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Chrysler-Fiat Continues its Journey Towards Synergistic Supply Chain and Manufacturing Vision and Strategy Execution

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This commentary can also be viewed on the Supply Chain Expert Community web site, upon which the author is a featured guest blogger.

One of the cornerstones of the Supply Chain Matters blog is to track the history of specific supply chain related events involving industries and to help our readers connect the dots in term of strategy and results. In May 2009, we featured a commentary regarding Fiat Group and its unfolding strategy of opportunistic supply chain strategy, specifically its planned acquisition of Chrysler in the U.S..  At the time, this author was impressed with Fiat chairmen Sergio Marchionne and his strategy to make both companies global players in the industry.

As we approach the end of 2011, the story of Fiat and Chrysler is much more positive, with an even stronger potential.  We call readers attention to an article published in the December 19 edition of Time, Power Steering- How Chrysler’s Italian boss drives an American auto rival. (paid subscription required) Author Bill Saporito pens a very insightful look at Chrysler, where it was, and what it is becoming, and in particular, the noticeable leadership of its chairmen, Sergio Marchionne. Sergio has a knack for turning around dysfunctional automobile companies along with a keen understanding of operations and value-chain management.

The article points out that Fiat’s small-car prowess, engine technology and superior manufacturing capability was a perfect complement to Chrysler’s needs. Fiat which now owns 53.5 percent of Chrysler, has made its impact. Chrysler revenues were up 23 percent in Q3-2011 and could top $55 billion.  Operating profit could reach $5 billion vs. hemorrhaging $1 billion a month in 2009. In May, Chrysler transferred $5.9 billion to the U.S. treasury, paying off its bailout loan six years ahead of schedule.

The article goes on to expound on the unique leadership style of Mr. Marchionne, specifically his no-nonsense approach to management, his deep analytical abilities, and attention to the details of all aspects of the business, including manufacturing and value-chain.  He has thus far resized the company, flattened management layers, and overhauled the vehicle line-up in record time. Mr. Marchionne is a strong believer in elimination of management layers and practices promoting people buried in the ranks to higher levels of responsibility, giving such people all that they need to succeed and prove their potential. It is referred to as loose-tight management, a concept which many successful companies have practiced.  At the same time, he also holds people accountable for definitive results and is not shy about pulling the plug when results are not forthcoming. The author notes that: “Marchionne has the Steve Jobs gift of absolute focus.” He gets into the details. He also does not choose to have his office within Chrysler’s former executive penthouse, opting instead to locate his office in the engineering department, a visual reinforcement that it is no longer business as usual.

As was noted in 2009, Marchionne has a vision that the surviving global automotive OEM’s will need to have sufficient volumes of production to support each of the major world markets, at least one million for each major product platform in order to drive required global production cost efficiency and sustained profitability.  This translates to a combined goal for producing 6 million vehicles among the Fiat and Chrysler brands, with today’s volumes at 4.2 million vehicles. Fiat has become a global leader in efficient, high-volume, robotized production of small displacement engines and there are plans to have a similar focus for V6 engines.  Fiat also excels in small diesel powered engines, and its production facility in Poland recently exceeded a production target of 4 million 1.3 litre, 16 valve MultiJet technology engines. Technology and world class manufacturing knowledge transfer is underway among both companies with a cultural premise that production workers, not engineers, own the quality control process.  A global manufacturing boss has been appointed to oversee both Chrysler and Fiat, and the article points out that Mr. Marchionne has been known to show up from time-to-time at warranty analysis and quality performance meetings. Chrysler itself has not been known to invest in advanced supply chain software technology for planning and business intelligence but that may perhaps change.

The first totally new vehicle of the combined Fiat-Chrysler collaboration will debut in 2012 with a C-class Dodge branded vehicle. It will be based on the Fiat platform of the Alfa Romeo Giulietta, adapted for U.S. market requirements. There is a further plan to invest $23 billion to develop new vehicles for Chrysler through 2014, a rather aggressive plan by U.S. automotive industry standards, and all vehicle can be adapted by Fiat for other global sales needs.

The Time article concludes with a very characteristic Marchionne quote: “People need to trust you that you’re going to pull them out and that they will follow you when you pull them out.  If they don’t get that comfort, they’re going to drop you. This is true of organizations.  It’s true of countries.

We would add that this quote represents a philosophy that is rather important for senior and team focused supply chain management in the coming year and beyond, namely the ability to lead, get into the details, provide people with the means and tools to accomplish their goals, and to foster consistent accountability.

In our 2009 commentary, we closed with the statement that whether the combined force of Fiat and Chrysler was totally successful, we have the opportunity to observe a visionary company with a leader that truly understands the importance of a leveraged global value-chain and integrated supply chain execution.  Two years later, this case study continues to play out with positive potentials.

Time will tell if this will become a definitive case study in vision and consistent execution in supply chain management but the scorecard thus far is rather positive.

Bob Ferrari

© 2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

 

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