Keynote Presentation: Expectations: What OEMs and Suppliers Can Expect of Each Other in Today's Environment


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ISM's 88th Annual International Supply Management Conference

Nashville, TN
May 2003

Author(s):

Roberta J. Duffy

Tony (Thomas K.) Brown
Vice President
Ford Global Purchasing

Henry Ford realized the importance of suppliers early in his career. He developed one of his first vehicles, the quadracycle, in a garden shed. However, when the finished vehicle ended up being slightly wider than the garden shed door, it was a local hardware store that supplied a key component: a sledgehammer that was used to "modify" the specs of the garden shed door, allowing the quadracycle to get out.

Later, in 1908, when Ford had to drop the retail price of the Model T to make it affordable for consumers, many of his business partners were enraged -- they saw their profits disappearing. But, Ford's suppliers stayed on board. In fact, more than 20 of the suppliers on that vehicle are still suppliers for the Ford Motor Company today. So yes, Ford knows a thing or two about supplier relationships.

Tony Brown, vice president of Ford Global Purchasing delved into this subject during the opening keynote address at ISM's 88th Annual International Supply Management Conference, May 18, 2003. He described the role of suppliers as evolving in three different stages: the Dark Ages, the Enlightenment, and the Renaissance.

Dark Ages

Brown describes this phase as the one in which original equipment manufacturers (OEM) take the attitude of "We'll do all the thinking and you just supply exactly what we tell you to." At this point, the supplier is merely providing a product and there is no added value in the relationship. There is no standardization among any of the purchases being required because each buyer firm dictates its own unique specifications, without any regard to possible economies of scale.

Enlightenment

Later, Brown says, buyers started to realize that "Suppliers can think!" And someone realized that it makes sense that the people who actually manufacturer this component just might know more about it than the people who just happen to try and design one every two years. At this point, the suppliers are invited and their expertise begins to add value. For one, the focus starts toward a customer focus. No longer does a supplier merely supply headlights -- they are charged with figuring out how to help people to see in the dark while driving their vehicles. Secondly, the close manufacturer-supplier relationship builds trust, something that is vitally important in all industries -- particularly one where safety plays such a large part in the finished product.

Renaissance

The third evolutionary stage is one of renaissance, or rebirth. The buyer-supplier relationships is raised to a new level in today's environment where the auto industry has never been so competitive. Due to the wide variety of vehicles, 0 percent financing, and transparent market prices thanks to the Internet, high quality must be the distinguishing factor.

Manufacturers must be competitive, provide the high quality to customers, and still be a company that suppliers want to do business with. Ford Motor Company is facing this challenge by optimizing supplier relationships, particularly looking for ways to standardize components. Doing so with decrease costs (by reducing redundant costs) and decrease time to market.

Between the three divisions, Ford, Mercury, and Lincoln, the company will introduce 65 new products in the next five years. But, they'll also be reducing their number of platforms by 25 percent by the end of the decade. Brown says this is one area that any firm can look to for improvement.

By Roberta J. Duffy, editor of Inside Supply Management

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