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Chrysler to cut supply chain costs by 25%

Chrysler LLC aims to cut its supply chain costs by 25% in the next three years, and improve its relationship with suppliers, John Campi, executive vice president of procurement, said on Friday. Campi also said Chrysler has named as its “supplier of choice,” Japan’s Denso, which would enable the company to win future Chrysler business.

Chrysler will have about 10 companies in that select group, Campi said, and another one could be named within 30 days. The purchasing chief said it would achieve the targeted cost-cuts in a number of ways including reducing complexity and parts, and maintaining a stable production schedule. “I’ve set an arbitrary aggressive target of 25% cost out of the supply chain,” Campi told the Center for Automotive Research conference in remarks aimed at suppliers.

Chrysler, however, is not planning to achieve that goal through a 25% price cut from suppliers, he said. “It means, between us, we have to find ways to improve our supply chain operations,” Campi said. “Much of which is driven by what we at Chrysler do. How we act drives your cost.” The automaker is also hoping to improve its strained relations with suppliers.

Chrysler, which was acquired by private equity firm Cerberus Capital Management a year ago, has been involved in a number of disputes and placed last in an influential survey of relationships with US suppliers. Chrysler sued Canadian auto parts maker Magna International to recoup money it spent on a recall involving defective heated seats in minivans. The privately held automaker earlier this year canceled its contracts with Plastech Engineered Products in a dispute and the auto parts maker filed for bankruptcy, triggering temporary plant shutdowns at Chrysler. Campi said he recently met with suppliers to discuss products and outline goals in a bid to improve relations.

Chrysler is under pressure as it faces scrutiny over whether it can ride out a downturn in US auto sales that many analysts expect to stretch through 2009. Chrysler’s US sales have declined 23% through the first seven months of the year. (Reuters)