Make or buy parts? The strategy has shifted
Spat with Dodge boys led Ford to shun suppliers, but now small, nimble parts makers can save Ford money
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In his new role, Thursfield told suppliers that it was time to work as a team again, instead of being adversaries.
But Ford's financial crisis made it difficult to address the problem. Ford was spending about $90 billion a year buying parts and supplies. It set a goal of cutting $3 billion from its purchasing costs by 2005 while improving quality from its 2,000 production supplier companies.
Thursfield's promotion was triggered by his success in turning Ford of Europe from a money loser into a profit center in just two years. That effort included working more closely with suppliers and integrating them into operations. At Ford's plant in Cologne, Germany, suppliers ran the body shop.
Suppliers liked the prospect of a strategy that was closer to the Japanese model of automaker-supplier partnership. The American approach tended to focus on edicts for suppliers to lower prices or face losing business. And the Ford-supplier relationship pendulum had swung to extremes during the course of a century.
Dodges make Fords
At the start, brothers Horace Dodge and John Dodge took Henry Ford's designs and supplied the entrepreneur with axles, transmissions and engines in exchange for a stake in Ford Motor Co. A.O. Smith Corp. produced car frames.
But the phenomenal success of the Model T led to a clash between Henry Ford and the Dodge brothers. Henry Ford wanted to keep lowering the price of the car and put more money into plant improvements; the Dodges wanted bigger dividends, which they planned to use to finance their own car company, according to author Robert Lacey in Ford: The Men and the Machine.
In 1919, the Dodges won a lawsuit seeking bigger payments. But Henry Ford was the biggest beneficiary as he held the majority of the company's stock. Henry Ford had said publicly that he wouldn't buy more stock, but it wasn't long before all the nonfamily shareholders had sold their stock to Henry's agents. (See story on Page 58.)
The Dodge incident deepened a mistrust of suppliers. With total control, Henry Ford launched his grand manufacturing project: the Rouge plant in Dearborn, Mich. Raw materials from Ford-owned sources were delivered in Ford-owned ships and made into Ford-built parts that went into Ford-assembled vehicles. The strategy became known as vertical integration - a model that Ford and rival General Motors would follow for decades. (See story on Page 54.)
"With the Rouge, Ford followed the same path as Alfred Sloan at GM, which was to control production of all the components so you could get the best quality and prices," said John Henke, president of Planning Perspectives Inc., a management-consulting firm in Birmingham, Mich.
But the economic shocks of recession, oil embargoes and the growth of imported car sales in the 1970s and 1980s eventually would test American automakers' reliance on massive in-house parts operations.
Suppliers become specialists
The world's best suppliers were fast becoming specialists - focused and nimble and expert at creating innovative products. They also could produce more efficiently than the giant, lumbering parts operations of GM and Ford.
Each automaker realized that things had to change. In 1995, GM renamed its parts unit Delphi. Two years later, Ford named its parts unit Visteon. (See story on Page 296.) Each eventually would be spun off into an independent, publicly held company.
Other developments also would change Ford's purchasing strategy:
A messy divorce
The depths to which Ford's relationship with suppliers had sunk were exemplified by the messy public divorce from Firestone in 2001, as the companies traded accusations over the safety of the Explorer SUV and Firestone tires. All contracts between the two longtime partners were canceled. (See story on Page 298.)
All this added to the company's financial mess. Thursfield, 57, a no-nonsense Englishman, would be counted on to repeat some of the magic he had worked in Europe. As part of his August 2002 appointment he also was named head of international operations.
Thursfield replaced Carlos Mazzorin as head of purchasing. Mazzorin and purchasing Vice President Tony Brown had pushed suppliers to cut prices while promoting programs that promised to share cost savings with suppliers that found ways to produce components cheaper.
Thursfield imported a strategy called Team Value Management. Its goal was to work with suppliers and cut costs. At the heart of the program, teams of purchasing, engineering and product development personnel focused on setting and enforcing a benchmark price for commodities such as seats. Compensation for team members is determined, in part, by the success of their efforts.
Finding the benchmark and aiming for it are supposed to ensure that components are not underengineered or overengineered. That saves development and warranty costs. Another goal is to promote the use of the same part through two or three generations of vehicles.
"We don't need an arm-wrestling match on margins," Thursfield said of Team Value Management's philosophy toward suppliers. "There's plenty of waste between us to go after."
Suppliers had their doubts. But with the company on such shaky ground, they had little choice but to give the latest approach a try.
