Join Date: Feb 2001
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Early returns on supplier sharing plan don't meet Ford's expectations
By AMY WILSON
DETROIT -- Ford Motor Co.'s bid to cut costs by sharing savings with suppliers isn't paying off as quickly as the automaker envisioned.
Though some savings have been realized, the program isn't meeting goals Ford set when it was introduced in January, said Tony Brown, Ford's global purchasing chief, in an interview with Automotive News.
"Some of it is internal. Some of it is getting the logistics of suppliers lined up and understanding what the real possibilities are and figuring out how to aggressively go after them jointly," Brown said. "So if we were to draw a curve and say, 'Are we where we would have liked to have been?', the answer is no. Are we better than we have been in the past? The answer is yes."
Brown wouldn't provide details on program targets and results.
But making the program work is a mandate for Brown, 46, who shares that responsibility with Ford's product development group. Brown was handed daily control of global purchasing in January as CEO Bill Ford Jr. engineered a string of changes in the automaker's executive ranks.
Brown's boss, Carlos Mazzorin, who recruited him from supplier UT Automotive in 1999, will move into an adviser role to Bill Ford in August and give way to David Thursfield, currently head of Ford of Europe.
Ford Motor leaders expect the purchasing group - responsible for about 2,000 production suppliers and an annual purchasing buy of more than $90 billion, including nonproduction products and services - to contribute a significant portion of cost-cutting as the automaker strives to return to profitability. In an attempt to turn around a 2001 loss of $5.45 billion, beleaguered Ford Motor wants to chop an average $700 per vehicle by mid-decade.
The Ford North America Design Cost Sharing program strives to wring costs from vehicle programs using design changes and promises to split the savings, with 35 percent going to suppliers. Ford Motor initially assigned 300 engineers to the program and added another 700 this spring. The company has told suppliers that it wants $3 billion in cost reductions from the initiative by 2005.
Ford Motor is evaluating ways to modify the program to improve returns, Brown said. But changing the split to offer a greater chunk of the savings to suppliers hasn't been discussed, he said.
Some suppliers say the program's focus and reward structure limit the benefits for Ford Motor.
The automaker said the program's emphasis is to find immediate savings on vehicles in production or about to launch. For instance, the 1,000 engineers assigned to the effort are seeking ways to use cheaper materials or remove features that customers won't miss. Ford Motor is concentrating first on its largest suppliers and high-volume programs.
Many changes approved offer minor payoffs. Ford Motor is planning suspension changes for the 2003 Lincoln Town Car, new sound-deadening materials for the Ford Taurus and Mercury Sable, and less expensive interior trim on the 2004 Lincoln Navigator. The estimated savings of one initiative - swapping the location of a pedal adjustment switch on the Taurus and Sable - is $2 million annually.
Though Ford Motor's financial struggles explain why the automaker wants immediate cost cuts, the big savings will come only in vehicles still being engineered, suppliers said. That means the program's biggest potential rewards won't hit the bottom line for two or three years.
"When you really want to have the savings, you've got to find them somewhere in the manufacturability and somewhere in the design, and you don't usually find that at the last minute," said an insider at a large Ford Motor supplier. "It would be pretty surprising to find major savings right before something is launched."
Late engineering changes also jeopardize quality, another problem with which Ford Motor is struggling.
Another supplier source called the design cost sharing program misguided, saying the short-term focus and a one-year limit on the sharing element don't motivate parts makers to come up with a rash of ideas.
"The reward is much less the way it is designed today," the supplier said. "The reward would be greater to the supplier and to Ford if they looked at the longer-term view where the most cost savings can happen … and then (share the savings) for the total life of the program."
Brown said he aims to improve Ford Motor's relationship with suppliers and will work with the supply base to strengthen the savings sharing program. One tact he would specify is determining whether the initial objective set by Ford for the program is achievable.
Said Brown: "As long as we can identify things that we can (change) to make it better, then we have no reason to think that line is the wrong line."
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My next Ford.....