On May 6th, Ford took the word "truck" off its Michigan truck plant, that, in its prime generated $3.7 billion in annual profits building SUVs. It is now converting the plant to produce the Ford Focus, a car that, according to the WSJ, (Ford Brings New Focus to Small Car Market), "never made a nickel in the U.S.". So what will be different this time?
Ford plans to develop a flexible body shop operation to allow multiple models to be assembled in the same plant, including a new all-electric Ford Focus. As part of a strategy begun in 2006, Ford is developing vehicles that use the same architecture. This means that Ford will be able to build multiple models of a car from the same architecture in every part of the world and modify them for local tastes. The current approach for U.S. car makers is multiple models on multiple platforms. This proliferation of models and platforms is a much less efficient and much more costly approach and is part of the cost structure in the American auto industry that is hurting it. In the past, U.S. auto makers have pursued the goal of common platforms, but have not successfully implemented them. Honda, on the other hand, has used this common platform approach for years. It has been able to standardize production facilities while still producing according to individual countries' preferences.
There are many more issues that come into play in this decision, such as what further concessions Ford can get from the UAW and whether the American consumer will actually buy the Focus instead of its rival Japanese cars. But one implication of this decision that is interesting to think about is the impact on Ford's suppliers.
From a cost perspective, the implications are potentially significant, both for Ford and its suppliers. A common platform will allow suppliers to make the same components with minor modifications for different models, saving them money. Decreasing the number of separate components simplifies inventory and tracking, streamlines logistics, and provides an environment more conducive to lean manufacturing practices. However, this common platform approach is likely to lead to further reduction and consolidation of Ford's supply chain worldwide. The common platform may reduce the variety and number of suppliers required. And those suppliers with a worldwide presence will have a greater advantage in continuing to do business with Ford. Also, there may be increased risk to suppliers if the Ford Focus is not as successful as anticipated. And there is always the risk of a recall of a supplier part having a disastrous impact because it is being used in many models.
There are probably other spend management implications. It would be interesting to hear readers' thoughts on this.
- Sherry Gordon