Ward's recently spoke with Tony Brown, vice president-global purchasing for Ford Motor Co., as part of its annual interviews with OEM purchasing executives.
In the interview, Brown encourages suppliers to join Ford's steel resale program, talks about global sourcing and supplier bankruptcy and says he is open to negotiating with suppliers that can make a solid case for higher prices based on facts.
An interview with GM's Bo Andersson posted on Wardsauto.com on July 1, and interviews with Chrysler Group's Peter Rosenfeld appears on July 6, Honda Motor Co. Ltd.'s Larry Jutte on July 7 and Toyota Motor Corp.'s Simon Nagata on July 8. Stories appear in the July issue of Ward's AutoWorld.
Ward's: Fuel prices are high. Does that mean Ford gets saddled with the extra cost of fuel to keep the logistics chain going, or does the logistics company shoulder that?
Ford's Tony Brown says he benchmarks “very carefully” supplier relations for Japanese and U.S. competitors.
Brown: In the end, the cost has to find its way through the system. Even if we don't pay a fuel charge directly, we end up having to work with our suppliers on that. We've never seen fuel prices like this, and we can't pretend that prices aren't a lot higher than they would normally be.
Ward's: How about steel prices?
Brown: We purchase a lot of steel directly and indirectly for our major Tier 1s, and then indirectly we feel it because they buy it themselves. We've never seen anything like this, certainly not in my recent memory. There is no pretending this isn't a significant issue. We joined in the U.S. International Trade Commission hearings to try to repeal some of the (import steel) tariffs. Lost, but we fought the good fight. Others are under review, and we are currently evaluating those that are coming up for future review.
We have a steel resale program, so working with our Tier 1s, we de-risk the equation for them. It's our issue, not their issue. They have to decide for themselves whether or not they think that's worthwhile. I can't make that call for them.
Ward's: You said last year a number of suppliers wanted to get into the resale program. How has that gone over the past year, in terms of allowing additional suppliers into that resale program?
Brown: We have brought people in, and to the extent we can get the volume that will cover their requirements, we've invited people because again, I would rather us manage that risk than them try to manage that risk. When the price curve for them is going down, it's a pretty good deal for them to the extent they can stay on the price curve. When it's going the other way, as we see now, it doesn't work so good. So why play that game?
Ward's: Consistently we're hearing from suppliers that they need some relief in terms of OEM pricing because of high raw-material prices, be it plastic or steel. How is Ford responding to statements like that from the supply base?
Brown: I'm not. In a public way or about any particular supplier, I'm not, never going to. Now, what is Ford's position if a supplier comes in and says, 'Look, here's my situation, here's what the facts are'? Then we deal with that particular situation on the merits of the facts, whatever they are.
Let's say I've got Supplier A, who comes in and says, 'I'm making this part for you. And in this part, back when we originally launched this part, there was X amount of steel and it was at this price. And I have X amount of conversion costs. Here's what's happened to it.'
I look at those, and I have my own point of view on that exact same part because I have cost models that say here's what this cost should be. We take a look at that and say, 'OK, you know what, my facts and your facts either line up or don't line up.' If they line up, then we probably can have a pretty easy conversation about what our next steps ought to be.
If our facts don't line up, then we have to have a different conversation. We have to sort through whose facts are the facts. And sometimes their facts are closer to the truth than my facts are, and sometimes my facts are closer to the truth than theirs. What I'm not going to do is pay an uncompetitive cost.
I went to buy a couple 19-in. color TVs for my children's bedrooms because it was time to replace them. They guy tells me they're $200 for one. I say, 'how much is it for two?' He says $400. I say, 'wrong, you're not understanding me. I'm looking for a volume discount.' He says, 'If you were buying one of those $6,000 plasma TVs, I got lots of room to work with (on price). But what you're buying, these are like disposable TV sets.
I say, 'Look, I gotta tell you, if it's one for $200, two for $400, I'm going across the street.' He says, 'All right, I'll give you $10 off.' I say, 'All right, fine, I'll take it.' It was two for $380 – it's a better deal.
Ward's: What's the latest on China as a market for sourcing parts for North America?
Brown: It continues to be an important market. We're making significant investments there. We will make requisite investments to support the local production, and where we think it's appropriate we will use China as an export base back into Europe or the U.S. There's a very thorough, cross-functional strategic process that we're using to determine what are the things we think make sense (to source from China) vs. the those things that we think, probably not a good thing for us to do.
China is no different than how we look at the Eastern Bloc, or Eastern Europe, as an export base back into Western Europe and as we like to look at Mexico as an export base to primarily North America.
Ward's: Someone told me one of the Big Three has gotten price quotes for instrument panels all the way from China for the North American market. How feasible is it to ship something as large as an IP from China?
Brown: Don't mean to be evasive. My view is that nothing ultimately is out of play. The solution set may not be in place today for certain things, but I'm not prepared to presume that that will always be the case. Because we are always inventing ways to do things that move us forward.
I'll also say, some things are more appropriate than other things for lots of reasons…in terms of control, proximity, quality, logistics. There are all types of difficult problems that have to be solved depending on what the particular component or subsystem is that you're looking at. Practically speaking, bulky complex things that have lots of things going into them, (with) lots of things that can go wrong, the natural tendency would be, (produce it) right here in the good ol' U.S. of A.
That would be the natural tendency, but I'm not prepared to accept that paradigm will always exist. So we need to understand the implications of, 'Well, what if, and if you could, how would you?' So we're constantly asking ourselves that question, whether we ever do it or not because I have to presume that one of my competitors will solve that equation. If someone's going to solve it, I want it to be us.
Ward's: John Henke's study from Planning Perspectives is out, and it says GM and Ford still are having strained relationships with their supply base while the Japanese appear to be doing everything right. Do you attempt to benchmark Japanese supplier relationships?
Brown: I benchmark all of the competitive organizations, the domestics and the “new domestics” and the Europeans as well.
Ward's: Do you benchmark relations the same way the engineers benchmark a vehicle? How do you do that?
Brown: Very carefully. I look at what they do, how they do it and compare that to what we do and how we do it. Very carefully. And I use that to understand if there's differential performance. And if there's differential performance, is it related to how we approach it? If we approach it the same and there is differential performance, why is that? Without looking outward, one can convince oneself we're better than we might otherwise be. I have as part of the organization a Business Strategy Office. Part of what they do is exactly that, to understand how our competitors go to business.
Ward's: Does any of your benchmarking align with the findings of the Henke study?
Brown: I'm not in the business of giving support or non-support to anyone's particular survey. We have our own point of view in terms of where we stand, and I have not flinched on that. We are not where we'd like to be. We are continuing to work to try to improve it. It is not easy. It takes a long time to change the point of view of how people or companies “perceive” a relationship. And we're relentless about it. And it's not just the purchasing organization that's working on that. It's a company issue. (See related story: Big 3 Respond to Supplier Study)
Ward's: Ford regains from Visteon 24 plants in chassis, glass, powertrai and climate control. Will other suppliers that are in those sectors likely see some opportunities that they may have not seen before?
Brown: Today, there's a book of business that was historically “Visteon.” Tomorrow, that business commodity portfolio is now “open to the market.” It is open to the market to the extent that as we determine what we will do with each of those particular assets, then we will determine who will be the principals that we will work with cooperatively.
Whatever deal gets struck will determine how “open” or “not open” (the market will be). We're not looking for something for nothing.
Ward's: Does Visteon remain Ford's largest supplier?
Brown: I think they're still the largest – and strategically important. Their future viability is still critically important. We are committed to their success now, just as we were in the past. (See related story: Visteon's Last Lifeline)
Ward's: There are a lot of supplier bankruptcy filings. How much responsibility do OEMs take in the financial predicament that suppliers are in? Are OEMs partly to blame for supplier bankruptcies?
Brown: If they had streaming profits over the moon, would they declare me responsible for that?
Ward's: Not if they're smart.
Brown: I struggle with that. It doesn't connect for me because in the end, it's a 2-sided transaction. There's an offer and an acceptance (to do business). What we're saying is, 'we acknowledge, we accept this is a difficult issue, not of your making, not of our making. We don't have a perfect solution, but we're not going to pretend there isn't a real problem that needs to be addressed. And we will work with you for the best solution we possibly can. If that solution doesn't get you where you need to be, and it's as far as we can go, then we have to have a different conversation.'
And I'm OK with having that conversation, too. I'm not ignoring it. This notion of, 'the OEMs are putting so much pressure on us to do this or do that,” (suppliers can) walk away. Walk away. Just say no. (See related story: OEMs Won't Coddle Bankrupt Suppliers)
Ward's: We've heard both Ford and GM have gotten purchasing involved in helping reduce health-care expenses. How has Ford purchasing contributed to the effort?
Brown: We work very closely with Joe Laymon's (group vice president-corporate human resources) team in the health-care area. We have TVM (Team Value Management) teams in place in major areas of health care, and we're taking health care spending through the same discipline and rigor that we do a piece part – of course, flexed for a non-production side of the buy.
But there are certain elements within health care that we can in fact manage that way. There are others you can't. Where it's appropriate, we have a cross-functional team with ourselves, HR, finance and labor in some instances, depending on the particular area.
Ward's: Does that mean working with HMOs and PPOs on rates paid?
Brown: All kinds of things. Nothing is off the deck in terms of the team evaluating what areas are there that make sense where we can try to apply these tools.
Ward's: So your buyers need to know about the health care area too?
Brown: Yes. I have an organization, particularly in the non-production area, that we build around specialists. Many of the people in health-care purchasing we brought in from the health-care industry itself, so they understand the industry. And others we are grooming within that track.