Ford said on Thursday it was accelerating its supplier consolidation plans and remained on track toward its goal of 750 global suppliers.
Go deeper with GlobalData
It also announced the expansion of its aligned business framework (ABF), adding 16 companies to the group of key component and service suppliers chosen for long-term relationships and closer collaboration.
The automaker’s global purchasing organisation expects to have identified 850 production suppliers eligible for new sourcing by the end of 2009, down from approximately 1,600 at the end of 2008.
“Despite the industry challenges we are all facing, Ford is making steady progress identifying more suppliers for long-term relationships while at the same time reducing our total number of suppliers,” said Tony Brown, group vice president, global purchasing, at the automaker.
“Both of these elements were part of our ABF strategy since it was launched in 2005. They are even more critical now as the auto industry moves through a difficult restructuring period toward a more sustainable business model for suppliers and automakers alike.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData“We’ve accelerated our efforts in this regard to try to rationalise the supply base in order to get to profitable growth for all,” Brown added.
“There is simply too much capacity in the system. We don’t need that capacity.”
Ford has a long-term goal to reduce its supply base to approximately 750 production suppliers eligible for major sourcing. It had about 3,300 such suppliers in 2004 but had halved that by the end of 2008.
Because ABF membership is restricted to suppliers of key components and services, not all long-term Ford suppliers will be members of ABF.
With the new members, there are now 82 companies in the ABF network. ABF companies enter into long-term relationships with Ford to strengthen collaboration and drive mutual profitability and technology development.
The automaker’s commitments to ABF companies include sourcing for the life of a model programme or platform, improved parts commonality and more information sharing of product plans and forecasts.
Supplier commitments include increased financial data transparency, consideration of minority- and women-owned suppliers and providing leading-edge technology innovations.
“ABF is enabling suppliers to benefit from the One Ford strategy that is driving efficiency and commonality across the company,” Brown said. “I also attribute [our] improvements in recent external supplier survey results to the implementation of ABF principles throughout our organisation.
“We still have work to do before we are the customer of choice for all of our suppliers. But I’m confident that by following ABF, [we] will continue to improve our standing with our supply base.”
ABF suppliers added since August 2008 are: BorgWarner, Bruhl, Diamond Electric Manufacturing, Denso, Emcon Technologies, Faurecia, Federal Express, Nemak, Kolbenschmidt Pierburg, Piston Automotive+, Rieter Holding, Saturn Electronics & Engineering, Team Detroit, Trelleborg, Uniworld Group and Zubi Advertising.
Launched in 2005, ABF agreements establish working business models for both Ford and its selected suppliers. The agreements outline business practices designed to increase future collaboration, including phased-in up-front payment of engineering and development costs for production suppliers, extended sourcing and data transparency. Since launch, the automaker has identified 59 production and 23 non-production ABF suppliers.
Suppliers account for more than 75% of auto sector employment in the United States, according to a Chicago Federal Reserve study cited by Reuters, which estimated that the supply sector employed more than 600,000 people as of 2008.
Ford estimated that the number of bankrupt or financially distressed suppliers in North America had doubled in the last year as US auto sales tumbled to their lowest levels in nearly three decades, Reuters noted.
“The next three to four months are going to be critical as GM and Chrysler try to come back up,” Brown said. “As to whether the supplier base will be able to effectively respond to that … we’ve got a critical window here.”
The Obama administration, which earlier this year made US$5bn available to guarantee payments owed to auto parts suppliers, this month rejected a new request from suppliers for up to $10bn in additional financing.
Brown said he expected the US government would intervene if failures in the parts sector jeopardised production for the major automakers.
“I believe the government understands the importance of the supply base, and a major failure can take down the industry,” Brown said. “I believe in recognising that, should something like that begin to occur, they will take action, and I think action will be appropriate.”
Earlier this month, Ford also agreed to provide at least $125 million of financing to support former parts unit Visteon’s restructuring under Chapter 11 bankruptcy protection to ensure a continued supply of parts.
Ford remains Visteon’s biggest customer and accounted for about 31% of its $1.35bn of sales in the first quarter.
“Visteon is one of our strategically important suppliers and they remain in that group to this day. Just as we’re committed to supporting other suppliers on that list, we’re committed to supporting Visteon,” Brown said.
“There’s a limit, it’s not unconditional, it’s not ‘no matter what,’ but within the business framework that makes sense for us, we’re prepared to work with them, he added.
