How Chrysler Created an American Keiretsu-Case Study

Vishnu Sankar
Roll no 51

Adoption from the keiretsu approach

 Since 1989, Chrysler has shrunk its production supplier base from 2,500 companies to
1,140 and has fundamentally changed the way it works with those that remain. Instead of
forcing suppliers to win ranks of their suppliers and given more work to the survivors in
return for lower prices. And by getting their remaining suppliers to deliver parts just in
time and to take responsibility for quality, they have managed to slash inventories, reduce
defects, and greatly improve the efficiency of their own production lines.
 Now many manufacturers are striving to wring even greater benefits from their suppliers.
They would like to involve suppliers much more deeply in product development and to
enlist them in the drive for continual improvements of production processes. The prizes
they are seeking: ever more innovative products, ever faster product development, and
ever lower costs.
 But as many managers now realize, accomplishing the first stage input from suppliers, to
pick suppliers on the basis of price through a competitive bidding process, and to dictate
the detailed terms of the contract. They continued to expect suppliers to do as they were
told and not much more.

Objectives of the keiretsu approach:

 Improving profitability

 Challenges and trends

 Logistics and decision making

 Proper system implementation

 Employment opportunities

Learning and Benefits of keiretsu approach:

Supply chain optimization isn’t a simple undertaking, but effectiveness offers numerous benefits
that improve the bottom line.

The most important benefits --

 Better collaboration- Information flow is a prominent challenge for companies. Integrated
software solutions remove bottlenecks and allow for the seamless sharing of information,
providing a big-picture view of the supply chain from end to end.

 Improved quality control- Management Operating System (MOS) for monitoring

key performance indicators including:

 On-time delivery

 Scrap rates, reworks and similar issues at suppliers

 Final product quality (as received by end customers)

 Time for complaint resolution

 Findings from supplier quality assessments

 Higher efficiency rate-Implementing smart automation solutions also results in higher

efficiency. Investing in the right automation solutions and leveraging data to minimize
delays supports a positive customer experience and boosts your company’s reputation.

 Keeping up with demand-Supply chain leaders with access to real-time, accurate

information and integrated data can better predict demand and readily respond to
changing market conditions to avoid challenges like the bullwhip effect.

 Shipping optimization- Due to rising costs, shipping optimization is a priority for supply
chain leaders. Identifying the most efficient shipping methods for small parcels, large bulk
orders and other shipping scenarios helps companies get orders to customers faster while
minimizing costs.
 Reduced overhead costs- Reduce these costs by optimizing your warehouse layout,
adopting the right automation solutions to improve productivity and implementing a
better inventory management system. Identifying unnecessary spend is another way to
achieve leaner operations.

 Improved risk mitigation- Analyzing big-picture and granular supply chain data can reveal
potential risks, enabling companies to put backup plans in place to readily respond to
unexpected circumstances. By taking proactive action, rather than reacting to supply chain
disruptions, quality control issues or other concerns as they arise, companies can avoid
negative impacts. Understanding risks also helps companies achieve leaner operations.

 Improved cash flow- Implementing more cost-effective solutions to eliminate wasteful

spend and reducing overhead costs also contribute to positive cash flow.
 Challenges in the situation of the adaptability of the business model:

To keep everything going smoothly, the contemporary supply chain must develop to meet
new demands and supply chain difficulties, and supply chain managers must plan ahead.
Consumer demands, more routes to market, international complications, and other issues
all contribute to considerable supply chain network challenges.

 Increased Cost throughout the supply chain - Rising price of fuel to transport goods by
road, sea or air. Increasing commodity prices raising the cost of raw materials. Higher
labour costs from suppliers and manufacturers. Complex international logistics leading to
higher charges for storage, transfer and management of products.

 Supply chain complexity due to multiple channels to market-Traditional retailers and

wholesalers need large storage locations close to major metropolitan areas, combined
with accurate inventory control to ensure product availability. Third- party marketplaces
like Amazon require a deep understanding of fulfillment options and close compliance
with their terms and conditions. Drop shipping retail requires fast international services
so that consumers receive goods quickly.

 Consumer demands drive need for improved speed, quality and service- Consumers want
retail goods immediately and online goods within a few days. Products must meet the
quality requirements demanded by consumers. Raw materials, goods and finished
products must meet safety and other compliance regulations mandated by law, in all
countries where they’re available. The environmental sourcing of goods is becoming more
important to ethically-aware consumers.

 Risk in the supply chain creates pressure-Suppliers, manufacturers, logistics, clients and
customers are spread across multiple countries, time zones and continents, requiring
careful coordination and management.

 The impact of supply chain volatility- These are endemic problems in the supply chain,
and it’s almost impossible to resolve them on a local or organizational level. Instead,
supply chain managers need to understand the major issues impacting supply chains
around the world and create strong reporting and management plans to resolve issues
quickly.