Ford Stands Firm on ‘Terms’

Ward’s recently spoke with Tony Brown, Ford Motor Co.’s vice president-Global Purchasing, as part of its annual interviews with the U.S. purchasing executives. In the interview, he discusses the supplier-contributed technology on the new F-150 pickup, as well as general purchasing issues.

An interview with General Motors Corp.’s Bo Andersson appeared June 30. Transcripts will appear July 2 for Chrysler Group’s Peter Rosenfeld, July 6 for Toyota Motor Corp.’s Simon Nagata and July 7 for Honda Motor Co. Ltd.’s Larry Jutte. Excerpts from all five appear in the July issue of Ward’s AutoWorld.

Ward’s: Reports suggest the F-150 came in $1,000-$1,500 over on cost. Have you been able to get that down like you said you would?

Brown: We constantly work cost. You know the environment that we’re operating in. No matter where you are in terms of the cost of the vehicle today, you’ve got to be in a different place tomorrow because you see the compression that’s going on in the marketplace. The point is, the day you launch a vehicle in this market you are planning how is it that we are going to reduce the cost of that vehicle – of this one and the vehicles that are in the pipeline.

Ward’s: In future launches, will Ford’s other interiors be on par with the F-150?

Ford’s Tony Brown says thanks, but no thanks, for suggested terms and conditions from supplier organization OESA.

Brown: As far as our interior differentiation to the competitive set, I think we’re class leading in that respect, if you look at the work that we’ve done in terms of differentiation inside the passenger compartment.

Ward’s: Is the sort of dialog open at Ford with suppliers that seems to be open at GM, where a supplier like Robert Bosch (GmbH) can convince GM that going back to drum brakes is actually a better move than 4-wheel discs?

Brown: Absolutely. Remember, in the end much of what’s on the vehicle is from suppliers. So suppliers are in the unique position, without violating confidentiality on one side or the other, of understanding where competitors are going and understanding where they think they can more cost effectively deliver the same performance. It’s a conversation we have to continually have open.

Still, if we’re in a best-in-class position, it is not something that we would easily move off of. The customer’s the arbiter. (Brakes) are not something that’s on the table for us.

Ward’s: With David Thursfield’s departure, what is the chain of command given Jim Padilla’s new position. Do you have more latitude in terms of purchasing oversight?

Brown: Actually, no less and no more. When David was here, he was responsible for European operations, Asia/Pacific operations and purchasing from a general management perspective. He was not operationally responsible.

The press often appears to write that the operating people run their businesses, but that in purchasing, David does that. That’s not the way it was ever set up. With Jim (Padilla) as the chief operating officer and chairman of automotive operations, he is effectively responsible for running the automotive operations for the company. I run purchasing for Jim. Whenever there is a purchasing issue, I’m the guy, not Jim.

Ward’s: My understanding of your terms and conditions is that Ford can deduct money directly from its accounts payable to a supplier if Ford decides it is owed money. Is that correct?

Brown: We’ve got a set of terms and conditions under which we will transact business. The vast majority of our suppliers have no issues with that. Some do. That’s OK, I respect that. That’s their choice to make that determination. However, just as they get to determine the terms and conditions under which they do business with their suppliers, so, too, do we.

If a supplier says he or she is unwilling to do business under the terms that we prescribe, we expect that they will respect whatever decisions we determine we need to make as a consequence of their decision. And it works. In those instances where suppliers have an issue, we have a dialog with them to try to understand their concerns. In some instances it’s just a misunderstanding.

Ward’s: Robert Bosch reportedly has objected all the way up to Bill Ford Jr. on the issue of terms.

Brown: Don’t always believe what you read. Go talk to Bosch. I’m not in the business of talking about a particular supplier’s situation with Ford Motor Co. That’s between Ford Motor Co. and the supplier. Now, if that supplier chooses to have a conversation with you about the state of their business with Ford, that’s their choice. It won’t be because I’ve entered that conversation.

Ward’s: Have suppliers that have objected to terms and conditions won new business with Ford?

Brown: We are in an ongoing dialog with suppliers who have raised concerns about terms and conditions. I don’t know in every case what that resolution looks like. But what I do know is Ford can’t have 3,000 or 4,000 sets of terms and conditions (for supplier contracts). That’s ridiculous – we can’t do it.

Ward’s: The Original Equipment Suppliers Assn. has written its own proposed terms and conditions. What do you think of them?

Brown: I don’t do business with OESA. I do business with suppliers. Ford Motor Co. doesn’t have a single purchase order with any professional organization. Our purchase orders are with suppliers. So, our terms and conditions are with suppliers, period.

Ward’s: How does China look as a market for sourcing these days?

Brown: It’s a good market, frankly. We are aggressively pursuing emerging market sourcing, not just China, but Eastern Europe, (and) other places in the Asia/Pacific region. Look at the F-150, where you’ve got to figure out how to more cost effectively deliver the feature set. Some of those things can be done more cost effectively than where they’re being done today.

But the vast majority of our sourcing is not from that region. As we increase our manufacturing footprint in the region – specifically China, where we’ve increased our manufacturing capacity for vehicles and we’re about to increase manufacturing capacity for engines as well – the effect is that the local supply base will develop more rapidly than it might otherwise develop. We will develop that supply base to support our local manufacturing, and the effect will be that we will also look at where it makes sense for export opportunity, both for North America and back to Europe.

Ward’s: Is that supply base developing quickly enough, and is it capable of delivering the type of quality that you need in China and developing markets?

Brown: We would always like to be further along the path than we are. But we have to make certain that under no circumstances do we compromise quality. We are being very deliberate, thoughtful and considerate as we develop our strategic supply base in emerging markets.

Ward’s: What are some of the things standing in the way of development being more expedient?

Brown: It just takes time – the maturity of the supply base itself, the supply base’s ability to take on all of the activities that are going on, in addition to our own organizational capability to extend our reach. I’m talking emerging markets in general, not any particular country. It’s not just Ford Motor Co. that’s reaching out. It’s GM, it’s DCX, it’s Renault-Nissan, it’s Toyota. You go to any emerging market, and you see all of the major auto suppliers there.

Ward’s: Do supplier parks make more sense in China than in established markets?

Brown: I’m not far enough in my thinking to state that unequivocally. With supplier parks, certainly we have to evaluate the business case for each of those decisions to make certain that the economics ultimately make sense. That’s part of the evaluation we did in Chicago (assembly plant) to say, ‘Does it make sense to do this and why?’ Then we run a business case against it to determine that all of the key operational issues are covered first and foremost.

Ward’s: Can you put a percentage target on how much you’d like to source from low-cost regions in, say, five years?

Brown: No, because I don’t know what the capability will be in those markets. Other than to say, we’ve got a business plan, and part of that business plan includes a level of performance from a cost standpoint. One of the knobs we can turn to deliver those business plan requirements is emerging-market sourcing.

Ward’s: Suppliers have complained with regard to developing markets, especially China, that the Big Three have shopped some of their intellectual property. Can you comment?

Brown: Not true, unequivocally. We don’t do that, period. It’s bad business. There is no one inside that is shopping someone else’s IP. And if someone is, which I believe no one is, and I find that they are, then we’ll fix that, because that’s not fair.

Ward’s: Has Ford run into any issues in regard to intellectual property in developing markets?

Brown: Actually, you don’t have to go to China to find people counterfeiting our parts. We can probably walk down the street and find someone that’s got F-150 knockoff parts that aren’t our parts. You can’t control it.

Ward’s: UAW employees at Delphi, Visteon and American Axle have accepted significant pay cuts with adoption of 2-tier wages. Does that new cost structure make those suppliers more attractive to you for future business?

Brown: Yes, given that they’ve got the technology and the quality and now they’re more cost effective. Absolutely. We are positively (motivated) to help them to be more competitive, because the more competitive they are, the more competitive we are.

The new labor agreement, in my opinion, bodes well for all of us. And now it’s important for all of us to figure out how we can work together to take full advantage of that for them, for us and for the labor that’s involved.

Ward’s: You told us last year that being a customer of choice is a company issue, not just a purchasing issue. Is the company’s momentum leading to achieving your target of becoming a customer of choice?

Brown: It should. In this business there is a fair amount of tension that exists between OEMs and Tier 1s (suppliers). We’d like to always have it be constructive – frankly it’s not always constructive. Sometimes it degenerates to negative things that neither one of us intends.

That being said, the suppliers that are on the F-150 probably are feeling pretty good about being on the F-150 right now. So, in an environment where we’ve been able to put together a business equation and a volume equation, that allows them (suppliers) to make the returns they need to make in order to satisfy their constituencies – their employees, their shareholders, their board, etc. – just like we have to.

The truth is there are always going to be tough issues that we have to deal with, so the better we do as a company, the better our suppliers do.

Ward’s: Suppliers have been required to get more involved in Ford’s quality drive. How have they responded?

Brown: If we look at the supplier quality performance over time – we don’t publish it – but over time for Ford, our suppliers are performing better on all major quality dimensions than they were.

Look at how our vehicles are doing from a quality standpoint. None of that can happen if suppliers aren’t getting better in all dimensions, and they’re doing that and we’re working closely with them.

Ward’s: Last year you said you want your suppliers’ ‘A Team,’ not their ‘B Team’ when it comes to product development and technology. Are you getting your suppliers’ A Team – their best technology?

Brown: We can’t get that over night. I still believe that our products aren’t disadvantaged in the marketplace. If we take the F-150 and line it up against every other vehicle in its class, where does it rank? Best in class. By definition, it says that we’re not disadvantaged. Can we be better? The answer is yes.

Ward’s: What’s the latest with Ford’s Team Value Management program?

Brown: TVM is 2 years old now. We’ve aggressively expanded to include 203 production and 169 nonproduction teams. Roughly 80% of our production buy is now covered by TVM teams. Each team is comprised of Ford purchasing, product development and finance members and others as required – marketing, we work with commodities. Once we’re done, then we engage the supplier.

Ward’s: Can you give an example of a program that TVM has worked on?

Brown: Maybe we have eight flavors of a commodity, and we can service the customer needs with three. If you go from eight to three, you reduce complexity internally and at the supplier sites and you improve volume at supplier sites.

Maybe simply the value chain may be inappropriately positioned, or maybe Ford is buying a particular commodity in a region of the world where it doesn’t make sense. The team may restructure the supply chain to get the commodity out of a region of the world where it should come from.

Ward’s: How are suppliers reacting as Ford attempts to move more engineering work in-house?

Brown: In each instance where we do it, we committed to work with the suppliers on an individual basis, so we understood the implications on them as we increased our capability. We support it to make sure that transition takes place. We identified some key commodities we’d work on.

(See related story: F-150 Sets Tough Interior Benchmark)