DETROIT -- Ford Motor Co. said yesterday that it will reduce by half the number of companies from which it buys 20 key parts and commodities such as seats, axles, brake systems and bumpers for its vehicles.
The move represents a major overhaul to the way Ford does business with parts makers and will effect about half the company's $70 billion production purchases worldwide.
Tony Brown, senior vice president of global purchasing for Ford, refused to say how much streamlining the number of parts suppliers with which Ford works might save the company.
The move is being made because the current way of doing business "is not working effectively for our suppliers, and it is not working effectively for us," Brown said during a conference call with journalists.
Experts said it's clear the potential savings and benefits from the change could be substantial if Ford executes the program properly.
Jim Gillette, director of supplier analysis at CSM Worldwide in Grand Rapids, Mich., said the key benefit would be suppliers sharing their innovative products with Ford.
"It's going to give them a significant competitive advantage," Gillette said.
Ford has been trying to reinvent itself as a leader in innovation, in the face of continuing financial pressures.
Under the new program Ford will sign long-term agreements with fewer preferred suppliers that have promised to give Ford cutting-edge technological innovations in return for an increase in business volume from Ford.
Detroit area winners include: Delphi Corp. of Troy, Mich.; Lear Corp. of Southfield, Mich.; and Visteon Corp. of Van Buren Township, Mich., all of which are slated to get long-term agreements with Ford.
Other preferred suppliers include: Autoliv Inc. of Sweden, Johnson Controls Inc. of Milwaukee, Magna International Inc. of Canada and Yazaki Corp. of Japan.
Brown said Ford would honor current contracts with other suppliers, but it's not clear which other suppliers might lose business in the future.
He said the company was evaluating its business part-by-part as it makes the transition into the newer strategy.
"It's too early for us to say who's out," Brown said.
Delphi spokesman Lindsey Williams said the company was pleased about Ford's announcement selecting the former General Motors Corp. subsidiary as a supplier.
Ford spokesman Paul Wood said the company would start sourcing new product contracts to the preferred companies immediately, and Brown said it could take Ford until mid-2006 to implement the first wave affecting half the company's product buy.
He did not say how long it would take the company to roll the program out in its entirety.
Some experts said Ford's new strategy is similar to the way Japanese auto companies Toyota Motor Corp. and Honda Motor Co. do business.
They have historically focused on building relationships with their parts makers, while domestic automakers have traditionally focused on giving work to the lowest bidder and pressuring the companies for price cuts.
That has contributed to serious financial problems for the auto industry in Detroit, resulting in bankruptcies, layoffs and restructuring for some of the area's largest suppliers.
Ranked nearly last
North American auto suppliers ranked Ford as the next-to-worst automaker to work with in an annual survey of six carmakers released in May by Planning Perspectives Inc. of Birmingham, Mich. Suppliers ranked Toyota the best.
It's unclear what impact Ford's move might have. "Right now they have bad relations with a lot of suppliers," said Planning Perspectives President John Henke, professor of marketing at Oakland University. "If they don't change that, they'll just have bad relations with fewer suppliers."
Gillette said Ford had little choice but to change the way it was doing things: "It was really going to cost them more in the long run if they keep this auction going."
It might take time before suppliers believe Ford is serious about its latest initiative, as similar efforts by auto companies have fallen through in the past, said Erich Merkle, director of forecasting for IRN in Grand Rapids. "Provided they can adhere to it," he said, "it's going to take time."