Creating a Sustainable Supply Chain: A Developmental Approach

Within our global supply base, we have long-term, strategic relationships with a select number of suppliers. Relationships with these suppliers are structured through the Aligned Business Framework, which is designed to create a sustainable business model to increase mutual profitability, improve quality and drive innovation.

The bilateral ABF agreements comprehensively and formally spell out 20 key business commitments to which Ford and the ABF suppliers must adhere. One element of the ABF agreement is the commitment by suppliers to manage and assure proper working conditions, including responsible environmental management, in their facilities and in their supply chain. (ABF suppliers must also adhere to our Global Terms and Conditions.) This commitment is important for several reasons. Beyond the simple fact that it is the right thing to do, there are specific business benefits to Ford and suppliers in reducing the risk of operational or reputational issues that could affect production. The commitment also provides an opportunity for joint action by Ford and its suppliers to ensure responsible behavior throughout the automotive supply chain.

Ford is facilitating this ABF commitment through a three-phase developmental process, in which ABF suppliers are asked to:

1. Develop or verify that they have a code of conduct aligned with Ford’s Code of Basic Working Conditions and internationally accepted principles
2. Conduct internal training and develop compliance processes supporting their code
3. Extend these expectations to their sub-tier suppliers

Ford has committed to providing suppliers with a range of support and assistance based on our experience in this area. We have developed in-depth resource guides and coordinated presentations by subject matter experts to give suppliers information and background on human rights and greenhouse gas emissions estimation. We have provided tools such as worksheets for emissions tracking and reporting and code of conduct development. We are sharing the training materials we have developed, as well as information and guidance on our compliance and training processes. Finally, we have committed to working with suppliers to help resolve issues and concerns.

The Ford Supply Chain Sustainability staff have implemented a robust process of review at each of the three phases or milestones, thus ensuring that suppliers meet our expectations. We are making good progress in this developmental work with our ABF suppliers. Twenty percent of our strategic suppliers have met all three Ford milestones – that is, they have codes of conduct in place that are aligned with international standards and supported by robust management systems governing their own operations and their supply chain. The intent is for our ABF suppliers to wholly own responsibility for sustainability in their supply chain. As of 2011, ABF suppliers still participate in the factory-level Working Conditions Program if requested by Ford, but over time, we expect the need for their participation to decline.

Through our work with ABF suppliers to date, we have found key success factors that have enabled companies to make notable progress, including: (1) the identification of executive decision makers to coordinate cross-functional efforts; (2) the support of executive management and/or the Board of Directors; and (3) facilitation by Ford of discussions and implementation support through individual or regional in-person meetings. In general, companies that have been able to make progress in aligning with these ABF expectations have been those that have not been in significant financial distress and may already have aligned values, but had not necessarily institutionalized those values through policies and programs. Many of these companies approach responsible working conditions and environmental management in a systemic manner with implementation and supporting management systems in mind. The extension of working conditions and environmental expectations to the ABF companies’ own supply base has proven to be the biggest challenge, given resource constraints and general lack of expertise and knowledge of the issues. The creation of tools and guidance by workgroups at the AIAG and the United Nations Global Compact have been useful to our ABF suppliers in their development of sustainable supply chain systems.

During the fourth quarter of 2010, we held our annual ABF sustainability meeting in Dearborn, Michigan. It was attended by senior management from Ford and our ABF suppliers. The meeting included a workshop on sustainable supply chains and updates on sustainability management initiatives (including supply chain working conditions, conflict minerals and greenhouse gas management) that are in progress by Ford and at the industry level.

Through the ABF, Ford is making strides in improving its working relationships with suppliers on a global basis. We are particularly excited about our sustainability work with our ABF suppliers, as it leverages our efforts to manage human rights and environmental responsibility issues in our supply chain in a more collaborative, in-depth, integrated and aligned manner. In our view, it will help embed ownership for social and environmental issues throughout our value chain, and lead to the development of more robust sustainable management systems across the automotive supply chain.