Ford shakes up its supplier base

James Bond is a man of international sophistication who always orders his martinis shaken, not stirred, no matter what continent he's visiting. That's exactly how Carlos E. Mazzorin is approaching his plan to reinvent Ford Motor Co.'s worldwide supplier relationships. The new global purchasing chief is shaking up the way the automaker does business with the supplier community so thoroughly that nothing can ever go back to the way it was.

If he isn't successful, Ford 2000, the automaker's strategic plan to become the leading world automaker in market share, customer satisfaction, quality and loyalty, won't work. If he is successful, the resulting global purchasing system will leave substantially fewer Tier One suppliers, more Tier Twos, more full-service suppliers and many, many more common parts.

Creating more shared parts and restructuring the supply base are two major goals of the Mazzorin shakeup. "Imagine, you can utilize parts that no one sees from a General Motors car, a Chrysler car, a Honda car," says Mr. Mazzorin. "Who cares what's under the seat?" That kind of sharing could appeal to suppliers well aware of the opportunities such economies of scale provide.

"You must break from the paradigms in the industry in which you compete," he says. "I tell suppliers the decade of the '70s was how to get in (to do business with Ford). This decade is not only how to get in but who will you displace to get there. Walmart displaced K-Mart and Sears, Microsoft displaced IBM. Usually the innovators are those who change the rules of the game."

Ford's next-generation rules create a new industry where full-service suppliers do much of the technical and engineering work, the testing, the customer clinics, work with dealers to solve problems that develop on their parts and take responsibility for how their suppliers perform. The automaker assembles, markets and distributes the vehicles, while hanging on to responsibility for core technologies such as transmissions, engines, axles, major stampings, plastics, climate control, electronics and proprietary in-house technology. That means it's open season for fullservice suppliers on all other parts of a vehicle.

First, however, suppliers must buy into Mr. Mazzorin's plan to create a global formula that includes customer-driven products with strong brand identities, an integrated voice-of-the-customer program, common business practices, common parts and a global cycle plan.

The first step is to blend the U.S. and European supplier bases as Ford mobilizes to protect and build on its share of those two major markets, and to grow in emerging markets such as Latin America and the Asia/Pacific. Ford has 25% of the U.S. market and 11.9% of the European market. Over the last six months two teams made up of 50 suppliers in the U.S. and 50 suppliers in Europe have met to talk about what will work and what won't in the restructuring. what work and what won't in the restructuring.

When the program finally is in place, suppliers will find dramatic changes in their relationships with Ford. Today's regional long-term relationships become global partnerships; early sourcing with cost targets expands to include cost, quality and weight targets; components/systems sourcing moves to system/module sourcing; joint value management programs such as the VA (Value Added) Blitz, the Supplier Purchasing Engineering Cost Suggestions program (SPECS) and kaizen evolve into a "fanatical" commitmnt to continuous improvement; and warranty responsibility expands from Ford alone to shared responsibility with suppliers.

The dollar figures involved are anything but trivial. The organization that was called North American Automotive Operations before the Ford 2000 restructuring spent $25 billion of a $40 billion annual worldwide production purchasing bill. Today, all purchasing is done through five multi-disciplinary Vehicle Centers (VCs)--small/medium, large front-wheel-drive, rearwheel-drive, light truck and commercial truck--created under Ford 2000.

Purchasing divides into two categories; core, which means Ford keeps the design in-house, and leveraged (or cooperative), where suppliers design and develop subsystems or components. Core purchasing is done by buyers located at the quality, manufacturing and purchasing building in Dearborn, at purchasing offices in Ford's European headquarters in Cologne, Germany, or in Warley, England. They crossreport to Mr. Mazzorin and the heads of the vehicle centers.

Leveraged purchasing is done by buyers at each of the five VCs. There is a director of purchasing in each center who reports to Mr. Mazzorin and the vice president in charge of each VC.

The core activity develops the commodity strategy, deals with advanced technology and knows which companies are the best suppliers in the world, says Mr. Mazzorin. The VC tells the core how the suppliers perform in the production phase. "Where we source in the future depends on how you perform in the delivery," he says. Core products that can be sourced either inside or outside Ford include chassis, interiors, electrical and body and exterior, for which U.S. buyers have responsibility, and drivetrain/powertrain and raw materials. European buyers have control over those.

"We will be responsible for the system, suppliers will deliver what satisfies the system," says Mr. Mazzorin. "We will not give up systems responsibility, but the suppliers will design it ... we are saying today you (the supplier) must be as familiar with how your product operates with the customer as I am."

Woven through it all is advanced vehicle technology, which acts as the purchasing library. For example, if a VC wants to invent a new widget, this group will check it out and determine if it's available elsewhere. It also works with core purchasing in the technology phase and with the VCs in the pre-program phase.

The key is to open--and keep open--a constant communication line between all disciplines and core, VCs, advanced vehicle technology, purchasing and suppliers. That gives Ford responsibility for the entire cost structure from the first tier all the way down the food chain.

That doesn't mean if raw material or other costs skyrocket, Ford won't allow an increase. "We are all in the business to give profits to our shareholders," says Mr. Mazzorin, "but at the end of the day we both have a relationship of need. We don't function without them, and they don't function without us. He who can harmonize the relationship best will be the most successful."

That synergy will develop naturally now that Ford's key full-service suppliers will be involved before new products get to the drawing board, and be responsible for designing and engineering more of the vehicle systems and modules. "If I have a full-service supplier that designs seats and is the owner of the design and I want to build the seat in Brazil, I will have to have that supplier licensed or move to Brazil to build it for me," Mr Mazzorin says.

Ford has tried some preliminary global sourcing and colocation that began with the '94 Mustang. The next evolution was the CDW27 (Mondeo, Contour and Mercury Mystique) program where Ford reduced the number of first-tier suppliers from the 800 or more to 480 in the U.S. and Europe. The '96 Ford Taurus and Mercury Sable program come next, but the world will not see the full results of the Mazzorin plan until the '99 model year.

With that global strategy comes a substantial reduction in tier one suppliers and an increase in full-service suppliers. There aren't many of the latter today, but the number will not rise above "double digits," Mr. Mazzorin says, although all tier ones won't necessarily be full-service. Ford currently has 750 first-tier suppliers in the U.S. and wants 600 or less. "It can be lower as we go to modules and systems," he says. "Around 150 of the suppliers control a large portion of the buy, the other 450 control less of the buy, and they are usually not full-service."

How low does the first tier go? He says that all depends on how rapidly Ford and its suppliers move toward developing modules and systems.

Today many suppliers deliver their parts to the tier ones, then they build the component or system. "This is a poor way of doing it, but we must start there," he says. The next stage is to develop full-service suppliers that can engineer and design the module with continual input from their suppliers. "So some suppliers that were tier one will be tier two," Mr. Mazzorin says. "In the future they will supply A, and A will supply Ford. So I eliminated some suppliers and I deal only with A, who gives it to me. The more modules I do, the bigger the tier two will be."

Take fasteners, for example. Ford buys about $200 million worth of fasteners in the U.S. each year and they currently are fed directly to Ford because they are used in all Ford vehicles. As Ford moves to module purchasing, many of those parts will be sent to a full-service supplier if they are part of a module that could be used on numerous Ford vehicles.

Complete interiors, too, often will be done outside with one lead supplier. Prince Corp., for example, is the systems integrator, or project manager, on the new '95 Lincoln Continental interior.

"If I don't give the supplier the complete interior with a lot of the added volume, how can I ask him to do research, go to customer clinics and all that?" asks Mr. Mazzorin. "I also want that supplier to be the expert on the technology ... the expectation is that they will be more nimble than Ford."

To ensure that, the automaker suggests suppliers use programs like kaizen to improve efficiencies. Johnson Controls Inc., one of the first to adopt the program, says it improved quality, reduced cycle time, helped standardize efforts, reduced overtime and increased volume without adding people. As part of phase two of reorganizing its relationship with long-term suppliers, JCI is pushing its suppliers in turn to use kaizen methods. "We are trying to be there to help our suppliers so we don't impact their profits," says Robert J. Houtteman, director of manufacturing engineering for JCI Automotive Systems Group.

The big question now is whether Ford really is ready to relinquish the power the suppliers need to make this whole thing work. "The first objective is to make sure you have so many people working for you that you won't have enough time to destroy what they are doing," Mr. Mazzorin says. "The second is to get people out of that I want to go and check' mode."

That alone will shake up a lot of people's martinis.