The sputtering pace of Ford’s effort to improve supplier relations – the so-called ‘Aligned Business Framework’ (ABF) – is a reflection of three factors: the carmaker’s financial bloodbath in 2006; the uncertain future of several in-house parts businesses taken back from Visteon and the arrival of a new CEO who wants to get supply chain management right and isn’t bound to the old ABF timetable.
But another issue is at hand. New CEO Alan Mulally has a dream and it includes joint purchasing between Toyota and Ford, allowing his new company to absorb lessons from the company he professes to admire more than any other on the planet.
Ford’s 17-month-old Toyota-style initiative – aimed at working earlier and with greater collaboration with fewer suppliers – has fallen well behind schedule.
Last year’s horrendous financial performance – a $US12.7bn loss – has made it harder for Ford to practice the kind of principled partnership it planned, the automaker has begun making up-front payments to some suppliers.
Indeed, the current woes of the US Big Three are driving an even bigger gap between the purchasing activities of the Asian and the Americans, according to some supplier executives. The state of supplier relations usually reflects the overall health of an automaker. For example, suppliers to Chrysler, which had made great strides in 2004 and 2005, are beginning to complain more about the pricing pressure they are under.
And Ford’s Aligned Business Framework is behind schedule. Originally, Ford said that by the middle of 2006 it would reduce the number of suppliers in 20 major component sectors from 200 to 100 or less. Those sectors include seats, brakes and axles and they account for about half of the $70bn Ford spends each year on purchasing.
But less than 40 companies have been identified and the pace has slowed to a crawl since Mulally took over.
Ford’s official line now is that all Phase One suppliers will be named by this summer.
According to a report in Automotive News, bumpers, instrument panels and wiring are proving the most difficult areas in which to designate preferred suppliers.
Brown told the newspaper that the uncertainty surrounding Ford’s in-house parts plants is a critical factor holding up final approval.
The new CEO’s arrival has also taken pressure off the programme’s rigid timetable. Brown has new leeway to get things right. But Mulally is understood to have Brown’s operation under close watch. It is an area in which he has deep experience at Boeing.
Mulally and North American Ford chief Mark Fields recently flew to Japan to talk about possible lines of cooperation with Toyota’s CEO Katsuaki Watanabe. The Toyota president later said his company is open to working with Ford.
Sources say Mulally would like one aspect of future cooperation with Toyota to be purchasing – similar to the notion advanced last year between General Motors and Renault-Nissan, although Ford and Toyota are not understood to be talking about an equity swap.
Meanwhile, Brown has made some progress with the Aligned Business Framework. In late 2005, he talked of factoring in improved supplier relations when formulating compensation schemes for purchasing managers. Brown says he has made advances in that area by basing pay levels not just on cost reductions, but on quality and delivery.
And up-front payments have started. About half of the preferred suppliers qualify for payments for some tooling, development and engineering – an important change in strategy that Ford says it has begun to implement. Before, such costs were figured into the cost per unit. Thus if vehicle sales targets were not met, suppliers never recouped their investments.
Suppliers on 10 programmes will be paid up to 100% of their planned investment upfront. That means payments totalling $400m between 2006 and 2008, Brown has said.
Still, suppliers, even some that have been added to the list of preferred companies, are not satisfied with relationships with Ford. With its financial problems, Ford is in no position to let up on cost pressure.
Meanwhile, other supplier executives remain hopeful that Ford can repair the damage of several years of contentious relations. Mulally thinks that is essential and believes the best way for Ford to do it is to work with Toyota.