Supply Chain World Conference

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Supply Chain World Conference

• DCX SCORE
• Improving Supplier Margins by Reducing Supplier
  Prices

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PS C.I. Organization
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The Most Profitable Suppliers Get It!
Top 10 of 50SCORE Participants (Return on Equity
17.3)
Top 50 Suppliers(Return on Equity 9.0)
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DaimlerChrysler Purpose
Our purpose is to be a global provider of
automotive and transportation products and
services, generating superior value for our
customers, our employees and our shareholders
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The Value Chain
Maximizes Value at Minimized Cost
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The Essence of SCORE

• Lets work together to
• Identify opportunities for improvement
• Eliminate waste in the system
• Reduce total systems cost
• Lets share the benefits

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The Essence of SCORE

• The Extended Enterprise
• Business relationships
• Creativity
• Continuous improvement
• Waste elimination
• Shared savings

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SCORE Incentives

• Supplier Participation Incentives
• SCORE is 15 of supplier rating
• Suppliers can increase profit margins
• Suppliers have potential for increased business
• Suppliers who are both Tier I and Tier II receive
  credit for Tier II SCORE proposals

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Making SCORE Happen

• People
• Process

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Making SCORE Happen

• People
• Do your people understand the concept of
  continuous improvement (CI)?
• Are your people trained in CI skills?
• - SCORE Enablers
• - Identification and elimination of waste
• - Challenge current business practices
• - Value engineering and Kaizen workshops

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Making SCORE Happen

• People
• Are there incentives to participate in CI?
• Do your people understand that SCORE is a win-win
  program that can improve the bottom line of the
  Extended Enterprise, including your company?

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Making SCORE Happen

• People
• Do your people have quantitative CI objectives,
  as a measure of performance?
• Do you have an effective reporting process to
  measure performance - within your company and for
  Tier II suppliers?

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Making SCORE Happen

• Process
• Is there a CI process at your company to generate
  SCORE ideas?
• Regular brainstorming sessions
• Workshops
• Lean production
• VA/VE
• Supply/Process Chain Mapping
• Does your company have a Kaizen/CI office to
  manage your process?

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Making SCORE Happen

• Process
• Is there a Tier II continuous improvement
  process?
• Is there a process at your company to get a
  savings suggestion from the submitter to
  DaimlerChrysler?
• Idea validity check
• Evaluate dollar value
• Perform necessary preliminary testing
• Discuss with DCX prior to submitting suggestion

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Making SCORE Happen

• Process
• Does your company have a DCX SCORE/CI champion?
• Do you know the DaimlerChrysler SCORE process?
• Are you on-line with DaimlerChrysler SCORE?

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SCORE 2000

• SCOREs focus is continuous improvement
• The Extended Enterprise must focus on Cost
  Reduction and not Margin Reduction
• Proactively apply the tools available
• - Lean Production Workshops
• - Value Analysis/Value Engineering
• - Brainstorming
• - Total Cost of Ownership (TCO)
• - Supply/Process Chain Mapping

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The Extended Enterprise EasyMap Vision

• Supply/Process Chain Mapping
• A process that efficiently identifies key supply
  chain risks and opportunities in quality, cost,
  and cycle time at the earliest point in time.

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Easy Map

• Runs off Visio Software
• Uses Files Process Developed by DaimlerChrysler
• Easy to Learn Use

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SCORE - DCX Supplier Resources

• Suppliers register for classes through TEDS -
  Outside Line - 248-512-4350
• SCORE support
• Hotline [phone]
• Email- External scoresup_at_daimlerchrysler.com
• Website - extranet.daimlerchrysler.com
• Use Extended Enterprise link

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Core Beliefs and Values
Your Role Inspired Employee Your Benefits
Inspired Employee
Customer Focus
Innovation
Responsibility
Teamwork
Profitability
Inspiration
Excellence
Speed
Openness
Quality
Agility
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Production Enablers

• Guidelines
• Enablers
• description
• usage
• documentation
• Examples

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SCORE Guidelines

• Guidelines that determine SCOREability have been
  left intentionally vague
• All proposals are considered for credit
• Ideas should not be ignored just because they are
  unconventional
• New ideas are always encouraged

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SCORE Guidelines (cont.)

• No minimum SCORE amount
• Use discretion on low dollar proposals
• Ideas can come from anywhere within the Extended
  Enterprise
• Supplier Ratings
• 15 of overall rating
• Rated on approved dollars only as percent of goal

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SCORE Guidelines (cont.)

• Supplier must be actively involved in proposal to
  be considered SCOREable
• Ideas applying to current and future model years
  only will be considered
• There must be a tangible benefit to
  DaimlerChrysler
• The idea must have actually occurred

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Production Enablers - Hard

• Design change occurring at O-1 release or APCN
• Design change occurring during model year
  (running change)
• Export credits
• Freight/FOB change - included in piece price
• Manufacturing process improvement
• Material change occurring during the model year
  (running change)

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Production Enablers - Hard

• Material change occurring at O-1 release or APCN
• Optimization of testing and validation
  requirements in piece cost
• Packaging in piece cost
• Target under prior model year exit price
• Tier II
• Volume efficiencies

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Production Enablers - Cost Avoidance (C/A)

• Below target
• Complexity
• Early supplier involvement (ESI)
• Obsolescence
• Optimization of testing and validation
  requirements - not in piece price
• Packaging not in piece price

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Production Enablers - C/A

• Payment terms
• SCORE on-line start-up credit
• Supplier employee vehicle purchase incentives
• Tooling savings
• Warranty reduction Initiative
• Weight reduction

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Enablers - Production (C/A)

• Below Target
• Production PO or TPO is issued below investment
  target
• Objectives set and maintained by Platform Finance
• Use pre-source package to establish original
  targets
• No SCORE credit until target is reached

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Below Target - Example

• Supplier and its suppliers, Engineering,
  Production Buyer, and Platform Finance worked to
  identify all DCX costs associated with the KJ
  instrument panel, and then designed a module for
  a total system cost savings of 23.30/vehicle.
  Part complexity reduced from 50 to 1 and
  components were designed into the I/P mold
  itself.
• Savings - 4,900,000

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Enablers - Production (C/A)

• Complexity
• Supplier demonstrates ways to ship fewer parts to
  assembly plants
• Elimination of one or more production parts from
  the Engineering Systems
• CN or other Engineering documentation required
• SCORE credit is 25,000 per part item eliminated

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Complexity - Example

• Cross-platform team changed body plug material
  from rubber to Vyram and agreed to reduce hole
  diameters from three to two piece costs were
  reduced and one part was eliminated from DCXs
  bill of materials
• Complexity Savings - 25,000
• Total Savings 297,527

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Enablers - Production (Hard)

• Design Change Occurring at O-1 Release or Advance
  Product Change Notice (APCN)
• Design related price reduction
• PO amendment required
• New part price must not be higher than Platform
  Finance objective

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Design Change - Example

• Supplier working with DCX Engineering,
  supercharged the WJ HEC pump reducing weight and
  cost. The new design eliminates the need for two
  separate pumps to support the steering system and
  the cooling system
• Savings 6,600,000

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Enablers - Production (Hard)

• Design Change Occurring During the Model Year
  (Running Change)
• Improvement to part design
• CN and PO reduction required

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Enablers - Production (C/A)

• Early Supplier Involvement (ESI)
• Provides SCORE credit above target for suppliers
  working on continuous improvement early in the
  part design process
• Applies to piece price and investment
• Applies to Key Parts, where a Design Cost Review
  (DCR) is performed by a Component Cost Analysis
  (CCA) analyst

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ESI - Example

• Extended Enterprise utilizing Value Engineering
  workshops, brainstorming, and paper Kaizens were
  able to save significant costs. Although the PO
  was placed marginally over target, the PO price
  was 63.50 less than the DCR cost level concurred
  to by CCA.
• Savings - 33,337,500

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Enablers - Production (Hard)

• Export Credits
• DaimlerChrysler receives benefit by using a
  suppliers export credits
• International Finance determines the amount of
  the benefit

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Enablers - Production Logistics (Hard) - All
Others (C/A)

• Freight/FOB Change--Included in Piece Price
• Supplier reduces shipping or transportation costs
• PO amendment required

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Freight/FOB Change--Included in Piece Price -
Example

• Supplier transferred production of a
  sub-component from Detroit to Mexico where the
  final assembly is manufactured. Total savings
  was 1,566,762.
• Freight Savings - 268,549

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Enablers - Production (Hard)

• Manufacturing Process Improvement
• Supplier offers reduced prices as a result of
  internal process improvements

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Manufacturing Process Improvement - Example

• Supplier conducted a lean production workshop.
  Direct labor was reduced from thirteen
  people/shift 2/5/8, plus overtime, to nine people
  per shift. WIP was reduced 93, scrap was
  reduced by 54, and floor space was reduced by
  32.
• Savings - 168,971

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Enablers - Production (Hard)

• Material Change Occurring During the Model Year
  (Running Change)
• Supplier reduces piece price as a result of new
  and/or different materials
• CN and PO amendment required

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Enablers - Production (Hard)

• Material Change Occurring at O-1 Release or APCN
• Supplier reduces piece price as a result of new
  and/or different materials
• APCN or written concurrence from Engineering
  required
• PO amendment required

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Enablers - Production (C/A)

• Obsolescence
• New description is being developed

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Enablers - Production (Hard)

• Optimization of testing and validation
  requirements - In Piece Price
• Supplier is able to reduce test costs and still
  satisfy DCX requirements
• Written concurrence or a CN from Engineering
• CN and/or PO reduction

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Optimization of testing and validation
requirements - In Piece Price - Example

• Supplier process demonstrated sufficient
  capability/reliability to reduce spec for
  destructive weld testing from 1 to 0.5
• Savings - 28,800

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Enablers - Production (Hard)

• Packaging - In Piece Price
• Supplier improves packaging by increasing density
• Clause 198 is reduced in PO

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Packaging - In Piece Price - Example

• Supplier and DCX Material Handling Engineering
  worked to reduce the grade of expendable
  cardboard.
• Savings - 185,139

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Enablers - Production (C/A)

• Packaging - Not In Piece Price
• Supplier improves packaging by increasing density
• Clause 092 is reduced in PO

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Enablers - Production (C/A)

• Payment Terms
• Supplier grants more favorable payment terms to
  DaimlerChrysler

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Enablers - All Suppliers - C/A

• SCORE on-line start-up credit
• Supplier out-of-pocket cost for programming to go
  on-line with SCORE

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Enablers - All Suppliers - C/A

• Supplier employee vehicle purchase plan
  incentives
• Employee fringe benefit in the form of a cash
  rebate for buying a DCX vehicle

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Enablers - Production (Hard)

• Target Under Prior Model Year Exit Price
• New model year for current product
• Price is established lower than exit price for
  prior model year, because of supplier
  improvements in technology, process
• Prior and new model year part POs are required

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Enablers - Production (Hard)

• Tier-II
• Tier-I supplier passes on savings resulting form
  continuous improvement programs with lower tier
  suppliers
• Does not include absorption of lower tier price
  increases
• PO price reduction required

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Enablers - Production (C/A)

• Tooling Savings
• Supplier reduces tooling costs
• Supplier may absorb tooling costs that
  DaimlerChrysler would have otherwise paid
• TPO reduction or written concurrence from
  Component Cost Analysis (CCA) analyst is required

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Tooling Savings - Example

• Supplier commonized components (ie drum housing,
  cable drum, tube sockets, crank pins, drum forks,
  etc) with current programs such as AB, WJ and DN
  to reduce total investment required.
• Savings - 641,140

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Enablers - Production (Hard)

• Volume Efficiencies
• Supplier reduces prices due to increase in
  vehicle production volumes
• PO price reduction required

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Enablers - Production (C/A)

• Warranty Reduction Initiative
• Suppliers who participate in the Warranty
  Reduction Initiative Program (WRIP) are not
  eligible to use this enabler. WRIP suppliers
  receive SCORE credit automatically on an annual
  basis
• A supplier not on in WRIP cannot submit a
  proposal that fixes a problem that the supplier
  caused
• SCORE credit is based on an actual reduction to
  Expense Per Unit Sold (EPUS)
• Supplier reduces warranty expense via process
  and/or design improvements
• Supplier must supply C/100 documentation before
  and after the change within 18 months of the date
  of the change
• Supplier must provide labor operation number
• DCX warranty contact is the DCX Quality
  Improvement Center

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Enablers - Production (C/A)

• Weight Reduction
• Supplier reduces weight of a new or existing part
• The new part weight is less than the weight
  objective
• CN, APCN, or written concurrence from Engineering
  is required
• SCORE credit is 1 per pound