Ford Plans to Reduce Number of Suppliers by 40%

Ford Motor Co. (F), the U.S. automaker that purchases about $100 billion worth of parts annually, plans to reduce its roster of suppliers by 40 percent to cut the cost of building its cars and trucks.

Ford’s long-term goal is to buy parts from about 750 suppliers, from 1,260 last year, said Hau Thai-Tang, who became group vice president of global purchasing in August. The second-largest U.S. automaker is reducing the number of platforms that serve as the base of its vehicles, paring development costs and enabling the company to source from fewer suppliers.

“We still think that there’s plenty of opportunities for us to get down to the 750 number and still have plenty of competition and allow us to get the best ideas from the most innovative suppliers,” Thai-Tang told reporters today at a briefing in Dearborn, Michigan, where Ford is based.

Chief Executive Officer Alan Mulally, 68, has boosted profitability at Ford by reducing the number of its vehicle platforms to 14 today, from 27 in 2007, his first full year with the company. Ford’s lineup will slim down further to nine platforms by 2017, Thai-Tang said.

Savings from consolidating its platforms has boosted profit margins and enables the company to introduce new and refreshed cars and trucks more frequently. The company earned $35.2 billion from 2009 through 2012 after losing $30.1 billion in the previous three years.

Ford buys about 80 percent of its parts from its largest 100 suppliers and about 60 percent from its 65 biggest parts makers, said Thai-Tang, 47.

Better Results

“We want a long-term strategic partnership with key suppliers, and by doing that, we’ll get better business results for the two of us,” he said.

Automakers and their suppliers are facing capacity constraints as production increases to meet rising demand, said Thai-Tang, who was vice president of engineering before his promotion to his current post. U.S. sales of cars and light trucks are on pace for the best year since 2007.

“Everyone is running flat-out,” he said. “We’re a lot more exposed in terms of any production issues because you just can’t recover.”

The constraints are contributing to problems Ford has had with quality, Thai-Tang said. Ford’s first-half quality metrics were mixed, and it downgraded its internal forecast for results to improve for the full year after the second quarter.

Maximum Output

The company is trying to protect itself by measuring its suppliers’ average production per week and how close they are to maximum output, Thai-Tang said. Ford assigns a yellow rating, indicating caution, to one of eight capacity actions that the automaker is studying because some suppliers are operating at maximum production rates too frequently, he said.

“We’re working with the suppliers to address that,” he said. The rest of the capacity actions are rated green, and he declined to give more specifics about the projects the company is studying or how many suppliers are maxed-out.

Consolidation of the supply base through mergers and acquisitions has been limited, Thai-Tang said. Suppliers based in North America and China as well as private-equity firms are looking to buy companies. Distressed suppliers, many of which are based in Europe, are likely to be sellers, he said.

Ford slipped 0.2 percent to $17.50 at the close in New York. The shares have climbed 35 percent this year compared with a 22 percent rise in the Standard & Poor’s 500 Index.

To contact the reporter on this story: Craig Trudell in Dearborn, Michigan at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.