Ford Motor makes peace with suppliers

By Lindsay Chappell, Automotive News

DETROIT -- Ford Motor Co. appears ready to end its on-again, off-again price-cutting wars with its own suppliers.

Last week, Tony Brown, Ford's global purchasing chief, introduced new purchasing guidelines that will make Ford act a little more like Toyota and a little less like Ford. Brown said he will:

• Cut in half the number of key suppliers he works with - from about 200 to 100 or fewer.
• Choose key suppliers in the early stages of a vehicle's design.
• Award contracts to suppliers over multiple vehicle cycles rather than rebidding parts for every cycle.
• Set target prices for each part and minimize demands for across-the-board price cuts.

In a Thursday, Sept. 29, interview with Automotive News, Brown said the new approach will help Ford speed up product development, reduce costs and minimise quality glitches during vehicle launches.

In a conference call earlier, Brown said: "I pay a lot of attention to what the competition is doing. We said, 'We have a problem in terms of the business model in this industry. It's not working effectively for our suppliers. It is not working effectively for us.'"

Brown said he has been discussing the initiative with Ford's top suppliers for three or four months. Ford's 200 biggest suppliers currently represent half of Ford's $90 000 million annual global purchasing budget.

Critics applaud

Brown's initiative drew praise from one of Ford's toughest critics - John Henke Jr., a consultant in Birmingham, Michigan, who publishes an annual supplier survey of automotive purchasing policies.

"Luckily, when I first heard of the plan yesterday, I had a scotch sitting next to me so I was able to avoid a heart attack," he said. "Thank God they've seen the light. This is the first step in Ford's seeing what their suppliers can really do for them."

Previously, Henke's surveys have indicated that Big 3 suppliers don't trust their customers - especially Ford and General Motors. "Toyota's and Honda's suppliers trust them," Henke said. "Ford's suppliers say they've lost their trust. When suppliers trust you, they will do some amazing things for you."

Bonanza and turmoil

For 100 key parts suppliers, the new plan will be a bonanza. Next summer, Brown said, Ford will start shifting more contracts to those companies.

With more business from Ford, those suppliers can run their factories closer to full capacity. As they exploit economies of scale, those suppliers can make long-range business plans to serve Ford.

For other suppliers - especially the 100 or so big suppliers that lose contracts with Ford - the new approach means uncertainty and upheaval. Brown said he has not decided which suppliers will lose Ford's business.

But there will be winners and losers. For example, Ford now buys seats and seat components from virtually every seat supplier in the industry. Under the new approach, Ford might do business with only two.

A Japanese model

Given its history of strife with suppliers, Ford's new policy is like a religious conversion. For years, suppliers have decried Ford's relentless efforts to impose lower prices on them.

Critics such as Henke have urged Ford to act like Japan's automakers. The Japanese attribute their profits and smooth product launches to their stable relationships with suppliers and early collaboration with suppliers on vehicle design.

Now, Ford seems to agree. It has done so only weeks after the Chrysler group announced a more conciliatory policy for suppliers. And it comes just days after General Motors indicated that it will adopt a new parts pricing policy.

But critic Henke added a warning: "This can't be just a purchasing initiative. Just like it works with Toyota and Honda, the collaborative approach will require a huge cultural transformation inside Ford."

According to Brown, the changes are not intended primarily to cut purchasing costs. However, Brown does expect parts prices to fall as Ford allows suppliers to keep contracts longer.

Donald Stebbins, COO of Visteon Corp., agreed. "Suppliers have always wanted to be involved earlier in the process," he said.

Long contracts and early involvement in vehicle design, Stebbins said, allow suppliers "to design better and reduce the number of last-minute changes. You are going to have a higher quality product and less warranty costs. It makes the entire process more efficient."

The point of the changes, Brown said, is to improve Ford's vehicle development process and acquire better technology. Ford does not now involve suppliers in the first step in a new product cycle - the teardown and analysis of a competitor's vehicle.

Brown vowed that in the future, Ford suppliers will participate.

Last week, Ford identified an initial batch of 7 key suppliers who will receive more business.

1. Autoliv Inc., Sweden
2. Delphi Corp., U.S.
3. Johnson Controls Inc., U.S.
4. Lear Corp., U.S.
5. Magna International Inc., Canada
6. Visteon Corp., U.S.
7. Yazaki Corp., Japan

From Automotive News (A Crain publication)