Ford’s supply chain transformation

by Array

WHISTLER, BC: Ford motor company had an image problem. Between 2002 and 2005 its suppliers ranked the automaker (along with GM) the lowest in terms of supplier relations in any industry, let alone the auto business.

But now Ford is getting good press and has gained the respect of its suppliers, says Dan Georgescu, global purchasing with Ford Motor Company. Georgescu presented the story of how Ford reinvented business processes today at the PMAC national conference, Reaching New Peaks in Whistler, BC.

Between 2002 and 2005 Toyota gained 32 percent in the opinion of suppliers while Ford lost six percent. Ford and the other US automakers were perceived as being singularly focused on cost reduction, having little regard for supplier survival and not caring about supplier intellectual property.

All these impressions led to adversarial relations with suppliers, and led the suppliers to shift resources to the Japanese car makers and increase product quality for the Japanese manufacturers while only maintain product quality for the US manufacturers. Many suppliers indicated they would like to drop the US companies as customers if they could.

The results of the supplier survey correlated with share value, with Ford experiencing declines, while Toyota increased.

So what did Ford do about it?

In 2005 the company introduced several initiatives to revamp its supply chain.

Under the One Ford strategy they brought in the Aligned Business Framework (ABF) with the objective of rendering long-term strategic partnerships with suppliers. ABF agreements include:

  • Ford paying upfront for engineering and development costs;
  • Extended relationship with the supplier for the life of a vehicle;
  • Improved commonality of parts around the world;
  • A bilateral commitment to achieving competitive cost;
  • Supplier commitment to bring leading edge technology to Ford;
  • Supplier commitment to accelerated achievement of competitive cost structures that will be maintained over the life cycle, leading to less emphasis on cost reduction;
  • A commitment to do business with women and minority owned businesses.

Another initiative is called Matched Pairs. This is a program in which the design engineers are paired with procurement people as the face to deal with suppliers on specific projects. This works as they have to present a united front to the supplier. If left alone, Georgescu said, each would have conflicting objectives—to spend and save respectively.

After the introduction of these initiatives, Ford’s ranking in the supplier opinion survey has climbed significantly, while Toyota’s has dropped. Ford has gained marketshare to the point where it now outstrips Toyota. In 2010 Ford climbed from 13th to 7th in a global supplier opinion survey.

Did Ford achieve success because of supply chain strategy? The answer is an emphatic yes, says Georgescu.