A new deal announced by Ford on Thursday contains both good and bad news for suppliers.
Go deeper with GlobalData
The good news: earlier supplier involvement in component development, more up-front help with development costs and longer contracts.
The bad news: the number of suppliers in 20 key areas will be halved.
“The Aligned Business Framework is an innovative bilateral agreement between Ford and its family of selected suppliers. It is designed to create a stronger, sustainable business model for us both,” said Ford head of global purchasing Tony Brown.
The automaker said new long-term agreements with selected suppliers of key components globally would create a stronger, sustainable business model and suppliers in turn would commit to deliver leading-edge technology to the automaker.
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By GlobalDataAutoliv, Delphi, Johnson Controls, Lear, Magna, Visteon and Yazaki will be among the first suppliers to enter into the new agreements and others suppliers will be named later.
“The agreements include an expansion of business to the select suppliers and will, over time, reduce by approximately 50% the number of suppliers for key high-impact parts and components,” Ford said in a statement.
Ford is committing to “phased-in up-front payment of engineering and development costs, extended sourcing and data transparency” and intends to significantly expand the volume of business with these select suppliers.
It is also promising early supplier involvement in the product development process; broader supplier involvement in product tear-downs and product benchmarking and extended sharing of forecast volumes and product plans.
Ford also wants “a bilateral commitment to competitive costs based on data transparency and cost models related to product attributes” along with a “supplier commitment to an accelerated achievement of competitive cost structures that will be maintained over the life cycle of products evolving to less Ford emphasis on year-over-year price reductions”.
The automaker is also after “continued sourcing emphasis to minority- and women-owned suppliers [and] “continued emphasis on cooperatively pursuing low-cost supply alternatives”.
Ford expects to approximately halve the number of suppliers it sources new business for 20 high-impact parts and commodities, including seats, wiring, restraint systems and instrument and trim panels, which account for about half of Ford’s annual production purchases globally.
“Ford has laid the foundation for this action over the past several years. We’ve worked with our key suppliers on several programmes to take out waste, increase economies of scale, improve quality and customer satisfaction, and create a framework for stronger relationships,” said Brown. “Although we’ve made progress, business conditions require us to accelerate these efforts and raise the nature of our relationships to an entirely new level.”
Jim Gillette, a supplier analyst for CSM Worldwide, told the Associated Press (AP) that Ford, General Motors and DaimlerChrysler’s Chrysler Group are adopting the kinder, gentler approach to suppliers that Japanese manufacturers have employed for years.
AP noted that GM said last week it plans to work with fewer suppliers and will set cost-cutting targets for individual parts rather than asking suppliers to meet corporate cost-cutting goals, while Chrysler said last month it has begun rewarding its highest-performing suppliers with longer-term contracts and the first opportunity to bid for new business.
“The Big Three have traditionally said, `Give us the lowest price, and it’s up to you to figure out how to do it,'” Gillette said. That attitude has contributed to numerous bankruptcies among suppliers, Gillette told the news agency.
Gillette reportedly said Ford’s programme is particularly innovative because it gives suppliers money for design and engineering costs.
That should make suppliers less reluctant to give Ford their latest technology, he told the Associated Press.
