Following up on flexibility

This is an interesting speech made on August 4, 2004, which may bear reprinting.

Tom LaSorda

Chief Operating Officer, Chrysler Group

“The Fully Flexible Corporation”

I’ve been looking forward to this opportunity to discuss the state and future of our industry. Thank you for inviting me to be a part of it.

Having fairly recently moved to the COO position at the Chrysler Group, during the most ambitious year of product launches in the company’s 80-year history, I can almost understand why this session is titled, The Perfect Storm.

The environment in which we compete — at times — may seem like it was lifted from the pages of a good disaster story.

Of course, most of the time it seems more like it was lifted from the script of a really bad Hollywood disaster movie.

Remember “The Blob” (it creeps, it crawls, it eats you alive)? Or “The Towering Inferno” (one tiny spark becomes a night of blazing suspense)?

Would The Perfect Storm be a good name for a disaster movie about the automotive industry? Or might a better name be something like … Jaws?

Either way, I don’t belong to the school of thought that the North American-auto industry is being pushed to the brink of extinction by the reappearance of a Perfect Storm … or by a predator fish, for that matter.

In my mind, The Perfect Storm metaphor no longer fits the realities of our operating environment.

Take a moment to think about The Perfect Storm scenario.

A powerful confluence of unseen forces.
Leading to a moment of extreme danger.
Followed by a period of calm reflection, relief and retooling.
And then, the opportunity to do it all over again because we learned almost nothing from the experience.
Why does that scenario make me think of the Detroit Lions?

Anyway, this cycle is just too predictable to describe our operating environment.
And when was the last time any of you had a period of calm reflection?
Rather than a Perfect Storm I think our operating environment is more like a Perpetual Storm.

Both storms are deadly. But, in a Perpetual Storm, the danger is constant, as are the dangers in our business environment.

To survive — our business cultures and our processes must be equally constant.

In essence, we must operate in a state of perpetual transformation.

In this state, our people and organizations are constantly creating new sources of value from improved execution, process discipline and flexibility.

We’ve all come to understand flexibility as a manufacturing concept. And, as a manufacturing concept, it’s an important source of value.

Consider what Toyota and Honda have achieved by becoming more flexible in their plants. Also consider what the Chrysler Group has achieved with two successive breakthrough years in the Harbour Report. The story behind this success is the growing flexibility of our people, our processes and our plants.

While we’re very proud of this, we realize that to take our success to new levels requires that we take flexibility to a new level. Perhaps, even to levels we never contemplated before.

We’ve incubated the concept of flexibility on the plant floor and are using the lessons we’ve learned to create new value throughout our business.

This includes product development, procurement & supply, marketing, sales, human resources and beyond — to our suppliers, our dealers, our strategic alliances and, of course, our customers.

In effect, creating an organizational culture that is without boundaries and “fully flexible.”

The Fully Flexible Corporation, I believe, is the perfect answer to The Perpetual Storm.

The Fully Flexible Corporation operates consistently at or near world-class standards of innovation and quality.

The Fully Flexible Corporation makes transformation a core competency. Indeed, transformation is part of its formula for success. And it can create new value in any environment — value it passes directly on to customers.

It develops people who embrace change. People who are increasingly unconstrained by the approaches and processes of the past. Innovators with a nose for sources of new value.

And, because of all of this, The Fully Flexible Corporation has what it takes to meet a perpetual storm, or anything else Mother Nature or the market may throw at it.

So, let’s explore this broader vision of flexibility as an influencer of corporate transformation, and as a formula for success, using the Chrysler Group as an example.

As we do this, I also want to challenge my supplier colleagues. There are a few who are outspoken about how OEMs must step up to the challenges of global competition.

From our perspective, stepping up to the challenges of global competition actually starts with flexibility.

And the need for greater flexibility is no longer just a manufacturing concept. Nor is it solely an OEM issue. Becoming more flexible is a challenge we all must face, and we all must face this challenge together.

Our vision of flexibility places emphasis on the customer and the product. In effect, our goal is to design and build virtually anything just about anywhere, with improving speed and quality – the emphasis on efficiently maximizing innovation, design, and package selection for customers.

Contrast this with other visions of flexibility, where the process dictates design and package. With us, the systems must be flexible enough to accommodate products that address current or emerging tastes in the marketplace – and quickly.

That builds on a core strength of the Chrysler Group: breakthrough products!

Let’s investigate two powerful examples of the competitive advantage our team is creating as we become more flexible.

The first example is the development of our new minivan with the breakthrough Stow ‘n Go seating and storage system. Consider this … our team brought this product to dealer showrooms in just 18 months! This was unprecedented and demonstrates the flexibility of our entire organization.

Admittedly, we were on a dangerous path to potentially lose our leadership in the segment. So we challenged our team with a significant capital commitment — $400 million — and we asked them to sustain our lead position, a challenge that required the creation of an entirely new platform and underbody.

In fact, we were planning a whole new minivan design a few years down the road. Yet, our leadership team made the investment to bring a paradigm-changing feature to our customers even before our new vehicle hit the market.

That’s applying flexibility at the highest level…in the product plan!

This was a test of our Chrysler Development System’s ability to stimulate collaboration and innovation among all our key players — design, engineering, manufacturing and our supply base — in effect, weaving them into a fully flexible, development team, as I said, without boundaries.

Of course, this philosophy didn’t end at the development phase.

Normally, before tooling and work with suppliers begins the Manufacturing team develops and issues a document that contains build criteria. Our team developed the plans for the tub install at a local Mexican restaurant! The plans guiding our tooling and suppliers were drawn up on napkins!

Judging from the conditions of those napkins, I’d say the margaritas were especially good that day.

And there was nothing routine about this build. For instance, the team had to figure out how to install a 60-pound plastic tub, safely, and without damaging the body of the vehicle — planning and executing totally on the go.

Our new minivan is a great example of how full flexibility enhances our collaboration and speed to market. Let’s now look at an example of how our flexibility drives innovation.

As you may know, we control material costs through our Material Cost Management — or MCM — process. This process involves Engineering, Procurement & Supply and Manufacturing, which are all on a common mission during product development, and supplier selection.

The idea is to find and apply the best technology for the least cost, while achieving greater quality and value for customers.

MCM has inspired much collaboration and innovation in our company. In so doing — and here’s that Perpetual Storm I talked about — this process presents an interesting challenge, because it’s inspiring our team to out-innovate some of our suppliers.

For instance, a team of our engineers recently put aside a supplier’s design of a key component that controls fuel system vapors, and they designed and patented an alternative. The alternative exceeds regulatory standards, with reduced complexity. Translation? Better quality and less weight — at a price that’s at least 70 percent lower than the lowest supplier quote.

Here’s the part I like: When this component goes into production for the 2006 model year, we’ll realize this 70 percent savings on more than 2.8 million vehicles a year, saving more than $18 million a year!

That’s not continuous improvement. That’s breakthrough improvement. And it represents precisely the results we’ll be achieving as the Chrysler Group becomes fully flexible.

There’s more to come.

Now I ask our suppliers: As we become faster and more innovative, as we become more flexible, will you be fast enough to out-innovate us?

If not, then you’ve got some work to do.

So, we’ve seen some of the outcomes, now let’s now take this discussion to ground level, and consider the specific applications of flexibility in our company.

In our concept of flexibility, there are six identifiable applications.

The first five of these, Chaining Flex, Volume Flex, Platform/Architecture Flex, Model Mix Flex and Supplier/Component Flex, are very familiar. They are the foundation for what many among us consider flexibility.

While automakers employ them, these applications are only the start of the journey to becoming Fully Flexible.

The sixth application, Business Model Flex is a unique test of how deeply you can apply flexibility to transform your business. I’ll go through the first five quickly. Then I’ll focus on Business Model Flex.

Chaining and Volume Flex together enable us to respond to market dynamics. Chaining Flex is flexibility between plants, while Volume Flex lets you rebalance volume within or between plants.

For instance, on Chaining Flex, we build Dodge Ram trucks in three plants, our new Stow ‘n Go minivans will also soon be built in three plants (Windsor, St. Louis and, by early next year, in Graz, Austria), and we can chain volume and flex it to meet market demand.

Platform Architecture Flex includes common vehicle architectures and what we call platform flexibility – in essence, developing products off interchangeable designs.

With Model Mix Flex, our fourth application, subassemblies allow us to differentiate models, which can be derivatives.

We hope you’ve noticed that we’ve launched nine all-new products in 2004. And here you see them all.

But at the same time, we’ve brought an array of other variants and derivatives to market…products like our high-performance SRT versions of the Dodge Neon and Chrysler Crossfire, the Jeep Liberty Renegade and, soon to come, Jeep Liberty diesel and others.

And with Supplier/Component Flex, our fifth application, content also differentiates our products.

In my book, these are examples of the best possible responses to a Perpetual Storm.

Now, let’s kick it up a notch, and investigate our sixth application, Business Model Flex.

Can our organizations truly operate without boundaries…internally and externally?
Can we integrate our operations with our business partners?
And, can we use flexibility to evolve to a more high-performance business model?
I think we can, and we, and some of our suppliers, are already doing it.

There are different aspects to Business Model Flex. What I want to focus on is what we call supplier co-location, which is when suppliers essentially build and manage key manufacturing process facilities totally within a plant “footprint”, and an important outcome of supplier co-location, an idea we call Capital Spending Flex.

Yesterday, we announced our supplier co-location project in Toledo. This project is an example of Business Model Flex, where three suppliers will construct and own nearly one-million square-feet of plant space inside our Toledo North plant “footprint,” for body, paint and chassis operations. Toledo North is where we build the Jeep Liberty.

Body and paint capital investment alone is more than half of the total manufacturing investment for a major project. So, by partnering in this way, the Chrysler Group is able to optimize capital dollars for investment in future products.

That’s capital spending flexibility! That’s reinvigorating our business model!

But it’s not just our business model that’s getting a shot of new blood. For instance, consider our supplier partners who’ll manage the paint and body shops.

Our paint supplier, Durr, is a process and tooling company with competencies in paint shop operations.

However, the lifecycle for this supplier’s core products is quite long, considering that paint shops go up for 20 to 25 years, a time period in which there’s not a lot of process and tooling going on.

If you took a look at how many tooling companies went bankrupt in the Detroit area in the last few years, you’ll get a sense of the storm these companies face.

In Michigan, State labor data shows that about 34,000 tooling jobs have vanished since 1998. Cities like Grand Rapids have been hit hard.

The National Tooling & Machining Association estimates that 30 percent of the country’s toolmakers have shut their doors since 2000, and many who are still left are barely hanging on.

Due to global hyper competition, every company is reusing assets and designing processes leaner. This was inevitable. The companies that didn’t survive should’ve changed their business model.

Now Durr has an opportunity to apply its competencies to a whole new business opportunity. Now its innovation and efficiency can be a source of new and immediate value.

Isn’t it obvious Durr’s costs for design, development, and installation will be lower than what they would charge me?

Same is true for our body shop supplier, Kuka.

Kuka’s competencies are process and tooling. But guess what? Our flexibility enables us to double the life of our equipment.

So, where’s this supplier’s market going?

Like our paint shop supplier, there was a declining market for the best of Kuka’s innovation. Now they’ve got an opportunity to put their company’s innovation in the bank!

Finally, our rolling chassis supplier – Hyundai Mobis – is an expert in design and processing, quality and supply chain for these types of modules.

When you step back, Toledo was the perfect place to launch Business Model Flexibility.

Jeep Wrangler is a product with very stable volume. Plus, we were required to replace the body and paint shops anyway. And, as important, this was a great opportunity to bring benefits to a community that has been part of the Chrysler Group family for decades.

Our relationship with the UAW was important to creating this new prototype business model.

We received outstanding support from the local and state governments in Ohio.

All of these factors were key to our decision.

And, we didn’t run with this idea to the so-called “New South.”

The supplier facilities within the Toledo North plant represent, in effect, Brownfield development. Indeed, 23 of 24 Chrysler Group U.S. manufacturing facilities are Brownfield sites. We’re proud of that.

So, this was a compelling business opportunity for us, our suppliers and our communities.

But opportunities like this are only sources of new value if you’re flexible enough to “see” them, and disciplined enough to execute them.

I heard someone say recently that no matter where you live, there was never a better time than right now to be in the market for a new car or truck.

It’s been that way for a while. I suspect it will continue to be, and that’s a good thing.

However, this market isn’t giving anything up easily. Customers demand world class design and engineering, innovation and quality at competitive prices. Therein lies the challenge, or the source of our Perpetual Storm. But that’s also a good thing.

It’s a good thing because in this context, there was never a better time to be in this industry, as an OEM or a supplier, especially if you bring the right philosophy and passion to your efforts.

This includes finding comfort in a state of perpetual transformation, and having the focus and discipline to become fully flexible.

Indeed, at the Chrysler Group, despite the examples I’ve shared with you, we’re really just getting started in applying flexibility to our business. The results we’ll achieve with the products in our pipeline will be the proof in the pudding. So stay tuned.

If you’re trying to understand the pace of the auto industry today, or are too busy contemplating The Perfect Storm, my advice to you is this:

Don’t blink … move fast … and don’t try to ride out the storm, you may quickly become a casualty to innovation!
Embrace flexibility … apply it throughout your business, and challenge your key partners to do the same. If they don’t, find new partners.
Finally, as a leader, you’ll know you’re on the right path when your team is invested in the journey, and their certainty that tomorrow will not be anything like today, motivates them to higher levels of performance, greater creativity, and full flexibility.

Thank you for listening.

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