Ford’s supplier strategy proves difficult

Aligned Business Framework program makes progress, but presents challenges

By Dave Hannon -- Purchasing, 9/6/2007 7:15:00 AM

When Tony Brown unveiled Ford’s Aligned Business Framework plan two years ago, a program aimed at doing more business with fewer more strategic suppliers, the automotive industry took notice. Here was a Big Three automotive manufacturer focusing on supplier relationships, in addition to cost reduction. It was called “ambitious” by some in the industry and “impossible” by others. This week Brown, Ford’s vice president of global purchasing, told the Detroit News that the program is living up to its expected challenge. It’s progressing, but encountering some of the cultural problems its critics predicted.

When the Aligned Business Framework program was covered in Purchasing a year ago, it was expected that the project would cut in half the number of global suppliers Ford did business with, but would reward those that remain with long-term supply deals, giving them early access to product-development programs and hopefully improved profitability. Brown said he wanted to push a “kinder, gentler era of cooperation from global suppliers that can be implemented beyond North America.”

Even as recently as April, Ford said its cost-cutting plan was on-target, although the company said little at that time about the Aligned Business Framework program specifically.

But this week, Brown told the Detroit News that changing the buyer-supplier culture in the automotive industry has been difficult and will continue to present challenges. In a statement released this week, Brown said, “We have always known that the (Aligned Business Framework) process would not happen overnight. We recognize that it takes time to reach agreements and adopt the principles, both internally and externally, but we are pleased with the initial results.

Brown expanded on those thoughts in the Detroit News interview, saying, “I expect rough waters. And it's understandable from the industry perspective, from the supplier perspective, from our perspective given how we've managed our business in the past. We have a culture that's come up through a less collaborative point-of-view on both sides. We built this historical relationship of not trusting each other. We've got to change that. It doesn't work."

Ford was also rated last among automakers in a June survey of auto-supplier satisfaction by Planning Perspectives. In its report, Planning Perspectives referenced Ford’s Aligned Business Framework program, saying “our study shows the Ford program has been a disappointing failure. This is unfortunate because Ford more than ever is dependent on the support of its suppliers to help in its turn around, as was Chrysler in early 1990s. A key to Chrysler’s success then was building strong relations with suppliers on its way to a decade of strong profits.”

But that’s not to say the Aligned Business Framework isn’t making any progress. Ford announced this week that is has added 15 more companies to its list of preferred suppliers bringing the total to 59 and has reached strategic agreement on 13 of the 20 high-impact commodities and systems targeted in the Aligned Business Framework program. Since the Aligned Business Framework program was launched in the fall of 2005, Ford has identified 45 production and 14 non-production suppliers for participation and has entered into agreements with these select suppliers to “strengthen collaboration and develop a sustainable business model to drive mutual profitability and technology development.”

Brown pointed out that, on average, Ford’s suppliers in the program have seen an increase of 15% of Ford’s business on contracts through 2011.

“The seven commodities with open strategies are due to supply base restructuring actions and the potential impact to Automotive Components Holdings (ACH) facilities, and will be completed as soon as possible,” Ford said in a statement.

In August, Ford said it would begin adding suppliers to its product development teams to encourage closer ties. Putting the largest suppliers on those teams will bring them into the process of creating cars and trucks 10 months to 12 months earlier, said Dave Velliky, Ford's executive director of technical assistance for the parts companies in a Bloomberg report.

“The goal is for the suppliers to be able to deliver the parts at the right time, at the right cost and at the right volume,” Velliky said.

Also in August, Brown and other automotive purchasing executives, said his company would be open to sharing parts with competitors if it meant a significant cost savings. “Where it makes strategic sense for two, three or four of us, whatever the case may be, then we'll take advantage of those opportunities," Brown told Reuters.