Supplier Rationalization Picks up Steam at Ford — and Beyond

In nearly every conversation I've had with consultants and practitioners regarding supply risk in the past month, the concept of supplier rationalization has come up -- either as a risk mitigation strategy or a strategy that can actually increase risk (depending on perspective and situation). But most organizations aren't stopping to think too much about the issue -- they're marching full sourcing steam ahead down a supplier consolidation path both to save more and theoretically funnel spend to suppliers that they believe are most likely to survive the downturn. A recent Purchasing article provides specific public confirmation of this trend, citing the case of Ford, which has "decided now is a good time to ramp up its plan to consolidate its supply base".

But Ford is taking supplier consolidation to higher levels than most, reducing its potential supply base for new programs by nearly 50%. Purchasing notes that "According to a Ford statement only 850 production suppliers will be eligible for new sourcing by the end of this year. That is only about half the number (1,683) of suppliers that were eligible at the end of 2008. Ford's long-term goal is to get its production supply base down to 750 suppliers, although it did not provide a time frame for that goal."

In other words, if we consider the length of a typical five-year production cycle for a vehicle, by 2014, Ford will have cut its direct material supply base in half as all current models complete their assembly run. Done right, this could very well be a smart move from a near-term cost cutting perspective. But done wrong, it could lead to significantly negative consequences in the short-term. Moreover, I'd argue that the Japanese philosophy that embraces splitting business between suppliers -- and allowing suppliers to compete to become the preferred supplier based on price, quality, innovation, etc. -- is a far safer alternative than putting all of your parts in one basket.

But such thinking is not popular these days in Detroit culture, a place that is admittedly focused more on near-term life support than putting in place programs and philosophies that will allow them to better compete on the world stage for decades to come.

Jason Busch

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