In a sleekly modern factory set in marshland on Chicago's South Side, nearly 400 Tower Automotive Inc. (TWR ) workers are cranking out heavy components -- engine cradles, frame rails, and floor pans -- for the Five Hundred, Ford Motor Co.'s (F ) latest entry in the family sedan market. That's nothing unusual. What's surprising is that instead of traveling hundreds of miles to be delivered, the finished components are sent next door, to a freshly renovated Ford assembly plant, where they're installed in vehicles rolling down the assembly line.
This neighborly arrangement is part of a quiet revolution in auto manufacturing. Tower is just one of a dozen major auto-parts companies that have set up shop a stone's throw from Ford's recently upgraded 80-year-old facility. These suppliers provide nearly two-thirds of the inventory Ford needs for its new sedan, as well as for the Ford Freestyle sport wagon and the Mercury Montego sedan -- all on a "just-in-time" basis.
Borrowing techniques pioneered at low-cost South American auto plants, Ford's $250-million, 155-acre supplier park, which began making car parts last month, is the nation's largest such operation. The sprawling park not only feeds one of Ford's first highly flexible North American factories but also promises cost savings and quality improvements that are critical to Ford's future. "This is their crown jewel," says David E. Cole, chairman of the Center for Automotive Research (CAR) in Ann Arbor, Mich. "It's where they're going in manufacturing."
For Ford, having its biggest suppliers spend their own scarce capital to set up shop right next door is clearly a coup. Since the park got into gear, the average component needs to travel only half a mile, as opposed to 450 in the past. The transport savings alone -- a 10-minute jaunt vs. more than a day's drive -- could add up to as much as $15 million annually for Ford. The company will save additional millions by keeping smaller inventories: just eight hours' worth, instead of a one- or two-day supply.
And with a shorter pipeline, quality problems with parts can be caught and fixed quickly. The Chicago suppliers, such as London, Ont., TDS Automotive, say Ford engineers often pop over to lend a hand, while their own workers spend plenty of time at the assembly plant. Nipping glitches in the bud can save a bundle by reducing recalls and repairs and warranty costs. Having a dozen key suppliers "within shouting distance," says Tony Brown, Ford's vice-president of global purchasing, is "a giant step in the quest for cost-effective quality."
For suppliers, however, Ford's new world order could be "a double-edged sword," says Michael Robinet, global vehicle forecaster at auto consultant CSM Worldwide in Novi, Mich. True, they get a lock on a big chunk of Ford's business. But in return, suppliers are carrying more of the fixed costs because they must invest in a shop that's dedicated to a single Ford plant. They also shoulder heavier development and engineering burdens as they are asked to design and build ever more complex chunks of the vehicle. And the more the suppliers invest, the more their profits are bound to the success or failure of Ford's vehicles. Says Robinet: "You've put your neck on the line for a particular [car] program."
There's also an open question of whether suppliers gain or lose leverage when it comes to fighting back against the carmaker's incessant demands for price cutting. The fact that the components makers put lots of their own money on the line gives them added clout. But because the auto maker knows they can't easily pull up stakes, they can still end up with the short end of the stick. "If you build a factory next door, and something comes unglued in the relationship, who's left holding the bag?" asks CAR's Cole. "The supplier."
Clustering suppliers near a car-assembly plant isn't novel, but Ford's Chicago campus sets a new standard for its U.S. operations. The low-cost benchmark in this industry are Brazilian "modular" plants run by Ford, General Motors (GM ), DaimlerChrysler (DCX ), and Volkswagen. In Brazil, suppliers take an even larger role than in Chicago: They send in entire built-up modules -- whole sub-systems of cars such as fully-assembled chassis, finished interiors, and ready-for-the-road exterior trims. These are bolted and welded together to make finished vehicles, like toy models being snapped together.
But the concept of modular manufacturing hasn't been as popular in the U.S. Six years ago, when GM considered converting several U.S. plants to the modular model, eliminating hundreds of union assembly positions and replacing them with lower-wage, nonunion parts jobs, it sparked an American labor backlash. Eventually, GM did quietly adopt a form of modular manufacturing by building a lean, highly flexible plant in Lansing, Mich., that employs some 1,300 union workers to build Cadillacs.
In Chicago, Ford took a slightly different approach. First, although the carmaker uses some prebuilt modules, it still does plenty of its own assembly work on the line. And Ford soothed union concerns about the supplier park by promising that no assembly jobs would be eliminated. In fact, Ford has hired an additional 400 workers for a total of 2,600 assembly jobs. The carmaker also agreed to urge on-site suppliers to use union labor: Many of the 1,400 hourly parts jobs created there are unionized.
Even so, the $22-an-hour jobs on the assembly line next door could lure away the best workers, after suppliers hire and train them. After all, such parts jobs typically pay only $15 to $16 per hour. "The hidden danger," says CAR's Cole, "is that the supplier could end up being a farm team to the [manufacturer]." So far, with suppliers "hiring like crazy" at the Chicago campus, "that hasn't been a problem," says Lou Salvatore, head of supplier Lear Corp.'s (LEA ) Ford operations.
Companies who have joined Ford's park are happy with the arrangement, especially when the logistics make sense. For instance, in the past, Lear supplied seats to the Chicago plant for Ford's now discontinued Taurus from a nearby factory in Hammond, Ind. But the Taurus' so-called headliners -- the fabric, padding, wiring, lighting, and visors that make up the Taurus' overhead interior -- were trucked 350 miles from a Lear shop in Port Huron, Mich. To supply the new operation, Lear's conveniently located seat plant stayed put, but its headliner operation moved to the Ford campus. Says Salvatore: "It's hard to put a dollar figure on [the value of] being close to your customer."
For the parts makers, the arithmetic of that equation probably can't be calculated fully for a few years yet. But for Ford, the cost savings in Chicago should start to pay off later this month when it ships the first Five Hundreds to dealers.
By Kathleen Kerwin in Detroit