Ford Motor Company: Aligned Business Framework

Case One:

Ford Motor Company: Aligned Business Framework

Team: Rock Stars

Major Facts- What facts could be causing the issue or issues?

Competitors in the automotive industry face high stages of competition. Consumers can select from an assortment of brands so they have a great deal of control with their selection. In 2005, Ford was entering one of the most serious stage on its 100-year history. Ford had recently recorded a $1.1 billion operating loss in their most recent quarter and the company’s debt had been recently downgraded to junk-bond status. Although they were the United States’ number 2 automaker, they were also ranked second to last in a North American survey with a score of 157/500 versus top ranked Toyota at 415 and Honda at 375.

The Ford global supply chain included approximately 2,500 production and 9,000 nonproduction suppliers, with operations in more than 60 countries, supporting 107 Ford manufacturing sites. The importance of the company’s supply chain is vibrant from how much it devotes on suppliers which on production parts alone accounted for $70 billion of total annual purchases. The traditional method by Ford was to request for annual across-the-board price reductions that averaged approximately 3 percent. The initiative Aligned Business Framework (ABF) was taken up that sought to target company wide cost reductions of 10 percent of Ford’s annual spend of production parts by 2010 which is $7 billion per year by adopting what they considered best practices approach to supply chain management and supplier partnerships. It also sought to rationalize the number of suppliers from 2500 to 1000. The remaining preferred suppliers would be matched up with Ford purchasing and engineering managers to work on projects to achieve quality, cost, and delivery goals. They would also be given long term contracts, more business and access to Ford’s forecast volumes and product plans. In return, suppliers must commit to share their financial data, technological innovations, and assure proper working conditions in their facilities.

Major Problem – what is key issue to be analyzed?

 To remain competitive Ford must grow and employ not only their central abilities, but also their supply chains as suppliers can greatly impact production and the business profit. If the company was to survive it needed a massive turnaround. Ford Motor Company, was preparing to launch the company’s new supply chain policy – “Aligned Business Framework” (ABF). ABF was a daring step that would meaningfully change in the relationships between Ford and its suppliers. However, after years of confrontational relationships with its suppliers, they faced a challenge of how to convince suppliers to accept their new strategy. How would ford proceed with implementation of Aligned Business Framework? How would they build trust with their suppliers and address their concerns regarding the new relationship between Ford and its suppliers?