The Japanese word is keiretsu, a small group of companies whose business mission is to serve a larger company. Keiretsu auto suppliers came to the U.S. with the Mazdas, Toyotas and Hondas, setting up shop near their plants, providing quality parts those companies knew they could trust.
Now, Ford Motor Co. is adopting a similar scheme. It’s selecting a limited number of big suppliers to move into new international markets with them, help design major portions of new cars and share warranty costs in exchange for a guaranteed long-term relationship. At the same time, it is continuing to cut the number of suppliers it deals with directly in favor of having a few big suppliers coordinate the work of smaller suppliers.
The goal: Outrace the rising costs of developing, building, selling and repairing cars. Consumers want more safety and convenience features such as anti-lock brakes and compact disc players but balk at paying much more for them.
Determined to save money throughout the supply chain, Ford has all but ended its longtime practice of awarding contracts to the low bidder.
The new risks and rewards for suppliers are considerable. The chosen few must have the financial stability and the willingness to invest where Ford goes. “You only do that with people where you have a very fluid, harmonious relationship,” said Carlos Mazzorin, recently named vice president of production purchasing in Ford Automotive Operations. “You’ve got to like them.”
The way Japanese keiretsu operate? “Exactly,” Mazzorin said.
Even before the merger of Ford’s North American and European auto businesses was announced in April, Mazzorin said, the trend toward fewer suppliers was well established.
Ford spends about $30 billion a year on commodities and parts for its North American auto business. It has about 800 direct suppliers, 150 of whom get 90 percent of the dollars. In the next two years, it will pare that to about 625. Five years ago, Ford had 1,200 direct suppliers.
When the merger is completed, Ford’s combined purchasing budget will be about $50 billion. About 180 suppliers on both sides of the Atlantic will control 25 to 30 percent of that money.
Mazzorin doesn’t know how many direct suppliers the merged organization will have, but he suggests it could be fewer than the 1,200 that sold only to Ford’s North American Automotive Operations in 1989-’90.
“As car companies become more global, it is incumbent on us to serve them where they are,” said Sam Licavoli, president of A.O. Smith Automotive Products Co. in Farmington Hills, Mich. “We either have to be there or have alliances with other companies.”
A.O. Smith, which makes frames and other structural components, is working on a rear suspension module for another automaker, overseeing the work of 35 other suppliers selected by the automaker. Licavoli said an auto company’s lead supplier might even choose the other suppliers.
3M Automotive, which sells structural adhesives, has merged its Ford departments in the U.S., Europe and Australia. It expects to be able to sell wares to Ford’s advanced manufacturing engineering staff that can be applied across Ford’s five new vehicle centers, which oversee development by a vehicle’s size and use.
Many of the suppliers that lost Ford contracts have gone out of business. Others have merged with competitors and sell to suppliers that still sell to Ford.
Trimming the supplier ranks has led to other savings. Ford now uses only one supplier of a commodity, such as tires, per model.
In the last two years, Ford has tended to award contracts for entire systems, such as a seat, instead of buying tracks, recliners, foam and covers to make one.
The next step will be to have one system supplier coordinate other suppliers on the same car. For instance, the seat supplier might be given responsibility for the interior of a car.
