Working with Suppliers

We have been working hard to strengthen our global supply base. We have instituted a number of business practices with our key suppliers that are designed to increase collaboration, provide for data transparency and expand the volume of business with select suppliers, while building a more sustainable business model.

We continue to work to strengthen our supply base in the U.S., which represents 80 percent of our North American purchases. As part of this process, we have been reducing the total number of production suppliers eligible for major global sourcing. In 2004 we had about 3,300 suppliers, while as of year-end 2010 we had more than 1,400. We have identified about 850 of these as long-term suppliers eligible for new major sourcing, which moves us toward our goal of 750 suppliers. We are also expanding our Aligned Business Framework (ABF) supplier program. In 2010 and early 2011, we had 75 production and 27 non-production ABF suppliers from around the world. We believe that our efforts at consolidation will result in more business for our major suppliers, which is increasingly important with the decline in industry sales volume.

As we move aggressively to global vehicle platforms, our sourcing from common suppliers for the total global volume of a vehicle’s components is dramatically increasing. As a result, a smaller number of suppliers are receiving a greater volume of the purchases we make to support our global vehicle platforms. Ford has been working with its supply base to encourage global growth. For some suppliers, this means expanding to become global or entering into licensing agreements or joint ventures to extend their reach. It also means that a smaller number of suppliers will receive a greater volume of the purchases made by Ford. This again results in stronger suppliers achieving (and Ford realizing) greater economies of scale, as components are sourced across global platforms for the life of those platforms.

We are also “pre-sourcing” many parts to our ABF suppliers to help them plan and invest for long-term production volumes. For example, instead of asking for multiple bids from suppliers on components (a practice known as market-testing), Ford is pre-sourcing a greater percent of the commodities for the new Ford Focus with its preferred suppliers, consistent with ABF principles. Pre-sourcing saves time and money for Ford and its suppliers and drives longer-term relationships between Ford and the suppliers who typically provide 65 to 70 percent of vehicle components. Pre-sourcing helps provide suppliers with an ongoing flow of business, which gives them assurance to invest in new facilities around the world to support Ford globally.

In our U.S. operations, we have paid specific attention to strengthening our minority- and women-owned suppliers with purchases of approximately $3.8 billion in goods and services in 2010. Our consolidation efforts have resulted, and will continue to result, in more business for our major suppliers, which will increase their financial strength.

We require all of our suppliers to ensure that our products – no matter where they are made – are manufactured under conditions that demonstrate respect for the people who make them. We expect our suppliers to fully comply with local laws and our Code of Basic Working Conditions, and we verify that compliance with third-party audits. More importantly, we want to ensure that suppliers have the management systems in place to ensure continued compliance over time. A primary focus for this has been on training and education in the interpretation and application of legal standards and international best practices for working conditions in the supply chain. As of the end of 2010, we had trained 318,593 workers and managers at Tier 1 suppliers. Those suppliers have in turn cascaded this training to 56,284 Tier 2 suppliers.

See our new Supply Chain section for more on our work with suppliers.