From supplier bankruptcies and soaring raw-material costs to global logistics and the eternal hunt for the best price, purchasing departments have become pivotal to the success – and survival – of North American auto makers. Ward’s 6-part series stems from interviews with the purchasing chiefs of GM, , , Toyota and . Today is Part 3.
DEARBORN, MI – Tony Brown went shopping for two 19-in. (48-cm) televisions for his children's bedrooms and proved to the salesman why he is one of Detroit's toughest customers.
“The guy tells me they're $200 for one. I say, 'how much is it for two?' He says $400. I say, 'wrong, you're not understanding me. I'm looking for a volume discount,'” says Brown, vice president-global purchasing forMotor Co.
“He says, 'If you were buying one of those $6,000 plasma TVs, I got lots of room to work with (on price). But what you're buying, these are like disposable TV sets.' I say, 'Look, I gotta tell you, if it's one for $200, two for $400, I'm going across the street.'”
Finally, Brown got what he wanted from the flustered salesman. “He says, 'All right, I'll give you $10 off.' I say, 'Alright, fine, I'll take it.' It was two for $380. It's a better deal.”
Too bad the salesman didn't know Brown's corporate checking account as head of global purchasing for the No.2 auto maker carries an annual balance of $90 billion – yes, with a “B.”
It's this bottom-line mentality that makes Brown a crucial component of Ford's cost-reduction strategy – and a hard-nosed negotiator with the auto maker's supply base.
Whether it's TVs or instrument panels from China, Ford's Tony Brown wants best price.
Brown exhibits little empathy when asked to comment on suppliers that increasingly are seeking price relief from auto makers due to skyrocketing raw-material prices. For instance, steel prices figured prominently in Intermet Corp.'s 2004 bankruptcy filing.
How is Brown responding to such statements?
“I'm not,” he says bluntly. “In a public way or about any particular supplier, I'm not, never going to.”
When the facts support a supplier's case, Brown says he is willing to listen. But determining those facts is not always easy because Ford's purchasing team keeps its own cost models to determine the appropriate price for components.
“We have to sort through whose facts are the facts. Sometimes their facts are closer to the truth than my facts are, and sometimes my facts are closer to the truth than theirs,” he says. “What I'm not going to do is pay an uncompetitive cost and pay some cost that we both agree are real in terms of raw-material uplift that's taken place over the last year. And I think that's fair.”
How long a particular component has been in production frequently dictates Ford's level of flexibility on pricing with suppliers.
“If it was launched in the last six months, then it's probably not under a lot of (price) pressure. If it was three years ago, then it's a different animal and we need to have a conversation about that,” Brown says.
“We can't pretend that's not a reality. We're not going to lay down on this issue, either,” he says.
“'Is it competitive (in price), yes or no? If it is, OK, now let's talk about how we share in this abnormal runup that we've seen in a way that keeps you as whole as you can be and keeps us as whole as we can be given the circumstance. And neither of us will love the outcome. But we'll both have to give something.'”
The issues are the same with regard to spiking fuel prices, which impact the logistical cost of shipping parts to OEM assembly plants.
“In the end, the cost (of fuel) has to find its way through the system. We've never seen fuel prices like this,” Brown says. “So we either have a fuel charge that we pay directly or we work with them (logistics suppliers) on it.”
Ford, as well as other auto makers, also remains locked in a bitter debate about the price of steel and has joined the U.S. International Trade Commission hearings in an unsuccessful attempt to repeal tariffs that allegedly are forcing up prices.
In the meantime, Ford has allowed a number of suppliers in the past year to join its steel resale program, which allows those companies to get better prices through Ford's volume discount.
“We've invited people (into the program) because I would rather us manage that risk than them try to manage that risk. When the price curve for them is going down, it's a pretty good deal for them to the extent they can stay on the price curve,” Brown says. “When it's going the other way, as we see now, it doesn't work so good. So why play that game?”
Brown's search for the best component prices takes his purchasing team around the world. China remains an attractive market for auto parts, and he says Ford will, when appropriate, use China as an export base for shipping parts to the U.S. and Europe.
Shipping parts from China is a daunting logistical task, and at least one of the Big Three is studying the business case for shipping fully assembled instrument panels from there to the U.S. Brown won't say whether Ford is that auto maker, but he sees potential to ship just about any type of automotive part from China.
“My view is that nothing ultimately is out of play,” he says. “Practically speaking, big huge bulky complex things that have lots of things going into them, lots of things that can go wrong, the natural tendency would be, (produce it) right here in the good ol' U.S. of A.”
However, if an auto maker figures out a way to cost-effectively ship something as complex as an instrument panel, Brown wants it to be Ford.
“I have to presume that one of my competitors will solve that equation,” he says. “What I can't do is put the company at a competitive disadvantage. So I have to constantly be looking, studying, understanding, 'well, is it feasible, how would you do it, what would be the total economics associated with it under the presumption that someone will solve that equation?'”
Whether purchasing TV sets or instrument panels, Brown will go anywhere for the best deal.
Ford purchasing – by the numbers
- $90 billion annual global buy, including $70B for production materials
- 2,000 production suppliers worldwide shipping 130,000 parts
- $3.7 billion spent with 300-plus minority suppliers in 2004