Ford plans to have 40% less suppliers to reduce the cost of making cars

Article by Christian A., on October 23, 2013

Ford Motor Co., which buys around $100 billion worth of parts each year, is planning to have 40% less suppliers to reduce the cost of making its cars and trucks. According to Hau Thai-Tang (who was named the group vice president of global purchasing in August), Ford has the long-term goal of lowering its number of suppliers from 1,260 in 2012 to around 750 suppliers.

Ford is cutting down the number of platforms that function as the base of its vehicles, lowering development costs and giving the automaker the capability of sourcing from fewer suppliers. At a briefing in Dearborn, Michigan (Ford’s headquarters) last Monday, Thai-Tang told reporters that the company realizes that there are many ways to accomplish this and that it will enable them to “get the best ideas from the most innovative suppliers.”

On the first full year that CEO Alan Mulally has been with the company, he was able to make Ford more profitable by reducing the number of its vehicle platforms from 27 in 2007 to 14 currently. Thai-Tang said that Ford's lineup will go down even further to nine platforms by 2017. Profit margins have been boosted due to savings from consolidating its platforms.

As a result, the company was able to offer more new and refreshed cars and trucks. From 2009 through 2012, Ford posted earnings of $35.2 billion. But during the three years before this period, Ford reported a loss of $30.1 billion.

Thai-Tang said that about 80% of its parts come from its top 100 suppliers while about 60% are from its 65 largest parts makers. He added that the company is seeking a long-term strategic partnership with key suppliers. By doing so, it will mean better business results for both parties. He said that there’s a limited consolidation of the supply base through mergers and acquisitions. [source: BusinessWeek]

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