By David Sedgwick, Crain News Service
TRAVERSE CITY, Mich. (Sept. 14, 2015) — Fiat Chrysler Automobiles (FCA) is adopting long-term, no-bid supply contracts to help boost quality and improve the company's relationships with suppliers.
Tom Finelli, FCA U.S. purchasing chief, said the auto maker awarded business to 24 suppliers under this policy for components for the next-generation Chrysler minivan, part of a pilot project to involve suppliers earlier in vehicle design.
By dropping traditional bids, “it gives us more time to design, validate and launch new components,” Mr. Finelli said this month at the Center for Automotive Research's Management Briefing Seminars in Traverse City. “We are bringing suppliers in earlier — well before we normally would.”
In 2012, then-purchasing chief Scott Kunselman told Automotive News that the auto maker had negotiated “a very limited number” of no-bid contracts, and that the company planned to OK more such deals for future projects.
During the Traverse City seminars, Mr. Finelli confirmed that one of those projects is the next-generation, redesigned Chrysler Town & Country, which is reportedly due in showrooms in late spring 2016.
Early results look promising, he said. “In every case, we met our cost objectives for the car,” Mr. Finelli said. The pilot program shows “that you can award contracts to the highest quality suppliers and get low costs at the same time.”
With traditional bids, the lowest price often trumps other factors such as quality and technology. Bidding chews up several months, and suppliers can't offer creative cost-cutting ideas because the auto maker has frozen the vehicle's design.
With the security of a long-term contract, suppliers are more willing to invest in additional production capacity, said Julie Fream, CEO of the Original Equipment Suppliers Association.
“Long-term, no-bid contracts are generally good for both auto makers and suppliers,” Ms. Fream wrote in an email. “Long-term commitments allow suppliers to consider longer-term payback periods for capital investments.”
No-bid contracts give suppliers more predictable revenue, allowing them to invest with reduced risk. Suppliers also have an opportunity to propose cost-cutting ideas before the auto maker freezes a vehicle's design.
If Mr. Finelli expands the use of long-term, no-bid contracts, it would be reminiscent of the cooperative approach taken by former Chrysler purchasing chief Tom Stallkamp.
Mr. Stallkamp's SCORE purchasing system in the 1990s required suppliers to propose cost-cutting ideas and shared the savings with them.
Chrysler dropped that program after it was acquired by Daimler A.G. in 1998, but Mr. Finelli appears convinced of the merits of no-bid contracts.
During the seminars, he told attendees that traditional bids added about 10 weeks to vehicle design. “This is just churn in the system,” he said. “By taking 10 weeks out of the sourcing process, we can give that time back to the product development team.”
This report appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.