What Is a Layered Process Audit (LPA)?

TheThe FifthFifth Dimension:Dimension: TheThe SupplierSupplier && OEMOEM InterfaceInterface

Steve Walukas Vice President Corporate Quality DaimlerChrysler Corporation

1 TheThe FifthFifth DimensionDimension The Supplier & OEM Interface

¾ DaimlerChrysler Overview ¾ The Chrysler Group Results ¾ The Chrysler Group’s Product Offensive ¾ Internal and External Interface

2 DaimlerChrysler Overview THE AUTOMOTIVE BUSINESS AND AUTOMOBILE-RELATED SERVICES ACCOUNT FOR 99% OF DAIMLERCHRYSLER'S REVENUES

3 DaimlerChrysler’s Strategy is Based on Four Strategic Pillars

Global Presence Strong Brand Portfolio

Innovation & Technology Leadership Broad Product Range

4 Extensive Research Capabilities

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

5 Disciplined Product Development Processes

Product Strategy ChryslerDevelopment Development System System Continuous Improvement

Customer PPDC V1 Mid-Cycle Renewal Trends IDEATION Freshening Competition BUSINESS Technology Management Design CASE Concept Development Design Ideas Execution Launch

Technology Validate Validate Confirm Optimize Verify Establish Identify Product/ Vehicle/ Trends Product/ Product/ Product/ Program Program Potential Process & Facilities & Process Process Process Transition Vision Alternatives Verify Launch Design Design Design Fuel Prices Facilities Ramp-up Economic I H1 H2 G1 G2 EF D1 D2 C B A Environment Regulatory Trends • Regulatory Changes (PEC) • Quality Improvement Product Strategy Product Executive (Monthly Review) Team Committee • Cost Reduction (Bi-weekly Component Teams) Product Innovation Team

6 Worldwide Manufacturing Locations

7 Global Retail Locations

Market Performance Joint Venture Independent Distributor Center (MPC)

8 The Chrysler Group’s Transformation

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

• Innovation • Quality • Styling • Environment • Value • Safety

9 2004 Calendar Year Product Offensive

Crossfire Roadster PT Cruiser Town & Convertible Country SRT-6 Roadster 300C Grand Durango Cherokee SRT-6 Coupe

2004 2005 NOVNOV DECDEC JANJAN FEBFEB MARMAR APRAPR MAYMAY JUNEJUNE JULYJULY AUGAUG SEPSEP OCTOCT NOVNOV DECDEC JANJAN 1st 2nd 3rd 4th

Caravan Dakota Liberty Diesel Wrangler Unlimited Liberty Refresh/ SRT-10 Magnum Renegade

10 Product Offensive 2004 – 2007

2525 New vehicles to market

in 3636 months

11 Chrysler Group: Strategic Transformation CHRYSLER GROUP HAS SHOWN SIGNIFICANT PROGRESS REDUCING WARRANTY CONDITIONS AND EXPENSES

Warranty C/1000

Goal: Best in Class by 2007

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

Model Years P:\SHARED 12 RECOMMENDATION 2004 Consumer Reports PT Cruiser Jeep Liberty Toledo North Assembly Plant Toluca Assembly Plant

Chrysler Sebring Sterling Heights Assembly Plant Dodge Stratus Sterling Heights Assembly Plant

13 J.D. Power IQS - Results

2004 Chrysler Group Top Quartile Models

Dodge Neon Dodge Stratus Coupe

Chrysler PT Cruiser

Dodge Ram Pickup HD Dodge Caravan/Grand Caravan 14 2004 Harbour Report

¾ Command Performance: ¾ Chrysler Group is Most-Improved Automaker in The Harbour Report 2004

¾ 7.8 % improvement

¾ Set new industry benchmark in transmission productivity

15 2004 Focus

¾ Emphasis on Warranty Improvements

¾ Launch Management

¾ Prevention of Problems

¾ Speed of Problem Resolution

¾ Durability / Reliability / 3/36 Warranty

¾ Improve Internal and External Collaboration

16 The Extended Enterprise Collaboration

Internal Departments Shareholders Dealers Design NADA Engineering Dealer Councils Manufacturing Dealer Advertising Associations Procurement & Supply Sales & Marketing Finance

Labor External UAW(U.S.A.) Organizations CAW (Canada) DaimlerChrysler El Sindicato (Mexico) AIAG Management VDA/ISO JAMA

Government Financial Suppliers Agencies Institution Production Parts EPA Tooling & Equipment NHTSA Analyst Service & Parts Credit, DaimlerChrysler Bank

17 Importance of Collaboration

¾ We rely on our partners to: • Provide perfect parts and services • Efficiently design & produce parts & services • Proactively look for better standards, methods, parts, products, and services • Continuously strive for improvement • Provide innovative methods and technology • Delight the customers through passionate execution of requirements and customer wants

18 TheThe FifthFifth Dimension:Dimension: TheThe SupplierSupplier OEMOEM InterfaceInterface

DDaaimlerChryslerimlerChrysler CorporationCorporation ScottScott R.R. GarberdingGarberding ViceVice PresidentPresident SupplierSupplier QualityQuality

19 The 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 the performance of our supply base.

20 Primary Root Cause for Critical PRISMs

51 50

39 40

11 10 10 8 3 2 0 Inadequate Process Process Control Inspection and Design Control Control of Handling, Storage, Part Identification Control Method Method Not Testing Nonconforming Packaging and and Traceability Followed Product Presentation

21 Primary Root Cause for Critical PRISMs

51 50

75%39 of all defects are due to 40

30 Process Non-Conformance

22 Global Supplier Quality Initiatives

Quality Funnel Restructured Process Sign-Off Layered Process Audit

Improve Forever Requirements Process Revision

CDS Quality Gates Source Package Best Revision Practices Feedback

23 What is a Layered Process Audit (LPA)?

¾LPA 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.

¾LPA’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.

24 How does an LPA Work?

PFMEA Control Work Plan Instructions Corrective Actions Improvement Continuous

Technical Inputs Prevention Memory Actions

Employee Workshops

Process Audits Build Error Machining Technique Proofing Attributes

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

25 LPA - Frequency Plan

Plant Manager 1 X Week

Area Management 2 X Week

Production Supervisor 1 X Shift

• Encourages Management Involvement • Encourages Operator Feedback • Establishes Accountability

26 LPA Benefits

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

•First time through capability Improves •Morale

•Operator training Facilitates •Management/operator interface

•Safety regulations Reinforces

27 LPA Success at Kokomo Transmission Plant

Repair Inventory vs First Time Capability vs LPA

KTP Now conducting 6700 Process Layered Audit Checks

100 Firs 95 FTC Repair Inventory 5400 90 t Time

A Checks / 85 Week P

80 Through(% 75

# of L 1800 70 0 Process Layered Audits 65 180 60 ) 55 3 3 3 -03 -03 -03 -02 -02 -02 -03 -03 -03 -03 -03 -02 -02 -03 -03 -03 -03 -03 -02 -02 -02 -02 -03 -03 -02 -02 -02 1-0 4-0 7-0 25 28 37 39 42 51 10 13 22 31 34 45 48 16 19 40 49 52 18 24 27 36 43 46 21 30 33

Weekly

28 Supplier Interface – LPA’s will be mandatory

ISO/ TS 16949 ¾ 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 ¾Posted on AIAG, IAOB, and QMS web sites

¾Letter mailed to all suppliers D a im ler C hr y s le r Cor por a tion Peter M. Rosenfeld E x ec utiv e V ic e P res id e n t Pr oc ur e m en t & S u p p ly

A ugu st 6 , 2 0 04

A La y e r ed Proc es s Au dit ( " LPA" ) is a q ual it y im provem ent b u s in e s s s y s tem invo lvi n g m u ltip le la y e rs of m a nagem ent. It c ons is ts of regular ly s c h ed u le d rev ie w s of all el em ent s in a m anuf ac tur ing/ as s e m b ly pro c es s t o ens ur e th a t: e q u ipm e n t is be in g prop erl y m a inta in ed; error proof ing is work ing, and; p rop er c r af tsm ans hip and /o r bu il d tec h n iq u e s , f rom s ta ndardi ze d work ins tr u c tio ns , are be in g fo llo w e d . U tilizat io n of LP A w ill r e s u lt in m o re disc ip lin ed p roc es s e s a nd im pr ove overa ll qu al it y . Mos t C h r y s ler G r ou p Po we rtrain f a cil iti es are al r e ad y u s ing L P A .

I am writi ng t o y ou bec aus e I a m ask ing that al l s u ppl ie r m anuf ac tur in g f a c ilit ies pr ov idi ng parts to one or m o re of C h r y s ler G roup 's P o wertra in pla n ts d e p lo y L P A . W ithin th e ne x t f e w w e ek s , y o ur pla n t a n d q u a lit y m anager s wil l b e r e c e iv in g c o rres pon denc e w h ic h w ill pr ov id e a d d it ion a l inf o rm ation abo ut L PA tra in ing. T he c ours e wor k wil l b e c ond u c ted at th e D a im ler C hr y s ler T e c h n o lo g y C e nter dur ing t he n e x t Su pp li er T rainin g W e e k s c heduled f o r Ma y 1 0 throu gh 14. T h is train ing w ill f u lf ill y o ur c o m p an y 's tra in ing requ ir em ents and, m o re im por tantl y , w ill as s is t y o u i n im m ediate ly im plem enting t h is proc e dure w ith in y o ur f a c ilit y . At the s a m e ti m e , the C h r y s ler G r oup w ill b e m o ving to m a k e LP A a m anda te f o r s upp lier s t o its p o w ertra in pl a n ts i n th e th ird qu arter of 2004 .

T h e Chr y s ler G rou p is in t h e proc es s of f inal iz ing im plem e n tation of LP A i n a ll of it s p o w e rtra in pla n ts . It h a s pro v e d to be a v a lu ab le t o o l t o im prove f ir s t- ti m e thro ug h c apa bi li ty w h ich ens ures qua lit y t o th e c u s tom er. T h e La y e r e d P r oc es s A u d it is a s y s tem to ens ure t h at w e bui ld t he bes t qua lit y pr o duc t t oge ther .

I appr ec iate y o ur c o m pan y 's, and y o ur p e rs on al, s u pp o rt on t h is m a tter.

S inc er el y ,

29 Supplier Interface – LPA Compliance Verification

Compliance Form ¾ Summary of training, implementation, and LPA results/ compliance ¾ One form per supplier location to be submitted monthly to SQ Specialist

Layered Process Audit Compl iance Repo rt

Suppli er Name: Report Suppl ier State/ DCX SQ Specia list City Country Mont h Year Code Prov .

Training & Implement ation S ummar y

LPA LPA Trained Implemented Counter measure Comments Staff/ Top Managemen t: Mid-Level Manag ement: Line Superv isors:

Au dit LPA System & Number/ % of Sheets Infrastructure DCX Lines Developed Established utiliz ing LP A Counter measur e Comments

Monthly Comp liance Summary

Line / Operation / Number / LPA LPA LPA LPA LPA LPA LPA LPA LPA DCX Name / Description 1 2 3 4 5 6 7 8 9 TOTAL Number o f items to be audited Number o f items audi ted % of audi ts accomplished No. of items in compliance %of items in compliance Frequency: Top Manag ement (1/ week) Mid-Level Manag ement Line Superv isors (1 / shift) Error Proo fing (1/day)

Green In Compliance Submitted By: ______Yellow In Progress Appr oved By : ______Red Not S tarted Date Submitted: ______

30 Layered Process Audit

Proven successful internally

¾ Expanding Collaboration to our Supply base

¾ Not asking Suppliers to do something we are not

¾ Training available to all Chrysler suppliers

¾ Low investment – significant quality return

31 TheThe FifthFifth Dimension:Dimension: TheThe SupplierSupplier OEMOEM InterfaceInterface

DDaaimlerChryslerimlerChrysler CorporationCorporation ScottScott R.R. GarberdingGarberding ViceVice PresidentPresident SupplierSupplier QualityQuality