Stringent Criteria for Suppliers Guarantee QualityMon, 09/01/2014 - 09:26
Q: How do you view the role of Ford and other OEMs in helping Mexico transition from low-cost manufacturing to an engineering and design hub?
A: Ford is betting hard on this process. Five years ago, we had 120 engineers in Mexico. Today, that number stands at 900 and we have plans to raise it to 1,200. Engineering is one of the most important elements of the automotive business. Someone can always produce a part but no country designs a complete vehicle, outside the US, Japan, South Korea, and Germany. Ford took the initiative to bring engineering to Mexico, and our key suppliers are following suit as they need engineers where the car is designed. From a purchasing perspective, we have jumped from US$500 million of purchases here to just under US$10 billion in 2013. Mexico supplies 36 of Ford’s manufacturing plants, and there are very few Ford products without a Mexican component. Mexico is Ford’s second-largest purchasing base, representing 13-14% of our global purchases.
Q: American-made cars have a well-established reputation among customers. Are there any risks associated with cars being designed and assembled in Mexico?
A: There is no downside. A key driver of the automotive industry is how fast a new product can be launched in the market, and the only way to do this is to have a robust engineering force globally. Besides its engineering capability in Mexico, Ford has that same capability in the US, Europe, and Brazil, and will soon have it in China too. In the past, launching a new product took four to five years. Now, we are looking to launch new products each year and Ford has the newest portfolio of the entire industry. In 2013, we changed almost 60% of our products. In 2014, we will change about 40-45%. The only way to do this is to have an engineering force with global rules.
Q: What is Ford’s approach to developing its direct suppliers?
A: One might think Ford would teach its suppliers but this process also takes place the other way around. Ford has a global plan for supplier development, the Q1, which reinforces manufacturing and design processes. Our supplier technical assistant area (STA) works with the suppliers to develop these necessary skills. We are not trying to expand our supply base, but we are developing our Tier 2 and 3 suppliers in order to create a valuable local supply chain. It makes no sense to have a global supplier in Mexico that has to import all of its raw materials from China or Russia.
Q: How would you categorize the capabilities of Mexican Tier 2 and 3 suppliers?
A: It depends who they are compared to. They are clearly superior to Chinese suppliers but need to refine their technical skills, when compared to German counterparts. Mexico focused on the manufacturing element for so long that it became very good at labor intensive manufacturing processes, but forgot about the creative element of engineering. We are advising our suppliers to reinvest a strong part of their revenue in R&D. Companies that do not do this will not be successful in the long-term or will only be used as maquiladoras by other firms. Their strategy has to be clear. Many companies can be miserable as a Tier 1 supplier but become successful and profitable at the Tier 2 level. Mexico has a cultural element of wanting to be good at everything. A supplier could have injection molding in one room, stamping in the next, and a painting room in construction. Ford tries to coach them to think long-term.
Q: To which extent is quality control your responsibility or that of the suppliers?
A: Quality at the Tier 1 level is my responsibility. STA is responsible for verifying the quality of the parts as well as the volume, rate, and mix. Beyond that, we have a segment which supervises Tier 2 suppliers. We do this by going with the Tier 1 companies to visit their Tier 2 suppliers to perform quality control checks. Our suppliers must undergo constant training if they want to become a Q1 supplier, and they understand the importance of becoming Q1 to be able to work on the initial stage of our next generation of products. Q1 suppliers must also meet all of our environmental standards, such as our clear rules and targets for reusable materials. We are producing cars with the best fuel economy and lowest emissions possible. Our supply base has to be in line with that, the design has to be green from the beginning and it is part of how we evaluate if a company is a good fit for us. At this moment, around 68% of our supply base is Q1 which means they meet all of our standards