Ford Adopts Toyota-style Supplier Strategy

There’s good news today from the Ford Motor Company. The September 29, 2005 WSJ article “Ford Seeks Big Savings By Overhauling Supply System: No. 2 Auto Maker Will Offer Larger and Longer Contracts But Use Fewer Companies” details Ford’s plans to implement a more Toyota-like supplier relationship model in order to reduce costs.
The essence is that Ford plans to offer fewer key suppliers long-term contracts and to work with these suppliers co-operatively on design and cost reductions rather than continuing to beat up on them. The leopard changes its spots.
The shrinking of Ford’s supplier base from 2,500 to less than 1,000 worldwide will certainly be painful to those companies that don’t make the cut. Those that do will be building a stronger, healthier supply chain with Ford. The are seven major companies named in the article as key Ford suppliers who have made the cut. They are:
1) Autoliv
2) Delphi Corp.
3) Johnson Controls
4) Magna International
5) Visteon
6) Lear
7) Yazaki
With the exception of one company (which I won’t name) these firms all have active and legitimate Lean manufacturing or Lean office programs modeled on TPS. Delphi for instance has won Shingo prizes for severl of its factories, the recent threat of Chapter 11 notwithstanding. The Autoliv factory in Ogden, Utah is quite impressive. Hopefully Ford can be humble enough to benefit from the Lean expertise of these firms when involving these suppliers earlier in the design process for Ford parts.
The article astutely points out that one of the hurdles in achieving a Lean supply chain transformation will be cultural. The measurement and reward system at Ford currently supports the “beat the cost out” model of supplier management, rather than “supplier support” of Toyota. This will be a challenge indeed, and hopefully the smart folks at Ford are working on the human side of this new system as well.
Tony Brown, Ford Senior Vice President of Global Purchasing says in the article “It is clear we have a business model that doesn’t effectively work for them [suppliers] or for us… We need to change the way we do business with our suppliers right now.”
On one of our Lean benchmarking trips to Japan everyone in our group was particularly impressed by the story told by a small Toyota supplier of elbow joints we visited. This company gave up and told Toyota “we can’t meet your requirements” on cost only to have a Toyota engineer come and live at their company until together they were able to redesign both their product and process to meet cost targets. Toyota refused to let even a small supplier fail.
The survival and success of Ford is certainly important for its suppliers. Ford is realizing that a healthy business model is required for their suppliers to succeed with them. Refuse to let your suppliers fail, and they won’t let you fail either.