Supplier fire ripples across the industry

Ford halted production of the F-150 in Kansas City, Mo., because of the fire in Michigan.

DETROIT — The first call to Ford Motor Co. officials came at 6 a.m., about five hours after the fire. Later that day, Ford workers already were on site at the remains of a mid-Michigan plant that made auto parts from lightweight magnesium, even though they couldn't yet go inside.

While they waited, the Ford crew pitched tents nearby. Every minute sooner they could assess the situation was invaluable, because Meridian Magnesium Products of America had been the sole provider of three parts for Ford, including bolsters to reinforce the radiator on its most profitable vehicles, the F-150 and Super Duty pickups, as well as some large SUVs.

Damage from the massive blaze — magnesium fires are highly volatile and can't be extinguished easily with water — would ripple across the auto industry in the days that followed, halting or slowing production for at least five automakers at plants as far away as Alabama, South Carolina and Missouri. Ford, the hardest hit, had to temporarily lay off more than 7,500 workers at its pickup plants.

It's the kind of black swan event that's unavoidable in an era when auto parts often are delivered just hours before they're needed on the assembly line. But previous disasters, including a 2011 tsunami that pummeled Japan, have taught automakers valuable lessons in managing and responding to crisis situations.

"You have to be ready," Hau Thai-Tang, Ford's head of product development and purchasing, told Automotive News. "We always joke around that it's just-in-time inventory versus just-in-case inventory, because it's cash flow you're tying up. You could buy insurance and say you're going to have duplicate tools and source them from multiple sites, but what happens then — it's expensive and those suppliers are not operating at an optimal level."

Ford knew from previous experiences to bring structural engineers from Walbridge, its construction supplier, to the Meridian site. Because Walbridge could assess the structural integrity of the plant, the fire marshal allowed Ford to be the first automaker inside the building — within 24 hours of the May 3 incident.

The crew located all 19 of Ford's tools — undamaged — and extracted them over 48 hours. As of late last week, Ford had secured capacity for all of its tools at backup supplier sites and its plant workers were told normal F-150 production could resume by Friday, May 18.

The specialized parts that Meridian supplies make for a situation where having a backup "just isn't an option," said Abhay Vadhavkar, director of manufacturing, engineering and technology at the Center for Automotive Research.

"They're the only supplier in North America that can supply the parts at that volume," he said.

"Unlike other stamped parts, [the F-series bolsters] are highly engineered and something no other supplier could pick up and make in a week."

A week of downtime for Ford could cost it as many as 15,000 pickups a week, said James Albertine, an analyst with Consumer Edge Research.

F-series pickups generate most of Ford's profits, and analysts say that nameplate alone, estimated to generate $40 billion in annual revenue, could be worth more than the entire company.

Thai-Tang said Ford's risk-management program allows the company to pinpoint how much profit it will lose each day that production is down, but declined to provide that number.

Joe Hinrichs, Ford's president of global operations, said the fire will negatively impact the automaker's second-quarter earnings but not its full-year guidance. Ford had an 84-day supply of F-series pickups as of May 1, and Hinrichs asserted that the production stoppage wouldn't hinder sales.

The fire also affected General Motors, Fiat Chrysler Automobiles, Mercedes-Benz U.S. International Inc. and BMW of North America, although they declined to say how long output of some vehicles, including the Chrysler Pacifica, Chevrolet Express, and BMW X5 and X6 could be slowed.

Meridian officials said late last week that cleanup and repairs were progressing. The cause of the fire had not been determined. About half of the 400 people employed at the plant in Eaton Rapids, Mich., were back working in undamaged portions, and others were being offered their regular pay and benefits in exchange for charity work.

"This is never a good thing," Vadhavkar said, "but I wouldn't be surprised if it doesn't take too long to get the plants back running."

Ford, meanwhile, said it would continue to refine its processes for responding to disasters and other work stoppages. That includes having detailed information on each supplier and which ones might be susceptible to disruptions, including calculations on how long it might take to recover and the potential financial impact.

"If you can do that analysis across your value chain, you can learn how to prioritize and manage risk," Thai-Tang said. "You have to be able to access the plan."

You can reach Michael Martinez at -- Follow Michael on Twitter: @MikeMartinez_AN

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