TRAVERSE CITY, Mich. -- As the industry cautiously moves into recovery mode, Ford Motor Co. remains concerned about the health of the lower-tiered supply base in North America and particularly in Europe.
There are signs of improved financial health, but "we are concerned about Tier 2 and Tier 3 suppliers," said Birgit Behrendt, Ford purchasing's executive director for global programs and the Americas, during a panel session here today at the 2011 Management Briefing Seminars.
In Europe, she said, "there is not enough consolidation."
Behrendt predicted suppliers may be ripe for a wave of consolidation in the short term as more investment capital comes available. Ford has said that as suppliers' profits rise, merger and acquisition activity will accelerate.
Behrendt said global natural disasters and a supplier culture focused on working around the clock to keep pace with production could mean inherent risks for future industry growth.
The nature of the global supply chain still has "inherent complexity and risks," she said. "The recovery is stretched by a fragile supply base that has downsized."
In June, Tony Brown, Ford's group vice president of global purchasing, said that suppliers flush with cash may start making strategic acquisitions.
Brown said Ford is not actively promoting an industry consolidation, but its purchasing strategy could speed the process.
In recent years, Ford has steadily shed suppliers. At the end of last year, Ford had 1,500 global production suppliers, down from 3,300 in 2004. The automaker expects to end up with 750 Tier 1 suppliers, but it has not announced a deadline.
Under its Aligned Business Framework, Ford is allotting much of its $50 billion annual parts purchases to a group of key suppliers. Under that program, 76 production suppliers and 26 nonproduction suppliers account for 55 percent of Ford's annual purchases. Eventually, suppliers in the program will account for two-thirds of Ford's annual purchasing budget.
Bill Diehl, president and CEO of Detroit-based consultant BBK Ltd., said consolidation is inevitable as the supply base continues to expand globally and credit markets remain tight.
"Consolidation has to happen," he said. "Nobody is going to be adding fixed costs in the near term and consolidation allows fpr great opportunity to leverage more facilities as demand increases."
Dustin Walsh contributed to this report.