Round-The-Clock Rating

Remember how you felt when grades came out in school?

Now manufacturers are giving report cards around the clock to suppliers and expecting them to measure up. Get ready for your customers to do the same.

Chrysler Group, the North American unit of auto manufacturer DaimlerChrysler AG, for instance, recently announced plans to provide its suppliers with online access to their performance scorecards as well as those of their competitors.

The scorecards are posted on the Internet and rate each supplier on cost, quality of parts, on-time delivery and quality of paperwork, as well as how well and how quickly the supplier responds to a problem. This gives suppliers a constant means to evaluate their own performance against that of rivals, and a tool to use when contracts come up for renewal.

"It's sort of like a decathlon," says David Barnas, a spokesman for Chrysler Group. "If you're (ranked) first or second across the board in these categories, you're going to be looked at for more business. If you're at the bottom, you're obviously going to know you're at the bottom and you're going to know on a 24/7 basis."

How suppliers adjust to this notion of daily or more frequent evaluations will play a key role in determining whether or not they maintain their existing customer base.

Chrysler Group has provided hard-copy evaluations to its roughly 900 top-tier suppliers since 1998, says Barnas, a method that was not only much more time-consuming but also left considerable gaps between reporting periods.

Within the last year, Chrysler started using hosted software developed by SeeCommerce, a Palo Alto, Calif.-based performance-software provider, to pull data from its systems.

At first, Chrysler called suppliers to deliver the information, but by February Chrysler's top five suppliers will be rated daily and online. More suppliers will be added in a phased rollout, with the top 250 having full access into the SeeCommerce software and the next 300 to 500 having limited access, says Tapas Majumdar, SeeCommerce's senior director of professional services. Chrysler will continue to add additional suppliers. The company handles 300,000 parts from more than 2,000 suppliers

"We like to say that information is good if it's used right," says Chrysler's Barnas. "If it's online, suppliers have the ability to see where they stand at any time and adjust accordingly."

It's an adjustment that Chrysler Group and other manufacturers are counting on in these dour economic times. Rather than brazenly demanding price cuts on parts and materials as many Fortune 500 companies—particularly automakers—have done in hard times past, Chrysler Group is counting on a more natural, self-policing shift to lower prices, and equal or better quality to occur.

Suppliers will be able to see how they stack up against the competition, although antitrust constraints will keep them from seeing exactly which named competitors scored higher or lower on their specific pricing information.

Reducing Materials Costs By 15%

This new scorecard system is the linchpin of the company's Material Cost Management program, designed to reduce Chrysler Group's materials costs by 15% in the next two years. The online scorecards will be available to suppliers within the next six months. Chrysler Group's in-house IT staff is currently building the system on the company's intranet.

"All of the big OEMs (original equipment manufacturers)—Chrysler, GM and Ford—will have online scoring or ways to get suppliers' performance to them so that performance can be viewed," says Kevin Prouty, research director at AMR Research in Boston. "When these OEMs go out to source components on a new vehicle, they're trying to get away from the piece-part process. They're trying to look at the total cost of sourcing not just the actual cost of the component but the cost of quality and delivery."

Barnas says Chrysler Group in the past three years has taken more than $5 billion worth of contracts away from suppliers who scored poorly on the scorecards and given those contracts to other suppliers who made the grade. And that was before the information was available all the time, online.

"Sure, pricing is part of the criteria," he says. "But of that $5 billion, roughly $3.2 billion were re-sourced because of quality issues. Either the percentage of defective parts was too high or we found another supplier that delivered a better quality product on a more consistent basis."

Since Chrysler only began to push around-the-clock rating in October, Chrysler suppliers are still waiting to see—or hear—how this will change their relationships with the automaker.

"Well, I assume it will make the information much easier to access and [be] convenient," says Jim Gill, a spokesman for Continental Teves, an Auburn Hills, Mich.-based supplier of hydraulic and electronic brake systems. "But to be honest with you, this is the first we've heard of this."

What You Should Do If You Get Rated by a Customer

Understand the metrics Get clear explanation of how you will be measured Watch your ratings closely Figure out where you stand in all key criteria versus rivals Figure out what data to collect You'll need to know what measurements to track Create your own monitoring system Know how you're performing before—or at least at the same time—you report it to customer Establish red flags Determine what indicators precede actual quality or manufacturing problems; and create an alert system within your organization

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.