Take away: how to go "HI-PO".

According to Peter M. Rosenfeld, executive vice president-Procurement & Supply, Chrysler Group, there are a "select group of sources"--as in suppliers--"that achieve strenuous performance goals based on measures that are transparent and objective. We call these suppliers, and our relationships with them, 'Highly Integrated Partnership Organizations'--'HI-PO' in short." He made this observation to a group of, largely, suppliers at the 2005 Management Briefing Seminar. Rosenfeld explained that there are metrics--"Unlike years past, and perhaps unlike some other companies, DaimlerChrysler's approach to selecting suppliers is singularly objective"--that define the ability of suppliers to be Chrysler suppliers. Quality, technology, and supply and system cost are among them. Later, off the main stage at the Grand Traverse Report, Rosenfeld characterized the Chrysler's approach to dealing with suppliers as a "strategy of clear, concise, transparency and objectivity."

In addition to which, DaimlerChrysler has broken down the car into 240 sets, such as seats, steering gears, and lighting. Supplier companies compete for business in these sets. Sourcing decisions are then made by a board responsible for each of these sets that includes representatives from Engineering, Procurement, Supplier Quality and Supply. When appropriate, Design and/or Manufacturing participate. While there are set metrics that are charted on a scorecard matrix with System Cost and Technology on the horizontal axis and Quality and Supply on the vertical. The objective is to reach the upper right-hand quadrant. Those who reach it become HI-PO. Those who really reach the northeast portion of the matrix are in what is called the "Reward Zone."

Rosenfeld described the way they've laid the matrix out, and the way they determine the suppliers with which they'll work, as a financial portfolio, and said that they're deploying a model devised by a Nobel Prize-winning economist, Harry Markowitz (www.nobelprize.org/economics/laureates/1990/markowitz-sutobio.html), who, essentially, described a risk approach that involves using quantitative analysis and a varied portfolio such that there could be drawn a line on a graph that would define what he called "the efficient frontier." Meaning there are some companies in the lower left, but the goal is to find suppliers that have the metrics that would put them into the upper right: "DaimlerChrysler is constantly assessing suppliers, seeking those that offer the greatest return for comparable risk."

What does becoming HI-PO mean? That these companies are more likely to win new business with the company because they are "offering the highest return for the given risks." Those at the lower left, in the range that's called the "Resource Zone"? Well, they'd better improve or they'll quite possibly be bounced from the matrix: "Although sounding harsh," Rosenfeld admitted, "I remind you that the market applies the same terse evaluation on each OEM, as it offers vehicles to the market. If, for example, DaimlerChrysler underperforms in quality, the customer simply re-sources--and the company loses!"

As this matrix is a continuum, there are those who are in the middle range, which Rosenfeld described as "solid performers" yet companies that "may have experienced an isolated problem that prevents them from being at the top." OCX will work with these companies to improve their position.

But the objective for a supplier should be not only a HI-PO but a HI-PO at the top of its game. The reasons why are compelling for reaching the Reward Zone:

* The right of refusal on work that will be re-sourced from those who are underperformers

* The first opportunity to pursue new business

* The possibility of being pre-sourced at a target price

* The notification of the opportunity of new business before the opportunities pass.

Perhaps most important is the fact that these suppliers have the opportunity to work with Chrysler much earlier in the product development program than has ordinarily been the case. An example of this is occurring with a crossover vehicle scheduled for launch in late 2008. Magna International (Aurora, ON; www.magna.com) has been awarded the cockpit for the vehicle; Johnson Controls Automotive Group (JCI; Plymouth, MI; www.johnsoncontrols.com) is doing the seats. The awarding of this business has occurred approximately 18 months earlier than would ordinarily be the case.

Rosenfeld said that the selection of these two Reward Zone companies was done in a way that's atypical. Rather than putting the work out for bid, Magna, JCI, and two other companies that he doesn't name were brought in for a competition whereby they presented their ideas for executing a vehicle interior. Because interiors are something that are of importance to end customers, sales and marketing personnel were brought into the selection process. Rosenfeld said that they had "a strong voice" when it came to making the selection. This process was facilitated by the fact that because the companies in question were HI-POs they had already passed the hurdles of procurement and engineering. To be sure, there was a target cost. But the exercise involved the suppliers bringing in new ideas.

Mark Hogan, president of Magna, has more than a little understanding of what goes on in terms of vehicle development program because prior to joining Magna in 2004, he'd spent 31 years at GM, which included a stint as vice president of Advance Vehicle Development. Hogan described this early involvement in the program as "the epitome of what an auto manufacturer needs to have" in order to deploy new technology for a vehicle. "It's difficult to bring new technology in when using the traditional bidding process." One of the reasons why this is so is that the bidding process often leads to a situation where there is little time to concentrate on much more than creating the best bidding package. Consequently, supplier companies don't have a sufficient amount of time trying to convince their potential customer of the benefit of a new technology, and as the risk is far less with the status quo, the status quo is the way they tend to go.

Another aspect of this time advantage noted by Keith Wandell, president, JCI Automotive Group, is that in a typical competitive bid situation a great deal of time and resources are spent on the bidding process, things that could be more advantageously spent on engineering better products.--GSV