Ford’s Aligned Business Framework on Track

Forty-seven suppliers have joined the auto maker’s purchasing initiative designed to rationalize the supply base and drive “mutual profitability and technology advancement.”

The automotive parts supply chain in North America is changing like never before as domestic auto makers attempt to source more parts overseas and the foreign transplants seek more parts within the region. Meanwhile, suppliers – many of them in distress – remain crucial to the success of new vehicles being launched. This is the second installment of a Ward’s 6-part series stemming from interviews with the purchasing departments of Nissan, Ford, Honda, GM, Toyota and Chrysler.

Ford Motor Co. garnered high marks in this year’s J.D. Power and Associates 2007 Initial Quality Study but ranked dead last on Planning Perspectives Inc.’s Working Relations Study, which measures the level of trust between auto makers and their suppliers.

How an auto maker can rank tops in quality while suffering from allegedly poor supplier relations is a contradiction that needs further examination, says Andrew Hinkly, Ford’s executive director-Americas production purchasing operations.

“I think collaboration with suppliers is key to providing quality as well as innovation,” Hinkly tells Ward’s. “There does seem to be, at least on the surface, somewhat of a disconnect between the results that we see in work product of our suppliers and our joint collaboration and what the (Planning Perspectives) survey on its surface might suggest.”

Ford has been attempting to solidify its collaboration with suppliers through its “Aligned Business Framework” program, which was announced in September 2005 to “develop a sustainable business model to drive mutual profitability and technology advancement.”

The program also was intended to cut Ford’s key supplier base 50% while strengthening relationships with select preferred suppliers and improving quality.

“Having fewer suppliers means you can concentrate more of your time and effort on those you intend to grow,” Hinkly says. “It is a significant change, though, not only for the procurement and purchasing side of the organization that I represent, but it expands across Ford’s manufacturing and engineering groups as well.”

To date, there are 47 ABF suppliers, with the latest additions including Cooper-Standard Automotive, Siemens VDO Automotive and Kuka Flexible Production Systems. Hinkly says the program is progressing nicely and producing the desired results.

Although Ford previously said the downsizing of its supply base would occur by July 2006, Hinkly now says there is no timeline for completing the ABF structure or quota.

“I think it would be inappropriate to put a timeline on the development of a relationship,” he says. “Enrolling suppliers (in ABF) is a big piece of the program as we look to rationalize the suppliers that we work with.”

Despite the rise of the ABF, companies on the list represent but a fraction of Ford’s 2,300 global production suppliers. The auto maker’s annual purchasing budget is $90 billion, $70 billion of which is for production materials, a spokeswoman says. As of last December, ABF suppliers accounted for $4.1 billion of Ford’s total purchasing budget.

In addition to fostering long-term relationships and closer collaboration with suppliers, the ABF is meant to encourage suppliers to get involved earlier in product-development cycles and to introduce their own innovations into certain projects.

That aspect of the ABF also is on track, Hinkly says, although he declines to reveal specific supplier innovations on Ford’s newer products.

“We have some great innovations coming, and the expansion across the vehicles will be significant,” he says. “The penetration will be very rapid, but we’re not ready to unveil specifics.”

A strong proponent of ABF is recently appointed President and CEO Alan Mulally. A veteran of the aerospace industry, Mulally is no stranger to forging strong ties with suppliers. In fact, Hinkly says Mulally sometimes meets with Ford’s key parts producers.

“(Mulally) is very interested in the ABF and is very supportive of that way of working with suppliers,” Hinkly says. “He was at our most recent supplier conference a month ago and had a very warm reception from the supply base.

“(Mulally) also meets individually with suppliers, and he is very supportive of the closer relationship with those suppliers.”

Hinkly bristles when told that some Ford suppliers have complained to Ward’s about the ABF as being too rigid, overly bureaucratic and onerous.

He defends ABF by saying it is largely a “non-binding agreement” and more of an “aspirational document.” He says he has yet to hear any complaints from suppliers concerning ABF, but welcomes their input.

“ABF is a set of 16 principles,” he says. “There are multiple levels in an organization to determine whether we have a common view that these are the right principles to do business. I will need to understand those types of concerns further, because they sound very much misaligned with what our view of the ABF agreements actually are.”

The influx of private-equity investors into the automotive industry is something Ford also is watching closely, Hinkly says, although it’s a bit too early to determine the impact.

Cerberus Capital Management LP recently snatched up automotive supplier GDX Automotive Inc. and 51% of GMAC Financial Services. Cerberus also is set to acquire Tower Automotive Inc. and 80% of Chrysler Group from DaimlerChrysler AG later this year. Several other private-equity companies also are investing in the automotive parts sector.

“I think the generic statement is the fact that capital interested in investing in the automotive industry, whether it’s the supply base or in the OEMs, must be a good thing,” Hinkly says. “I think the jury is out, it is still early, and we don’t know which phase we’re in of the private-equity investment cycle.”

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