Issue: Jun 2009


Ford’s Survival: Will It Be One of the New Big Three?



by Jane Barrett and Michael Burkett

With Toyota posting a Q1 loss of $7.7B, the auto industry crisis continues. A glimmer of hope comes from Ford, the survivor of the Big Three domestic auto manufacturers. What does the future hold for Ford, and can it emerge from the economic slump as one of the new Big Three? 

Since Alan Mulally took over as CEO of Ford, he has stressed three needs: the need for better vehicle branding and marketing, the need for reduced complexity, and the need to repair broken supplier relationships. The result? His strategy saw Ford successfully through the bailout debacle. In April 2009 Ford sales in the United Sates exceeded Toyota’s, due mainly to strong Fusion demand. Not bad, especially considering the plight and imminent bankruptcy of the other Big Three, General Motors and Chrysler. 

Major challenges still lie ahead for Ford. As high-margin sport utility plants are converted to traditionally low-margin, or even no-margin compact vehicles, redesigning the vehicle and supply network is needed to transform to small car profitability. Complexity reduction and collaborative supplier relationships will help drive profitable demand response. And marketing, engineering, manufacturing, and procurement must collaborate to create a profitable, fuel-efficient product portfolio and supply strategy that works globally. 

Others have cracked this nut. Leaders such as Honda and John Deere design product platforms that allow postponement strategies and component reuse, in some cases with over 80% reuse. Should Ford continue down this path, five best practices in a successful Design for X manufacturing organization are vital to grasp: 

• Manufacturing standards—Align to standard manufacturing capabilities to support global manufacture of a vehicle. 

• Postponement—Design for postponement for the flexibility to make multiple models in the same plant 

• Centers of Excellence (COE)—Use COE’s for subsystems like powertrains that are available to share across brands while still supporting differentiation. 

• Component re-use—Share components across internal brands and with external partners to drive volume pricing and improved quality. 

• Governance and metrics—Use metrics to create incentives for both designers and vehicle program managers to adopt standards that have benefits beyond a vehicle or brand 

The benefits of complexity reduction seem obvious, but the challenge is in execution, which can break down as designers and brand owners seek to differentiate in the marketplace. Some are up to the challenge: Daimler AG and BMW, for example, are exploring shared components to boost their margins. These two companies have also joined General Motors and Chrysler to create the Hybrid Development Center to collaboratively develop a shared hybrid powertrain transmission. Collaborative partnerships like this could well be a determining factor in GM and Chrysler clawing their way back. 

Collaborative supplier relationships, not just collaborative practices 

When someone mentions collaboration, we ask, “Are you talking about developing collaborative practices or building collaborative relationships?” Very rarely is the focus on relationships. Ford, like the other domestic automakers, has excelled with its collaborative practices, but relationships have been adversarial. Compare this with Honda, which has the best supplier relationships in the business, with less investment in tools and technologies than most. 

Our research highlights culture and organization as key barriers to developing collaborative relationships with suppliers: 

• From companies with internally focused culture and seat-of-the-pants management, we hear quotes like “Our closed cultures and legacies of distrust inhibit our potential.” At Honda, the company-wide philosophy of respect and The Three Joys (the joy of buying, of selling, and of creating) translates into their ability to balance collaborative supplier relationships with competitive pricing. 

• Siloed organizations with a single company mindset tell us things like, “We still have silos within our business, let alone with trading partners.” Honda invests in extending the Honda philosophy and processes to their suppliers. Suppliers thrive in what they call Honda-land. Leaders in supplier development readily deploy skilled resources to supplier locations at no cost to help with product and process improvement. Their investment is rewarded in the long term through supplier loyalty and quality. 

Collaborative practices yield short-term results, but collaborative relationships drive sustainable value. Ford must build sustainable supplier relationships, leverage supplier innovation through open design networks and early supplier involvement, and develop capabilities to model should-costs from suppliers and total cost-to-serve the customer. 

Will Mulally’s no-nonsense approach and Ford’s survival without bailout money be rewarded by consumer loyalty? Strong sales of the Fusion in April indicated this is possible. Combine this with a demand-driven product portfolio and profitable supply network, and America may just have a player among the companies vying to become the new Big Three. 

What do you think? We welcome your feedback at jbarrett@amrresearch.com and mburkett@amrresearch.com. 

Related research 

Expect the Unexpected: Design Product Platforms That Support Agility http://www.amrresearch.com/Content/View.aspx?compURI=tcm:7-43192
 
The Global Hybrid Cooperation: Competitors Partner for Innovation in Automotive http://www.amrresearch.com/Content/View.aspx?compURI=tcm:7-42749
 
Supplier Performance Management: It’s More Than a Scorecard—It’s a Strategy http://www.amrresearch.com/Content/View.aspx?compURI=tcm:7-37779  


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