HBR Case Study on the LH Program using SCORE framework at the American Automobile company Chrysler.

1. How Chrysler created American Keiretsu
Presented by
Raja Musharraf
Rimsha Firoz
Mohammed Shoaib Siddiqui
Sahil Maheshwari
Salman Murtaza
Saif Mohammad
Sayal Gupta

2. WHAT IS KEIRETSU?
Keiretsu is an organizational structure that is comprised of these six aspects
INTRODUCTION
Financial – Cross
Shareholdings
Managerial –
Exchanging of
Management Expertise,
advice and training.
Trade – Preferential
Treatment to partner
firms.
Exclusion – Keep
Foreign competition at
bay.
Political – Tightly
woven relationships
with Government.
Social – “Old Boys
Network” of Presidents
and Senior Executives.

3. Pruned the ranks of their suppliers.
Traditional relationship remained.
Excruciate the Suppliers.

4. Vehicle Development
Average Vehicle
Development time
dropped from 240 Weeks
to 160 Weeks.
Cost
Cost of the Development
plunged as well
correspondingly.
Profit
Profit Increased due to
reduction of Costs
involved.

5. Chrysler’s Fab Four
Robert Lutz – President, Chrysler
Glenn Gardner
–
LH Program
Manager
Thomas Stallkamp– Head, Purchasing
Francois Castaing – Head, Vehicle Production

6. Fab Four - LH Program – Keiretsu
Avoid Internal Bureaucracy
by shifting operations from
Michigan facility
Speed Decisions Internally
and Eliminate Sequential
Decision Making by
including individuals from
Engg., Mfg., Procurement,
Mktg. and Finance
Experimenting New
Method of working with
Suppliers learned from
Mitsubishi, Honda and
AMC.

8. Chrysler’s New Model
Cross
Functional
Teams
Pre-Sourcing Target Costing

9. Cross Functional Teams
To get its functions to present one face to suppliers and to end the conflicting demands and shifting
priorities that had been the hallmark of its sequential development process, the company reorganized into
cross-functional vehicle-development teams.
It now has five cross-functional platform teams— one for large cars, one for small cars, one for minivans,
one for Jeeps, and one for trucks.
Crossfunctional teams improve continuity, coordination, and trust both within Chrysler and between
Chrysler and its suppliers. Suppliers also develop more stable relationships with Chrysler’s staff and can
count on the company to follow through more effectively on promises and agreements.

10. Pre-Sourcing
Pre-Sourcing means choosing suppliers early in the vehicle’s concept-development
stage and giving them significant responsibility for designing a given component or
system.
The rationale for pre-sourcing is that it permits many engineering tasks to be
carried out simultaneously rather than sequentially, thereby speeding up the
development process
For the LH project, Chrysler’s corporate purchasing department gave the project’s
cross-functional platform team a prequalified list of suppliers considered to have
the most advanced engineering and manufacturing capabilities.

11. Target Costing
Target costing has shifted Chrysler’s relationship with suppliers from a zero-sum game to a
positive-sum game.
Historically, Chrysler had put constant pressure on suppliers to reduce prices, regardless of
whether the suppliers had been able to reduce costs; the automaker did not feel
responsible for ensuring that suppliers made a reasonable profit.
Chrysler’s new focus on cost instead of price has created a win-win situation with suppliers
because the company works with suppliers to meet common cost and functional
objectives. Naturally, this process begins to build the trust that is critical if partnerships are
to take root.

12. Total Value Chain Improvement – SCORE
Program
When General Motors & Ford were increasing its squeeze on suppliers by demanding across-the-board
price cuts, Chrysler corporation established the Supplier Cost Reduction Effort, or the SCORE program.
The basic purpose of SCORE was to help suppliers and Chrysler reduce system wide cost without hurting
supplier’s profit. It was a method for building trust, lowering cost and improving communication with the
suppliers.
While suppliers were upset with heavy-handed treatment of the automobile manufacturers, Chrysler wanted to
work closely with them to explore opportunities in reducing cost in the vehicle manufacturing process.
‘All I want is your brainpower, not your margins’
Chrysler asked suppliers to suggest operational changes that it could make in its own organization to reduce
both its cost and those of the suppliers. More than 12,000 proposals were submitted by suppliers.

13. How SCORE works
Instead of bidding out every single part involved in manufacturing an automobile, to the lowest bidder, Chrysler has
established an honest two-way communication that allowed it to build a cost-efficient automobile.
Through SCORE, suppliers were encouraged to submit proposals designed to reduce costs in a variety of areas including
design, manufacturing, logistics, etc. It allowed both Chrysler and suppliers to share its benefits of SCORE-related cost
savings.
Suppliers were involved as early as during the vehicle design process. That helped in discovering opportunities to drive out
cost before an automobile was even manufactured.
For the ease of suppliers, the process was made on-line where a supplier can submit a proposal or check on its status
anytime. As a display of great leadership, teams were made specifically to review, approve and implement the ideas,
follow-up meetings were scheduled with suppliers.
It showed how Chrysler was committed to working with suppliers as partners in a long-term relationship.

14. Benefits of SCORE Framework
Chrysler saved estimated
$7 Billion till the year
1996 alone
By eliminating ‘low-
bidder’ pattern, the
number of suppliers were
almost halved, resulted in
a more specialized and
manageable team.
The plant was able to
eliminate 95% of the
waste materials.
Besides the
environmental issues, the
dumping cost were
reduced, and it also had
an impact on quality.
Better communication
with the suppliers.

15. Chrysler’s
Improvement in
Communication
Supplier's engineer
works side by side
with Chrysler's
employees
Annual meeting of its
top 150 strategic
supplier and quarterly
meeting with each
supplier
Common email system
creation to facilitate
interaction with
supplier

16. Effect of the brought changes
Greater trust and more reliable and timely communication of important information
Supplier increase investment in asset like plant, equipment system, process and people
dedicated exclusive to serve Chrysler's needs
Supplier improve thier ability to make just in time delivery to Chrysler
One supplier new design facility is situated near Chrysler's plant(geographic proximity
lowers inventory cost)

17. The American Keiretsu – Conclusion
Japanese Companies Chrysler
Japanese Manufacturers like Toyota and Nissan typically own 20 to
50 percent equity of their largest suppliers
Chrysler does not and could not take similar stakes.
Toyota, for example, has only about 310 suppliers, and those with
which it has equity ties, about 50, typically depend on it for two-
thirds of their sales.
Chrysler still has a much larger group of suppliers, and few of its most
important suppliers depend on it for most of their sales.
Approximately 20% of the executives at Toyota’s and Nissan’s major
supplier companies formerly worked for those automakers.
This intimacy leads to a high level of understanding and a common
culture that Chrysler could never duplicate.

18. Advantages of
Chrysler Model
It is much easier for Chrysler
to drop underperforming
suppliers than it is for Toyota
or Nissan, due to low level of
intimacy.
Chrysler’s formal programs
that measure results and
offer incentives for
improvement ideas are
probably more suitable for
the U.S. business
environment than the
Japanese companies’
relatively informal approach
would be.
SCORE is a success because
it is a communications
program, not just a cost-
cutting program.
The level of communication
needed to make a supplier
partnership productive
simply may not happen
naturally in the U.S. business
environment.

19. We’ve learned that you don’t have to be
Japanese to have a keiretsu-like relationship
with suppliers.”
- Steve Zimmer, Director, Operations and Strategy, Chrysler

20. Thank You