http://www.britannica.com/EBchecked/topic/1360859/Chrysler)

Questions
1. Discuss the approach of Chryslers operations managers in developing and building

the Neon model.

In the afternoon of July 31, 1990, in a test-track garage in Highland Park, Mich., Lee A.
Iacocca huddled with a dozen Chrysler Corp. engineers to make a decision that would
help determine the future of their company--and, quite possibly, of the U. S. auto industry.
To husband cash at his troubled carmaker, Iacocca was considering a joint deal with
Italy's Fiat to build a new subcompact, Chrysler's first since the Omni and Horizon twins
in 1978. On this steamy day, the engineers had one last chance to persuade their strongwilled chairman to let them do it themselves. The Neon was a stunning achievement for
Chrysler, fresh from its victories of the LH sedans and the new Ram trucks. Chrysler
suddenly brought out first an outstanding large car, then the best-in-class (by a wide
margin) pickup - rapidly tripling its market share - and finally the first American small car
in recent memory to actually make a profit. The Neon was bigger than its competitors, but
it was also faster, felt better, and had far better handling.
The first approach of Chryslers operations managers in developing and building the
Neon model was to outsource its specific products from the suppliers according to the
requirement and proper specification given by the company. The approach was crystal
clear as in each and every products needed to develop a car is to be outsourced like tyres,
seats, suspensions and many other components so that the company can get the benefit
over cost and can focus only on its assembly model (its core competency), here the case
talks about the dissatisfaction of the Chryslers with the safety, weight and the comfort of
the seats which were to be outsourced from Johnson controls and many such issues could
have aroused while doing outsourcing.
Hence the outsourcing approach was not the best pick for the company and so they
decided to have a different approach as Out partnering approach which talks about being
partners with the suppliers so that the communication is proper to achieve the requirement
according to the specification of the model. The operations managers here were at great
risk as the whole approach of the Neon model was shifted to the out partnering rather than
outsourcing and so the responsibility of the projects success were on the shoulders of the
operations management team. But partnerships with suppliers have helped Chrysler

improve performance significantly by speeding up product development, lowering

development costs, and reducing procurement costs, thereby contributing to increases in
Chryslers market share and profitability.

2. Discuss the relevance of this case to study of Supply Chain Management.

Suppliers

Assemblers relationship

Quality price trade off

Profit

3. What benefits a manufacturing firm can achieve from its suppliers, through
outsourced manufacturing?
Financial benefits clean up your balance sheet by eliminating assets, and have a more
stable cash flow.
Strategic optimizationThink about your company's core mission and whether it is relevant
to continue certain operations.
Better management of the outsourced activity in theory, you can choose a supplier that
is a leader in the field.
Market discipline you can align your costs with those of suppliers in the field.
Technology in theory, you gain access to state-of-the-art technologies.
Flexibility the resources no longer used in one area can be redirected to the company's
core operations.
Cost Savings Companies save on their cost of capital because they do not have to pay for a
facility and the equipment needed for production. They can also save on labor costs such as

wages, training and benefits. Some companies may look to contract manufacture in lowcost countries, such as India, to benefit from the low cost of labor.
Advanced Skills Companies can take advantage of skills that they may not possess, but the
contract manufacturer does. The contract manufacturer is likely to have relationships formed
with raw material suppliers or methods of efficiency within their production.
Quality Outsourced products are likely to have their own methods of quality control in
place that helps them to detect counterfeit or damaged materials early.
Focus Companies can focus on their core competencies better if they can hand off
base production to an outside company.
Economies of Scale Contract Manufacturers have multiple customers that they produce
for. Because they are servicing multiple customers, they can offer reduced costs in
acquiring raw materials by benefiting from economies of scale. The more units there are in
one shipment, the less expensive the price per unit will be.
Staffing levels: Another common reason for outsourcing is to achieve headcount reductions
or minimize the fluctuations in staffing that may occur due to changes in demand for a
product or service. Companies also outsource in order to reduce the workload on their
employees (freeing them to take on additional moneymaking projects for the business), or to
provide more development opportunities for their employees by freeing them from tedious
tasks.
Morale: This is an often-overlooked but still notable benefit that can sometimes be gained by
initiating an outsourcing relationship. "Often a business's lack of internal expertise
or dedication to non-core tasks results in poor attitudes and ultimately poor performance,"
wrote Kevin Grauman in CPA Journal. "This can lead to overlap and duplication of internal
efforts. An effectively designed and ongoing communication process emanating from one or
more

outsourcers

can

greatly

reduce

or

eliminate

these

duplications."

Knowledge: Some experts tout outsourcing of computer programming and other information
technology functions as a way to gain access to new technology and outside expertise. This
may be of particular benefit to small businesses, which may not be able to afford to hire
computer experts or develop the in-house expertise to maintain high-level technology. When

such tasks are outsourced, the small business gains access to new technology that can help it
compete with larger companies.
Accountability: Outsourcing is predicated on the understandingshared by business and
vendor alikethat such arrangements require quality service in exchange for payment.
"Paying for a business service creates the expectation of performance," stated Grauman.
"Outsourcers are well aware that this accountability is both practical and legal, with fiscal
implications.

The

same

cannot

be

said

for

internally

provided

functions."

4. Discuss the difference between outsourcing and out partnering.

Outsourcing is the contracting of services via monetary means in order to minimize or limit
the resources that would normally be required to perform business functions internally, thus
reducing costs. Where as in out partnership is one which collaborate with one another in
order to bring about mutual benefits. This out partnership can range from a loose and
informal one, to more formal joint ventures, which involve legal measures to set parameters.
Such alliances might include practices such as the partnering of manufacturers and retailers in
order to reduce logistics costs, or the engagement of hardware and software development
firms to create competitive advantage through synergy.
If I outsource a job to you, then you are paid a fee to complete your services regardless of the
outcome of the project under which your services were rendered. If on the other hand we
partner on a project, while you are not a partner person, I would expect you to provide your
services contingent upon the success of our project. If the project failed, you would not get a
fee, but if the project were a success, you would expect a much larger fee for your services
than if you'd been hired as an outsource.

Manufacturer

Supplier

Figure.1

Supplier-1
Seats
Supplier-4
Other Components

Supplier-2
Manufacturer

Suspension
Supplier-3
Figure.2

Tyres