TRAVERSE CITY, Mich.—In various surveys, suppliers have given Fiat Chrysler's purchasing unit low grades. Tom Finelli, the auto maker's vice president of purchasing in North America, wants to change that.
On Aug. 6, Finelli told attendees of an industry conference here that his company has launched half a dozen initiatives—big and small—to make it easier for suppliers to work with FCA U.S.
Finelli drew the most attention when he announced the company no longer would require its parts buyers to meet individual cost-savings goals.
But FCA US has other reforms underway, Finelli said. With the aid of its supplier council, the company identified six reforms that would make it easier for suppliers to do business with FCA U.S. Finelli described two of them.
First, the company purchased more returnable containers for suppliers' parts shipments. Because of a chronic shortage of returnable containers, suppliers have had to use expendable containers -- sometimes at their own expense.
Second, FCA will compensate suppliers for tooling purchases without requiring a verification process, as long as the tooling costs less than $5,000.
FCA also has started holding weekly teleconferences with Tier 1 vendors to share its production forecasts for each assembly plant. That helps suppliers figure out how much overtime to schedule.
The company also has added the Original Equipment Suppliers Association to its supplier council, giving that industry organization a direct pipeline to FCA's purchasing executives.
Finelli conceded that some of these changes were overdue. “In some ways, it's a little bit of motherhood and apple pie,” he said. “We are striving to make these changes quickly.”
As Finelli acknowledged during his presentation, FCA's relations with suppliers have been strained for years. In May, a survey by Planning Perspectives Inc. rated FCA's supplier relations lower than those of Toyota, Honda, Ford and Nissan.
FCA was tied with General Motors, and it scored better than Volks-wagen, which was rated separately in the report. The report sharply criticized FCA's buyers, whom it rated last in all of its metrics.
While Finelli did not mention the Planning Perspectives report by name, he acknowledged the company's own supplier survey in March 2014 revealed similar problems.
Suppliers “told us we weren't focused enough on quality while we were focused too much on cost,” Finelli said. “This triggered a huge shift in our approach to our sourcing perspective.”
Starting in January, the company's purchasing staffers will work as teams to meet cost-cutting goals. If one buyer needs to offer higher prices to a supplier, another buyer could make up the difference.
Under this approach, the first buyer's bonus tied to cost cutting would not be in jeopardy for missing an individual cost target.
The best way to change a buyer's behavior is to change his or her bonus formula.
Julie Fream, CEO of OESA, praised FCA for allowing the organization to join the supplier council. She also called the auto maker's decision to eliminate the shortage of shipping containers “a win-win for FCA and the suppliers.”
Another good sign: FCA is adopting no-bid contracts, in which suppliers are invited in early on auto development programs.
The widespread use of long-term, no-bid contracts won't be possible unless FCA dramatically improves relations with suppliers. And that appears to be exactly what Finelli wants to do.