Strategy and Process: DaimlerChrysler Corporation
As part of an ambitious optimization effort, DaimlerChrysler Corporation realigns and rebuilds its supply chain organization to kick innovation and efficiency into high gear.
DaimlerChrysler Corporation, a unit of DaimlerChrysler AG, manufactures leading automobile brands such as Chrysler, Jeep, and Dodge. Purchasing $28 billion of goods and services every year, the company has a complex supply chain and highly effective procurement and supply chain strategies.
"We've taken $442 million out of our costs over the past three years," reports Ed Sprock, director of worldwide transportation for DaimlerChrysler. These dramatic savings were the result of an ambitious optimization and process improvement effort.
"We've developed tremendous subject-matter expertise," Sprock explains.
The company implemented a number of key changes, such as improving operational flow with new information technologies, implementing performance tracking technologies, and executing a process that provides 100-percent tracking of material in transit.
With significant operational improvements already under their belt, the supply chain team looked for new breakthrough improvements.
"It was getting tougher to save dollars and cut inventory," Sprock notes. "Our process was running well and our cost savings were on target. But each target was getting tougher to make."
Recognizing that potentially conflicting priorities such as inventory reduction and logistics performance were pushing against each other, management decided to evaluate the effectiveness of the supply chain's organizational structure.
"You have to step back from your organizational structure and do a continual critique," Sprock says. "You have to be willing to make organizational changes to match your process improvements" in order to realize continuing results.
A Deliberate Approach
One year ago, a group of directors was tasked with examining organizational options. "It wasn't an easy process," says Sprock. "Basically, you get one shot at reorganization. We took a deliberate approach."
As a result of the team's work, the company has realigned its massive supply organization to streamline operations and centralize responsibility. "DaimlerChrysler has a unique organizational structure," Sprock notes.
The supply organization, led by David Hodgson, vice president of worldwide supply for the Chrysler Group, has several key units, including:
- A materials handling group
- A plant programming, scheduling, and releasing group
- A group to handle inbound parts movement and outbound vehicle transportation
- A customs group
Since the realignment, DaimlerChrysler's supply group acts as one unit, with a single set of metrics across the organization. "There is no reason to have different processes for different groups, or different measurement processes for logistics and for the plants," Sprock says.
"We measured how well we filled trucks on the logistics side," explains logistician Jim Cuccello. "Every day, for every truck, we measured our goal and what we actually put on the truck. Other areas of the operation measured the suppliers' performance, whether they were undershipping or overshipping, and if they were meeting our requirements."
Having a single set of metrics merges the two approaches, and measures the auto manufacturer's ability to keep both inventory and transportation costs low.
The supply group is now organized into three key functions: procurement, materials, and worldwide transportation. As director of worldwide transportation, Sprock is responsible for DaimlerChrysler's global logistics, heading up a group handling procurement, design, quality, and review of worldwide transportation.
Cuccello is now director of materials supply operations, methods, and strategy—the single point of control for all material movement on the inbound side. Cuccello also measures performance for the entire group, which eliminates any potentially conflicting priorities. The company expects to realize benefits in all three areas—procurement, materials, and transportation.
"This change enables us to take the next step in overall cost improvement," Sprock explains. "We're at the point now in our evolution where innovation is required to improve costs. The experts in each of these three areas are now able to employ innovations in their process areas to take this world-class supply chain operation and begin to improve it."