11

The Fifth Dimension: The Supplier The Fifth Dimension: The Supplier & OEM Interface& OEM Interface

Steve WalukasSteve Walukas

Vice PresidentVice PresidentCorporate Quality Corporate Quality DaimlerChrysler CorporationDaimlerChrysler Corporation

22

The Fifth DimensionThe Fifth DimensionThe Supplier & OEM InterfaceThe Supplier & OEM Interface

DaimlerChrysler OverviewDaimlerChrysler OverviewThe Chrysler Group ResultsThe Chrysler Group ResultsThe Chrysler Group’s Product OffensiveThe Chrysler Group’s Product OffensiveInternal and External InterfaceInternal and External Interface

33

DaimlerChrysler OverviewDaimlerChrysler OverviewTHE AUTOMOTIVE BUSINESS AND AUTOMOBILE-RELATED SERVICES

ACCOUNT FOR 99% OF DAIMLERCHRYSLER'S REVENUES

44

DaimlerChrysler’s Strategy is DaimlerChrysler’s Strategy is Based on Four Strategic PillarsBased on Four Strategic Pillars

Strong Brand PortfolioGlobal Presence

Innovation & Technology Leadership Broad Product Range

55

Extensive Research CapabilitiesExtensive Research Capabilities

Permanent staff 1,600 scientists plus 1,000 doctoral/diploma candidates/junior staff

66

Disciplined Product Development ProcessesDisciplined Product Development Processes

CustomerTrends

Competition

DesignIdeas

TechnologyTrends

Fuel Prices

EconomicEnvironment

RegulatoryTrends

Product Strategy Team

Product Executive Committee

• Regulatory Changes (PEC)• Quality Improvement

(Monthly Review)• Cost Reduction

(Bi-weekly Component Teams)

PPDC V1 RenewalMid-CycleFresheningIDEATION

ProgramTransition

Product Strategy Chrysler Development System Continuous Improvement

Product Innovation Team

Establish Program Vision

Identify Potential

Alternatives

Confirm Product/ Process Design

Optimize Product/ Process Design

Verify Product/ Process Design

Validate Product/

Process & Verify

Facilities

Validate Vehicle/

Facilities & Launch

Ramp-up

ABCD2D1EFG2G1H2H1I

Execution

Launch

Concept Development Design

Technology ManagementBUSINESSCASE

CustomerTrends

Competition

DesignIdeas

TechnologyTrends

Fuel Prices

EconomicEnvironment

RegulatoryTrends

Product Strategy Team

Product Executive Committee

• Regulatory Changes (PEC)• Quality Improvement

(Monthly Review)• Cost Reduction

(Bi-weekly Component Teams)

PPDC V1 RenewalMid-CycleFresheningIDEATION

ProgramTransition

Product Strategy Chrysler Development System Continuous Improvement

Product Innovation Team

Establish Program Vision

Identify Potential

Alternatives

Confirm Product/ Process Design

Optimize Product/ Process Design

Verify Product/ Process Design

Validate Product/

Process & Verify

Facilities

Validate Vehicle/

Facilities & Launch

Ramp-up

ABCD2D1EFG2G1H2H1I

Execution

Launch

Concept Development Design

Technology ManagementBUSINESSCASE

CustomerTrends

Competition

DesignIdeas

TechnologyTrends

Fuel Prices

EconomicEnvironment

RegulatoryTrends

Product Strategy Team

Product Executive Committee

• Regulatory Changes (PEC)• Quality Improvement

(Monthly Review)• Cost Reduction

(Bi-weekly Component Teams)

PPDC V1 RenewalMid-CycleFresheningIDEATION

ProgramTransitionProgramTransition

Product Strategy Development System Continuous Improvement

Product Innovation Team

Establish Program Vision

Identify Potential

Alternatives

Confirm Product/ Process Design

Optimize Product/ Process Design

Verify Product/ Process Design

Validate Product/

Process & Verify

Facilities

Validate Vehicle/

Facilities & Launch

Ramp-up

ABCD2D1EFG2G1H2H1I

Execution

Launch

Concept Development Design

Technology Management

Establish Program Vision

Identify Potential

Alternatives

Confirm Product/ Process Design

Optimize Product/ Process Design

Verify Product/ Process Design

Validate Product/

Process & Verify

Facilities

Validate Vehicle/

Facilities & Launch

Ramp-up

Establish Program Vision

Identify Potential

Alternatives

Confirm Product/ Process Design

Optimize Product/ Process Design

Verify Product/ Process Design

Validate Product/

Process & Verify

Facilities

Validate Vehicle/

Facilities & Launch

Ramp-up

ABCD2D1EFG2G1H2H1I AABBCCD2D2D1D1EFEFG2G2G1G1H2H2H1H1II

Execution

Launch

Concept Development Design

Technology Management

ExecutionExecution

LaunchLaunch

Concept Development DesignConcept Development Design

Technology ManagementTechnology ManagementBUSINESSCASE

77

Worldwide Manufacturing LocationsWorldwide Manufacturing Locations

88

Global Retail LocationsGlobal Retail Locations

Independent DistributorJoint VentureMarket Performance Center (MPC)

99

The Chrysler Group’s TransformationThe Chrysler Group’s Transformation

By Leveraging our Global Enterprise, The Chrysler Group’s New By Leveraging our Global Enterprise, The Chrysler Group’s New Generation of Vehicles Shares the Ultimate in:Generation of Vehicles Shares the Ultimate in:

•• InnovationInnovation

•• QualityQuality

•• StylingStyling

•• EnvironmentEnvironment

•• ValueValue

•• SafetySafety

1010

2004 Calendar Year Product Offensive2004 Calendar Year Product Offensive

SRT-6Roadster

SRT-10

Crossfire RoadsterTown &

CountryPT CruiserConvertible

300C

SRT-6 Coupe

Caravan

Magnum

Dakota

Durango

MAYMAYJANJAN FEBFEB MARMAR APRAPR JUNEJUNE JULYJULY AUGAUG SEPSEP OCTOCT NOVNOV

WranglerUnlimited Liberty

Refresh/Renegade

DECDEC2004

1st 2nd 3rd 4thDECDECNOVNOV JANJAN

2005

Liberty Diesel

GrandCherokee

1111

Product Offensive 2004 Product Offensive 2004 –– 20072007

2525 New vehicles to market

3636 monthsin

P:P:\\SHAREDSHARED 1212

Chrysler Group: Strategic TransformationChrysler Group: Strategic Transformation

CHRYSLER GROUP HAS SHOWN SIGNIFICANT PROGRESS REDUCING WARRANTY CONDITIONS AND EXPENSES

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Warranty C/1000

Model Years

Goal: Best in Classby 2007

1313

2004 Consumer Reports2004 Consumer ReportsRECOMMENDATION

PT CruiserToluca Assembly Plant

Jeep LibertyToledo North Assembly Plant

Dodge StratusSterling Heights Assembly Plant

Chrysler SebringSterling Heights Assembly Plant

1414

J.D. Power IQS J.D. Power IQS -- ResultsResults

2004 Chrysler Group Top Quartile Models

Dodge NeonDodge NeonDodge Stratus CoupeDodge Stratus Coupe

Chrysler PT CruiserChrysler PT Cruiser

Dodge Ram Pickup HDDodge Ram Pickup HD Dodge Caravan/Grand CaravanDodge Caravan/Grand Caravan

1515

2004 2004 HarbourHarbour ReportReport

Command Performance:Command Performance:Chrysler Group is MostChrysler Group is Most--Improved Automaker in The Improved Automaker in The HarbourHarbour Report 2004Report 2004

7.8 % improvement 7.8 % improvement

Set new industry benchmark in transmission Set new industry benchmark in transmission productivityproductivity

1616

2004 Focus2004 Focus

Emphasis on Warranty ImprovementsEmphasis on Warranty Improvements

Launch ManagementLaunch Management

Prevention of ProblemsPrevention of Problems

Speed of Problem ResolutionSpeed of Problem Resolution

Durability / Reliability / 3/36 WarrantyDurability / Reliability / 3/36 Warranty

Improve Internal and External CollaborationImprove Internal and External Collaboration

1717

The Extended Enterprise CollaborationThe Extended Enterprise Collaboration

DaimlerChrysler

Internal Departments

DesignEngineering

ManufacturingProcurement & Supply

Sales & MarketingFinance

Shareholders Dealers

External Organizations

Suppliers

NADADealer Councils

Dealer Advertising Associations

AIAGVDA/ISO

JAMA

Production PartsTooling & Equipment

Service & Parts

LaborUAW(U.S.A.)

CAW (Canada)El Sindicato (Mexico)

Management

Financial Institution

AnalystCredit, DaimlerChrysler

Bank

GovernmentAgencies

EPANHTSA

1818

Importance of CollaborationImportance of Collaboration

We rely on our partners to:We rely on our partners to:•• Provide perfect parts and servicesProvide perfect parts and services•• Efficiently design & produce parts & servicesEfficiently design & produce parts & services•• Proactively look for better standards, methods, Proactively look for better standards, methods,

parts, products, and servicesparts, products, and services•• Continuously strive for improvementContinuously strive for improvement•• Provide innovative methods and technologyProvide innovative methods and technology•• Delight the customers through passionate Delight the customers through passionate

execution of requirements and customer wantsexecution of requirements and customer wants

1919

The Fifth Dimension:The Fifth Dimension:The Supplier OEM InterfaceThe Supplier OEM Interface

DaimlerChrysler CorporationDaimlerChrysler CorporationScott R. Scott R. GarberdingGarberdingVice PresidentVice PresidentSupplier QualitySupplier Quality

2020

The Suppliers’ role is key within Chrysler GroupThe Suppliers’ role is key within Chrysler Group

• 1,300 Top Parent Suppliers

• 64,000 purchased production components

• $26 Billion annual buy

Our performance directly relates to Our performance directly relates to

the performance of our supply base. the performance of our supply base.

2121

Primary Root Cause for Critical Primary Root Cause for Critical PRISMsPRISMs

51

39

11 108

3 2

0

10

20

30

40

50

60

Inadequate ProcessControl Method

Process ControlMethod Not

Followed

Inspection andTesting

Design Control Control ofNonconforming

Product

Handling, Storage,Packaging andPresentation

Part Identificationand Traceability

2222

Primary Root Cause for Critical PRISMs

51

39

11 108

3 2

0

10

20

30

40

50

60

Inadequate ProcessControl Method

Process ControlMethod Not

Followed

Inspection andTesting

Design Control Control ofNonconforming

Product

Handling, Storage,Packaging andPresentation

Part Identificationand Traceability

75% of all defects are due to Process Non-Conformance

2323

Global Supplier Quality InitiativesGlobal Supplier Quality Initiatives

LayeredProcess

Audit

CDS QualityGates

Best PracticesFeedback

Source PackageRevision

RestructuredProcessSign-Off

QualityFunnel

ImproveProcess

Forever Requirements

Revision

2424

What is a Layered Process Audit (LPA)?What is a Layered Process Audit (LPA)?

LPA’s assure that defined methods and work instructions are utilized, problem solving solutions are held in place, and all process issues are identified and quickly correctly.

LPA is an ongoing system of process checks that verify proper methods, settings, operator craftsmanship, error proofing devices and other inputs are in place to ensure a defect free product.

2525

How does an LPA Work?How does an LPA Work?

Build Technique

ErrorProofing

MachiningAttributes

Process Audits

TechnicalMemory

PFMEA Control Plan

WorkInstructions

CorrectiveActions

PreventionActions

EmployeeWorkshops

Continuous

Improvem

entInputs

•Audits are conducted regularly by all levels of supervision•Non-conformances are immediately addressed

2626

LPA LPA -- Frequency PlanFrequency Plan

1 X WeekPlant Manager

2 X WeekArea Management

1 X ShiftProduction Supervisor

• Encourages Management Involvement • Encourages Operator Feedback• Establishes Accountability

2727

LPA BenefitsLPA Benefits

•Build variation based on work standardization•End-of-line inspection•Part defects

Reduces

•First time through capability•MoraleImproves

Facilitates•Operator training•Management/operator interface

•Safety regulationsReinforces

2828

LPA Success at Kokomo Transmission PlantLPA Success at Kokomo Transmission Plant

Repair Inventory vs First Time Capability vs LPA

18-0

221

-02

24-0

227

-02

30-0

233

-02

36-0

239

-02

42-0

245

-02

48-0

251

-02

1-03

4-03

7-03

10-0

313

-03

16-0

319

-03

22-0

325

-03

28-0

331

-03

34-0

337

-03

40-0

343

-03

46-0

349

-03

52-0

3

Weekly

# of

LPA

Che

cks

/ W

eek

556065707580859095100 First Tim

e Through (%)

KTP Now conducting 6700 Process Layered Audit Checks

0 Process Layered Audits

1800

180

5400Repair InventoryFTC

2929

Supplier Interface Supplier Interface –– LPA’sLPA’s will be mandatorywill be mandatory

ISO/ TS 16949

DaimlerChrysler Customer Specific Requirements

New section under Internal Audits

Effective 7/01/04 for Powertrain & Component

Plants suppliers; 1/1/05 for all remaining suppliers

Posted on AIAG, IAOB, and QMS web sites

Letter mailed to all suppliers DaimlerChrysler Corporation Peter M. Rosenfeld Executive Vice President Procurement & Supply August 6, 2004 A Layered Process Audit ("LPA") is a quality improvement business system involving multiple layers of management. It consists of regularly scheduled reviews of all elements in a manufacturing/ assembly process to ensure that: equipment is being properly maintained; error proofing is working, and; proper craftsmanship and/or build techniques, from standardized work instructions, are being followed. Utilization of LPA will result in more disciplined processes and improve overall quality. Most Chrysler Group Powertrain facilities are already using LPA. I am writing to you because I am asking that all supplier manufacturing facilities providing parts to one or more of Chrysler Group's Powertrain plants deploy LPA. Within the next few weeks, your plant and quality managers will be receiving correspondence which will provide additional information about LPA training. The course work will be conducted at the DaimlerChrysler Technology Center during the next Supplier Training Week scheduled for May 10 through 14. This training will fulfill your company's training requirements and, more importantly, will assist you in immediately implementing this procedure within your facility. At the same time, the Chrysler Group will be moving to make LPA a mandate for suppliers to its powertrain plants in the third quarter of 2004. The Chrysler Group is in the process of finalizing implementation of LPA in all of its powertrain plants. It has proved to be a valuable tool to improve first-time through capability which ensures quality to the customer. The Layered Process Audit is a system to ensure that we build the best quality product together. I appreciate your company's, and your personal, support on this matter. Sincerely,

3030

Supplier Interface Supplier Interface –– LPA Compliance VerificationLPA Compliance Verification

Compliance Form

Summary of training, implementation, and LPA results/ compliance

One form per supplier location to be submitted monthly to SQ Specialist

Layered Process Audit Compliance Report

Supplier Name: Report

DCX SQ Specialist Supplier Code City State/

Prov. Country Month Year

Training & Implementation Summary

LPA Trained

LPA Implemented Countermeasure Comments

Staff/ Top Management:

Mid-Level Management:

Line Supervisors:

Audit Sheets Developed

LPA System & Infrastructure Established

Number/ % of DCX Lines

utilizing LPA Countermeasure Comments

Monthly Compliance Summary

Line / Operation / Number /

Name / Description LPA

1 LPA

2 LPA

3 LPA

4 LPA

5 LPA

6 LPA

7 LPA

8 LPA

9 DCX

TOTALNumber of items to be audited

Number of items audited

% of audits accomplished

No. of items in compliance

%of items in compliance

Frequency: Top Management (1/ week)

Mid-Level Management

Line Supervisors (1/ shift)

Error Proofing (1/day)

Green In Compliance Yellow In Progress Red Not Started

Submitted By: _______________________ Approved By: _______________________ Date Submitted: _____________________

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Layered Process AuditLayered Process Audit

Proven successful internally Proven successful internally

Expanding Collaboration to our Supply baseExpanding Collaboration to our Supply base

Not asking Suppliers to do something we are notNot asking Suppliers to do something we are not

Training available to all Chrysler suppliersTraining available to all Chrysler suppliers

Low investment Low investment –– significant quality returnsignificant quality return

3232

The Fifth Dimension:The Fifth Dimension:The Supplier OEM InterfaceThe Supplier OEM Interface

DaimlerChrysler CorporationDaimlerChrysler CorporationScott R. Scott R. GarberdingGarberdingVice PresidentVice PresidentSupplier QualitySupplier Quality