Ford plans to cut its supplier base in half

Automaker Ford Motor Company is entering into new long-term agreements with select strategic suppliers globally to strengthen collaboration and develop a sustainable business model to drive mutual profitability and technology development.

The new "Aligned Business Framework" agreements establish working business models for both Ford and the selected suppliers. The agreements comprehensively and formally spell out business practices designed to increase future collaboration, including phased-in up-front payment of engineering and development costs, extended sourcing and data transparency. As part of the deal, Ford intends to significantly expand the volume of business with these select suppliers.

The Aligned Business Framework is designed to create “a stronger, sustainable business model” for Ford as well as its selected suppliers, explains Tony Brown, senior vice president, Global Purchasing. "This is not business as usual. We're not only asking our suppliers to step up. We're also asking ourselves to step up."

Autoliv, Delphi, Johnson Controls, Lear, Magna, Visteon and Yazaki are the first of the strategic suppliers Ford has identified in the initial phase of the effort. The impact of Delphi’s filing for Chapter 11 bankruptcy protection is not yet known. Additional suppliers that have the capability to provide technological innovations and show a commitment to quality, costs and delivery performance will be identified in the coming months.

Key elements of the new Aligned Business Framework agreements include:

* A Ford commitment to phase in up-front payment of engineering and development costs, extended sourcing for the life of a program or platform, including derivatives, improved commonality and re-use of parts, early supplier involvement in the product development process, broader supplier involvement in product tear-downs and product benchmarking, and extended sharing of forecast volumes and product plans.

* A bilateral commitment to competitive costs based on data transparency and cost models related to product attributes.

* A supplier commitment to bring leading-edge technological innovations to Ford.

* A supplier commitment to an accelerated achievement of competitive cost structures that will be maintained over the life cycle of products evolving to less Ford emphasis on year-over-year price reductions.

* Continued sourcing emphasis to minority- and women-owned suppliers.

* Continued emphasis on cooperatively pursuing low-cost supply alternatives.

In the first phase of the Aligned Business Framework effort, Ford expects to reduce by approximately 50% the number of suppliers it sources new business for 20 high-impact parts and commodities. The commodities -- which include seats, wiring, restraint systems and instrument and trim panels -- represent about half of Ford's annual production buy globally. Ford currently spends $90 billion per year on parts and services purchased from 2,500 suppliers.

"Ford has laid the foundation for this action over the past several years. We've worked with our key suppliers on several programs to take out waste, increase economies of scale, improve quality and customer satisfaction, and create a framework for stronger relationships," says Brown. "Although we've made progress, business conditions require us to accelerate these efforts and raise the nature of our relationships to an entirely new level."

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