Productivity up, costs to fall at Chrysler

An independent study conducted annually has given Chrysler two thumbs up for improving productivity since 2001, just as the company is set to embark on a cost-cutting program to safeguard against future tribulations.

The 'Harbour Report North America 2008' has determined that Chrysler's Manufacturing Operations can assemble a vehicle in an average time of 30.37 hours, an improvement of 14 hours per unit since 2001. That average time represents a 31.4 per cent gain in productivity and hands Chrysler the top ranking for overall productivity, shared with Toyota.

Chrysler has come from a long way back. In 2001, the company had the highest HPV rating (labour hours per vehicle) in the industry.

"The HPV reduction of nearly 14 hours is a very impressive turnaround from where Chrysler was just a few years ago," said Ron Harbour, Partner in Charge of Auto Manufacturing at Oliver Wyman -- the publishers of the study.

Interestingly though, Chrysler's best performing plants were collaborative efforts. The Toledo Supplier Park plant requires as little as 13.57 hours to assemble each Jeep Wrangler, but is jointly operated with The Kuka Group, Magna Steyr and the Ohio Module Manufacturing Company (a property of Hyundai Mobis).

Chrysler's top-ranking engine production plant is the Global Engine Manufacturing Alliance (GEMA), a plant jointly run by Chrysler, Hyundai and Mitsubishi. Located in Dundee, Michigan, this plant spits out a new engine each 1.84 hours.

Closely following the announcement of Chrysler's productivity gains, comes word that the company will now focus on reducing supply chain costs.

John Campi, Chrysler's Executive Vice President and Chief Procurement Officer, plans to reduce the company's component costs by as much as 25 per cent over the next three years.

Campi's intention is to reduce the cost to suppliers as well as the end cost to Chrysler. Calling together OE (Original Equipment) suppliers on May 15 at a meeting in Troy, Michigan, Campi has outlined his plan to reduce engineering changes and component proliferation. Campi expects the cost savings to the suppliers can be shared with Chrysler, without detriment to the suppliers' profits.

Responding to media speculation that OE companies unable to meet the targets would be required to reduce their prices for components sold to Chrysler, Campi said: "Not once in any public or private discussion have I ever suggested that suppliers would have to reduce pricing to meet the 25 per cent cost out challenge without our mutual objective of protecting their profitability in dollars and percent".

"Our drive for cost reduction will only be accomplished with collaboration between Chrysler and our supply base. That simply cannot happen if it is not mutually beneficial.
 
"This is really simple. First, I want to take cost out of what is incurred by us and our supplier (25 per cent target).

"Secondly, I want to share equally with the supplier on each step along the way. Schedule stability should drive significant savings for the supplier -- potential estimate of eight percent.

"So, after stable orders can be demonstrated, our supplier would save approximately eight per cent -- giving us 4 per cent and increasing their profits by approximately four per cent.
 
"In summary, a program that suggests that we will take the savings without having driven the cost out is doomed to failure before launch. That would be just another typical cost reduction effort that puts the burden on the suppliers without regard to the obligation we have as OEMs to find mutually beneficial solutions. I personally refuse to play that game. It simply will not help the survival of this once great American industry."
 

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