Ford and Managing the Supplier Relationship

Topic: Management Improvement

There have a been a number of articles (Ford to slash vendors of key parts [the broken link was removed] – Ford Rethinks Supply Strategy and posts (A “Kinder and Gentler” Lean Supply Base? – Ford Adopts Toyota-style Supplier Strategy [the broken link was removed]) about supplier management, many springing from Ford’s announcement [the broken link was removed].

My first thought on reading the stories about the press release was, didn’t Ford already say they were going to do this in the 1980’s or 1990’s?

John Weiser, Spring 1997 Executive-in-Residence, Graduate School of Management:

When Ford Motor Company embraced the Deming initiative, Ford’s president told his suppliers:

“We are in the process of making a major change when it comes to dealing with our supplying companies. My goal is that this will become a truly partnership effort, rather than the type of arm’s length relationship that has all too often been the way we have worked in the past.”

Here is a speech by the President of RadioShack Corporation, The Supply Chain of the Future: A Focus on the Customer [the broken link was removed]:

The Ford supply chain had become ossified [1970’s]. It was no longer agile, not to mention adaptable to competition or aligned with suppliers or customer demand.

The irony, of course, was that as Detroit became bloated and inefficient, competitors on the other side of the world were staying true to Ford’s early lessons – Japanese automakers were Agile, Adaptable, and Aligned, and practiced a highly efficient form of kerietsu.

Interestingly, the Japanese learned kaizen from someone who Ford and others rejected – a man named Deming.

What Deming tried to re-introduce to Ford [in the 1980s] was a more modern and refined version of what had made Ford great.

Here’s what I mean – During the early days, Ford and his associates were dissatisfied with the price that an auto body manufacturer was demanding.

They wanted him to get his price down, just as today’s Big Three want their suppliers to reduce prices.

The difference was that Ford and his co-workers didn’t just tell the supplier to cut his price.

They looked at the supplier’s product and taught the supplier how to make it more efficiently.

The supplier’s production costs dropped so far that the supplier could not only give Ford the price he wanted, but also make more money for himself.

Ford said they were committed to the Deming philosophy in the 1980’s and 1990’s. Donald Petersen, former CEO of Ford Motor Company, was one of those included in the Deming Library Tapes.

Point 4 (of Deming’s 14 points): End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost in the long run. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.

Also see The Car Quality Guru America Turned Away [the broken link was removed].

Nothing has changed from 1990 to today that explains why Ford saying they are going to deal with suppliers differently now should work any better then such statements 15 years ago. Until they acknowledge what problems in their management system have caused them to fail to use sensible management practices that have been well know for decades I see no reason to believe their claims that they will behave differently this time.

The difficulty is not in reducing the number of suppliers. The difficulty is that you must change the nature of your relationship with the suppliers. And that will require changing the nature of the management systems within Ford. The various factors involved are interdependent.

You cannot expect to achieve success by adopting an individual component of an interdependent system of management. In the 1980’s Ford had leadership that understood the need for improving the entire system of management. They were able to make changes. It is possible that with the right leadership the gains made in the 1980s and early 1990s could be built upon. But the evidence that Ford understands what is required, is missing, in my opinion.

From, Ford Adopts Toyota-style Supplier Strategy [the broken link was removed]:

On one of our Lean benchmarking trips to Japan everyone in our group was particularly impressed by the story told by a small Toyota supplier of elbow joints we visited. This company gave up and told Toyota “we can’t meet your requirements” on cost only to have a Toyota engineer come and live at their company until together they were able to redesign both their product and process to meet cost targets. Toyota refused to let even a small supplier fail.

The mentality behind this type of behavior is not one of reducing suppliers but of a system of management. One interdependent portion of that system is the reduction of suppliers so you and the suppliers are truly partners. A different understanding of the purpose of the organization is helpful. You have obligations to your customers and suppliers.

While looking analytically at one of these obligations you may conclude you would be better off free from such an obligation the system is optimized when such interdependencies exist and are nourished.

9 thoughts on “Ford and Managing the Supplier Relationship

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  4. I just read a great new book on Ford – Ford and the American Dream – Founded on Right Decisions by Clifton Lambreth. Mr. Lambreth discusses Ford’s Supplier relations.He does the best job ever of giving the average person an inside look at Corporate America and Ford. This is a must read for every business person around the world!

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