While GM touts its less-than-revolutionary “interbuildability” scheme, Ford is approaching global product rationalization from another direction: on the backs of suppliers. Automotive News [sub] reports that Ford is requesting that its suppliers turn over component information to other firms if they are unable to supply a given assembly plant. These so-called “transfer agreements” involve handing over specs and technical drawings to other suppliers, which would then assemble the parts designed by the original supplier. Ford’s supply firms are understandably nervous about the initiative, arguing that it would allow Ford to use competition to squeeze suppliers on price. Also, the possible transfers to overseas firms could allow them to remarket the original suppliers’ designs and other intellectual property to other firms.
Ford’s Tony Brown dismisses such concerns as “paranoia,” telling AN that “because they think it’s unfair doesn’t make them right. It makes that we disagree. And then they get a choice: They can either do business with us or not do business with us.” Brown indicated that original suppliers would be compensated for their designs, but the broadness of these agreements still worry supplier-watchers. “They’re going about doing it the way they’ve always done so,” says John Henke of Planning Perspectives. “And they’re not thinking about how do we do this and ensure we keep the trust we’ve built. That suggests to me that things are improving, but the mind-set isn’t there yet.”
Even full documentation of a design doesn’t mean any supplier can produce it with the same quality and long-term price. There often remains some art resident to the original supplier which is lost by re-sourcing.
Good luck with that.
… and if the information is enough, I sure wouldn’t want to be handing the Coke recipe — or other intellectual property — to one of my competitors (probably in a low-cost country yet).
I suspect that Ford will be having an increasingly difficult time finding competent suckers suppliers in the future.
A colleague of mine recently escaped from the auto supply industry and essentially would be laughing his ass off at Ford over this one…
He told me a story about how his previous employer decided to move production “offshore” (read: China) on a certain plastic part relating to a brake pedal.
The prototype parts came in fine, done to spec. The production parts, however, kept breaking.
He finally demanded that they do a chemical composition test on the production parts, and they were made up of any cheap plastic that could be tossed into a mold – not the specified special plastic.
Maybe I should revise my earlier thoughts that Ford would survive the autopocolypse…..
LMAO!!!!!!!
Ford is on crack!!!
It’s time for suppliers to give the Blue Oval the Big Bird, once and for all!!!
“They can either do business with us or not do business with us.”
That’s a good one. Trustful cooperation, mutual benefit, kind of. Why don’t they roll their own stuff and DIAF?
French to the front…
Nice to see Ford Purchasing has lost none of their charm and ethical concern in the six years since I last called on them.
Ford’s new Procurement Strategy is pretty much GM’s SOP for the past decade. Just expressed more arrogantly, as befits Ford’s corporate culture.
No wonder so many Michigan suppliers would rather deal with the Japanese any day, and twice on Sunday, than any of the former big 3.
Isn’t their attitude much like many employers?
People are hired “at will” and told that if they don’t like working there, don’t let the door slam on their ass on the way out.
That kind of attitude is what make unionism (which has many problems all of its own) rampant.
Swings and roundabouts; unions have been on the descent for decades and the old attitudes of employers are starting to rear their ugly heads again in many circles.
The golden rule on the part of both employee and employer, with mutual respect, works best. If you can find it. And if so, you are not lucky but blessed AND lucky.
No, this is far worse.
Ford has the brass balls to tell the OEM to give the design and intellectual property rights to an overseas (most likely Chinese or Korean) manufacturer?
I’d tell Ford to get bent. There’s something known as having principles. If Ford wants to treat their suppliers like whores, rather than being tough BUT FAIR, then they’ll hopefully contract a venereal disease and die.
I like being different, so I’ll propose that this is a good move.
Let’s assume that Ford is executing a strategy to dramatically simplify their vehicles lines and therefore will want a much simpler supply chain.
They spun off all the suppliers to avoid all the benefits and UAW costs, but maybe they can put it all back together now. They buy Visteon for pennies out of Ch. 11, run it as a division of Ford and move all the work into Visteon to get parts at raw cost. Hell Visteon can agree to a suhweet profit sharing deal with the UAW and sell parts to Ford at a loss to make sure there are never profit. No striking until 2015!
So they need to A) piss off the current supply chain and B) get all the intellectual property to ship to Visteon.
BRILLIANT!
Ford and GM have been the worst in the automotive industry in the last years regarding the use of General Terms and Conditions. These provided, inter alia, that if GM or Ford contributed somehow in the development of a suppliers product (which is normally always the case if they pay a price which will cover development costs) then they can ask the supplier to assist a competitor in building the same product according to Spec. The worst is that these Terms and Conditions provided that if “background IP” needs to be used for this (i.e. old know-how which was used in the development of the part), then this background IP must be licensed to the other supplier as well.
If possible any supplier should avoid signing any contracts with Ford and GM incorporating their Terms and Conditions. It is ridiculous. You nearle sell (license) everything that makes you valuable, i.e. your experience and know how.
It makes sense to me. There are too many suppliers in the chain as it is, and if sales don’t lift up dramatically in the next year, many suppliers are going to go bankrupt. Ford needs to be able to build and sell its products at a profit, and cutting costs without cutting quality by forcing more efficiency in the supply chain benefits both Ford and the customers who buy the cars.
Wal-Mart has been playing hardball with its supply chain for years, and while it has garnered some bad press because of it, it has also led to one of the most sucessful and dominant retail chains in the world.
When it comes down to it, the suppliers that want to survive will play by Fords rules, and those that want to be stubborn won’t get the business, and will have their shareholders and employees to answer to when revenue dries up.
Ford is no Wal-Mart.
They’re a Kmart or Sears, at best.
So the suppliers option is to work with Ford and provide everything they need or help them get what Ford needs (which is also in the supplier’s interest) or quit dealing with them and take a probably large revenue hit. Hardball on their suppliers yes but necessary to protect Ford’s supply stream.
Revenue hit? Revenue w/o profit at one OEM (Ford), is the same kind of “profitless prosperity” that bled the big 3 for the last 2 decades … allow it to spread via a new offshore competitor, and this will mean death to the supplier who so gives up his IP.
Revenue is more important than profits. Profit is a dirty accounting trick, revenue or positive cash flow is what really counts. Besides, as long as Ford can pay my supplier company may turn profit. This is separate from Ford.
The smartest supplier companies will walk away from GM, Ford and Chrysler and supply Toyota, Nissan, Hyundai, Subaru and Kia.
The law of unintended consequences will result in the preeminence of Korean and Japanese based US parts supply subsidiaries at the expense of American entrepreneural companies.
Revenue flow without profit is a stupid game, and a temporary one.
Use common sense; having a paycheck (revenue flow) is fine, but spending more than you make every week, week after week forever will eventually catch up to you. Bankruptcy is the usual result.
So it is not a coincidence that companies with this foolish “revenue flow counts for all” concept are BANKRUPT. Like GM, Chrysler, soon preumably Ford too, Visteon (which was hived off from Ford), Delphi (which was hived off from GM), GMDaewoo is closing in on bankruptcy, GMOpel is insolvent, Tower automotive (just came out of bankruptcy) and Lear automotive (just went bankrupt) to name just a few of the parts suppliers.
I’d been swallowing the nationalistic kool-aid for the benefit of Ford in hopes that it would survive. The scales have officially fallen off my eyes.
Ford Death Watches – please continue with. Stick a fork in them – they’re done.
They’re off my list of cars to consider. Along with Mazda.
menno, if you knew Hyundai or someone who did, in terms of dealing with them from a supplier’s perspective, you’d know they are as bad, if not quite worse, than Ford.
If so, ohstapback, then the suppliers who will prosper, will be those working with Toyota.
I go to church with a guy just let go from one of the last car parts places in my area (which closed down). Tower. During bankruptcy, such companies are “banned” from trying to obtain new contracts, which are their lifeblood – hence it is best to get out of BK as fast as possible.
During this time, Toyota CAME to our town and requested that Tower take on work for them – despite being hundreds of miles from any of their plants; they were that pleased with the prior and current work done.
My pal told me that Toyota would send out crack teams to HELP their suppliers when in trouble.
90% of the plant’s work was SUV related via GM so it has now closed down and the Toyota work moved to a plant in the south owned by Tower.
But the principle is that Toyota are intelligent enough to realize that you treat your suppliers as partners, not as slaves. This benefits ALL, to include Toyota and the ultimate “ALL” in the Toyota system; the end-user (customer/driver of their vehicles).
Ever heard of the story about seeing a grizzly bear in the woods? You don’t have to be the fastest runner – just faster than the guys next to you, right?
So, what is Ford? Ford is the 3rd guy turning around while running and laughing at the fact that grizzlies are eating GM and Chrysler, all the while running straight over a cliff edge because they weren’t watching where they were going. With grizzlies waiting at the bottom.
Menno –
Ford does work with thier suppliers, quite a bit actually, not only tier one, but tier two as well.
And Toyota was smart enough to move thier work to a bankrupt supplier desperate for work that had just had its legacy cost removed and can now produce much cheaper than the previous supplier who still has said costs.
Toyota is not likely to be so nice with their crazy profits turned into crazy losses. Overcapacity and bad economics for what’s essentially political gain does not lead to stability or sustainability.
menno :
July 14th, 2009 at 8:31 am
The smartest supplier companies will walk away from GM, Ford and Chrysler and supply Toyota, Nissan, Hyundai, Subaru and Kia.
..
Revenue flow without profit is a stupid game, and a temporary one.
..
So it is not a coincidence that companies with this foolish “revenue flow counts for all” concept are BANKRUPT.
It is certainly righ that making turnover without profit makes no sense. Although – in the end, with the fixed costs which every supplyer has, it sometimes makes sense – but it cannot last forever.
About 10 years ago, Continental Tyres was making losses from supplying OEMs with tyres. Basically the point was that having the right to supply would lead to subsequent sales. Continental stopped this, the OEM business became profitable, and Continental prospered.
Even with the big ones, and even with GM, Ford and Chrysler you can make money (if you get rid of the UAW). But be careful about your IP rights.