How Chrysler created an American keiretsu

Many U.S. managers want to enlist their suppliers in their efforts to develop products faster and to reduce manufacturing costs. But they have wondered whether they can have the sort of mutually supportive relationship that characterizes manufacturers and suppliers in a Japanese keiretsu. Chrysler Corporation shows that the model can indeed be adapted successfully. Chrysler's relationship with its suppliers used to be one of mutual distrust and suspicion. The automaker chose suppliers primarily on their ability to build components at the fewest possible cost. It did not consult with them about the design of the components, and it considered their profit margins to be none of its concern. At the end of the 1980s, however, dire financial straits convinced the company that it had to rethink its supplier relations. The resulting new model has played a major role in Chrysler's stunning revival. Critical components of the model include cross-functional teams, target costing, choosing suppliers early in the vehicle's concept-development stage, and having Chrysler's and its suppliers' engineers work side by side to develop components. But in many ways, Chrysler's SCORE program is the heart of the model. SCORE has helped Chrysler involve suppliers deeply in the company's efforts to lower costs and make processes more efficient. Whereas Chrysler once ignored suppliers' money-saving ideas, it now solicits them - and shares the savings. For Chrysler, the result has been annual savings of more than $1.7 billion. The automaker has proved that highly productive partnerships with suppliers not only can flourish in the United States but are the wave of the future.