How procurement helped reverse Ford’s fortunes

It wasn’t that long ago that one of the most recognisable carmakers in the Western world was in trouble. Procurement’s part in it’s turnaround was both telling and dramatic.

I spoke to journalist Bryce Hoffman, a veteran of the US automotive trade news, about his book American Icon, which looks at the remarkable impact that CEO Alan Mulally and, notably CPO Tony Brown had on the ailing auto giant - Ford.

Hoffman himself had an interesting take, having great insight into these two vital characters and having seen the journey Ford underwent over the course of the financial crisis towards its recovery over recent years.

Brown’s ideas were on occasion innovative, sometimes controversial within his own company and frequently took inspiration from what rivals were doing – but they were effective. Both as a result of his organisation’s turnaround and the investment that Mulally afforded the supply side of the business, Ford has climbed the auto supplier relations rankings and become, according to Hoffman, a wholly different organisation to deal with.

Here’s an extract of the interview which appeared in this article:

PL: How did the team react to the 2008 financial crisis?

Bryce Hoffman: Brown created an internal task force. The US supply base was grossly over capacitated before the crisis, so there was a sudden drop-off in sales, which created something of a capacity crisis. Many suppliers did not survive. What that meant for Tony Brown was an urgency to push those alignment efforts as they became more critical to the operational effectiveness of Ford in general.

I’ve seen the task force room – it looks like the NASA control base – there are dashboards with every supplier, percentages of supplier risk, teams with members from all different functions. Where Brown was really successful was in realizing that Ford could not do it by itself – he reached out and proposed working together with competitors to figure out which suppliers were critical and how to act. Several balked at this, but the Japanese companies already had the most collaborative approach and they would talk regularly. That opened a degree of inter-company intelligence that was key.

PL: How did they embed this alignment strategy?

BH: One of the things Brown changed was the purchase interface. Before, purchasers’ bonus was tied to cost reduction, that was changed and a system called ’matched pairs’ came in, in which two individuals’ compensation was tied to each other’s performance – say procurement and engineering.

They had lots of other weapons in their arsenal, but US auto manufacturers had beaten up on suppliers fairly hard, paying slowly and pushing prices, so they had to turn that around. So Ford would pay early to keep suppliers going. Procurement was very hands-on with the process, not only helping to make it through, but to avoid disruption, too. By 2010, its supplier relations scores were dramatically higher.

Steve Hall is deputy editor for Procurement Leaders Magazine. Follow him on Twitter at @thestephenhall.