Quake shaped Ford's supplier crisis response

DETROIT — In the throes of the Great Recession, a team of Ford Motor Co. purchasing executives spent hours assessing the financial health of the automaker's supply base by poring over spreadsheets in conference room 3B007 at the Product Development Center.

The group — tasked with shrinking Ford's exposure to parts disruption — dubbed itself "Project Quark," an homage to the family dog in the 1989 film Honey, I Shrunk the Kids. They gathered in the third-floor war room from early in the morning until long after the janitorial staff had left for the evening to dissect everything from a parts maker's liquidity and creditworthiness to what and whom they supplied, often discovering that smaller companies could affect operations further up the chain.

As the financial crisis eased, team members felt the experience left them with a detailed understanding of their supply network and a firm grasp of potential future problems — and they assumed they had seen the last of 3B007. But the March 2011 earthquake and tsunami off the coast of Japan shook the global automotive industry, sending Ford's purchasing team back to that conference room.

Despite the progress made during the financial crisis, the team wasn't prepared for the sudden disruption to some 55 parts makers it had otherwise considered financially healthy and stable.

"That event really, for us, was kind of an epiphany in terms of how we thought about risk in purchasing," Hau Thai-Tang, Ford's chief product platform and operations officer who has spent many years in purchasing, told Automotive News. "What that got us thinking was, how do we strengthen our supply chain risk-management process to look at forecasting, predicting and mitigating risk but also thinking about what happens when a node in our supply chain goes down unexpectedly and how do you recover from that?"

A decade later, the Japan earthquake remains a seminal moment that shapes how the company prepares for and addresses crises, including recent disruptions such as the semiconductor shortage.

The team assessed the situation in Japan within hours — a process that would have taken days, if not weeks, prior to the financial crisis, according to Lisa Tresigne-King, then Ford's director of raw materials purchasing.

"We got much smarter in knowing what we needed to know about our supplier tiers and how we needed to mine that information," she said. "We were much faster in response and much faster to get from discovery to problem-solving."

Among her findings, Tresigne-King — who now is executive director of global purchasing operations and strategy — discovered that one plant in Japan supplied a specialty paint pigment that went into 126 Ford colors, affecting some 47 facilities.

"At the time we didn't know that all of the pigment globally for all types of paint came out of that single facility in Japan," she said. "And every OEM that received that pigment, we were all using that site."

Ford was forced to briefly shutter some plants around the globe to conserve parts and slightly lowered volume forecasts. But Rob Transou, who at the time was director of supply risk management, said the company's quick action allowed it to get back to normal within three months.

"What I remember so strongly was the working relationship and how all our functions came together," said Transou, now director of global engine and powertrain installation.

"We spent quite a lot of time there and by June, we felt we were stable."

The incident hardly slowed Ford's financial momentum. A little more than a month after the earthquake, the automaker reported a $2.6 billion quarterly profit. It banked $20.2 billion in net income for the full year, the second-highest mark in company history.

The Japan earthquake prompted Ford to fund research through the Massachusetts Institute of Technology that led to a model the company still uses today to quickly assess supply chain risk should something unexpected occur.

The model has helped the automaker focus its mitigation efforts — double sourcing certain parts while stockpiling others — and has taught it how to maximize profits even when certain parts are hard to come by.

When a 2018 fire at a Michigan supplier threatened to disrupt production of its lucrative F-Series pickups, Ford was able to react in a matter of hours — pulling out costly equipment, locating alternate production sites overseas and shipping the heavy machines there using rare cargo planes.

The company used the same approach throughout 2020 and the staggered global production disruptions caused by the coronavirus pandemic.

During this year's semiconductor shortage, Ford has taken a plant-by-plant approach to shutdowns, prioritizing high-volume, high- profit vehicles, although the issue still is expected to dent profits by one-third this year, according to Moody's Investor Service.

Thai-Tang said the company is "absolutely" in a stronger position to handle unexpected crises because of what happened in Japan in 2011.

But challenges remain.

For competitive reasons, Ford often doesn't know how involved a supplier is with rival automakers. Anti-collusion rules prevent the company from engaging with its competitors, but Thai-Tang said he hoped some type of independent third party could be set up to help automakers better understand potential bottlenecks.

"We've made significant strides in better understanding our value chain, but we only know our portion of it," he said. "We don't know everyone else that [parts makers] supply. There's still an inherent risk associated with that."