Yesterday, Kevin wrote about Jim Womack’s latest piece in the Wall Street Journal, including his statement that General Motors and Ford are "clueless" when it comes to managing their supplier relationships. If I have any criticism of Womack in this instance, it is that he describes the purchasing philosophies of the big auto makers in such benevolent terms. "Clueless" is such a nice term – moronic, insane, stupid, idiotic and asinine have such better rings to them, and they are far more accurate.
The history of the Ford – Firestone relationship is very informative – instructive of both how supplier relationships can and should work, and how they actually work. Of course, it is extreme, but the extreme case best illustrates the point. Harvey Firestone first sold tires to Henry Ford in 1896 – before the modern Ford Motor Company was formed. He formed the Firestone Company in 1900 in Akron, Ohio, and sold tires to Ford for his first cars when the Ford Motor Company was formed in 1903. From then on, Ford bought at least half of their tires from Firestone, even when Ford was making tires for itself at the River Rouge plant. Ford was unwilling to be completely dependent on anyone – even themselves. Firestone understood and respected that decision.
Ford and Firestone both bought land in the southern U.S., and in Brazil, conducting experiments in rubber production, but willingly sharing the knowledge gained with each other. There was no one in this world Henry Ford trusted and respected more than Harvey Firestone, except Thomas Edison; and Firestone felt the same about Ford. Both companies prospered for many years as a result of the completely open, mutually supportive, respectful relationship the two men and their companies had for each other.
It went even deeper than that. Time Magazine reported: "June 30, 1947 Married. William Clay Ford, 22, and Martha Firestone, 21, grandchildren of the late great cronies Motormaker Henry Ford and Tiremaker Harvey Firestone; in Akron"
Time further reported ten years later: "May. 13, 1957 Born. To William Clay Ford, 32, Ford Motor Co. vice president, grandson of the founder, and Martha Firestone Ford, 31, granddaughter of Tiremaker Harvey Firestone: a first son, third child; in Detroit. Name: William Clay Jr. Weight: 7 lbs. 7 oz."
Yup – that’s Bill Ford, of "Way Forward" fame. His parents are the grandchildren of Henry and Harvey.
In 2000, Bill Ford was Chairman of The Ford Motor Company, and the CEO was Jacques Nasser. Firestone had been swallowed up by Bridgestone [the original post incorrectly identified Firestone as a part of Goodyear. See Ken S. comment below] – a Japanese outfit. The head of Firestone was a guy by the name of John Lampe. Neither Nasser nor Lampe could have cared less about 104 years of history between the companies. The words on the companies and products were not family names to them – they were ‘brands’. "Loyalty", "honor", "long term" and "integrity" did not mean a thing to them – those are not part of the business school curriculum. These guys were serious, professional managers – the kinds of guys Henry Ford and Harvey Firestone would not have hired on as clerks, let alone allowed their kids marry. But they were in charge.
Firestone made some lousy tires, Ford put them on their SUVs, and people died as a result. Ford knew that the SUVs had problems, but they sold them anyway, and more people died. Finally, the cat was out of the bag, and Firestone had to own up to the fact that they had made defective tires. Ford knew that there were SUV problems beyond the tires, but they tried to put all the blame on Firestone and recalled millions of Firestone tires that didn’t really need to be recalled. Firestone got wind of Ford’s plan before it could be announced, and publicly trashed Ford, stating that they would no longer sell to Ford. Ford publicly announced that this was fine with them because they would no longer buy from Firestone. The whole thing wallowed around the courts for a while. Both companies lost millions in settlements. Nasser got fired from Ford; Lampe ‘retired’ from Firestone a few years later with the company still losing money over the whole fiasco.
The saddest part of the whole mess (other than the folks who died in Ford SUV’s with Firestone tires, of course) is how it all played out. The motives behind the two companies’ decisions had nothing to do with the customers, the right thing to do, or with the long range health of either company. They were driven by public relations people and lawyers. Wall Street had a field day. The companies engaged in dueling press releases, carefully wordsmithed by their publicity and legal departments, trying to ‘one up’ each other. Their stock values rose and fell weekly on the latest announcements.
Henry Ford and Harvey Firestone may well have had a falling out over it had something similar happened in their day. The difference is that Harvey Firestone would have caught the first train to Detroit when he heard the news and they would have dealt face to face, owner to owner, man to man. Both men would have been fiercely driven by the long term value of the family name. Both would have immediately accepted responsibility for their company’s decisions. Both would have been ready to believe that the other side made mistakes, and would have been willing to forgive those mistakes.
But people whose names are on the product think differently from hired MBAs with bonuses tied to current market caps. The professional managers in Detroit are the pioneers of ‘reverse auctions’ on line, where they can pit suppliers from all over the world in bidding wars against each other in order to save pennies on a purchase order. Suppliers are not living organizations – they are sets of numbers.
The fundamental problem with Detroit style purchasing – and Detroit hardly has a monopoly on it – is that each side thinks they are clever enough to avoid the fundamental economic principle of risk and return. The buyer demands that the supplier invest in tooling and equipment, hire people, invest in inventory – in effect – put an enormous amount of capital at risk, then tries to squeeze that supplier to accept the least possible return on that investment. That customer wants to make little or no investment of their own, demanding JIT delivery terms and no long term promises, but expects to reap a profit from manufacturing. In the long term, that cannot work, even if a supplier is ignorant enough or desperate enough to take the deal.
Conversely, suppliers are out there telling their customers that they must have long lead times and short payment terms with a one year minimum contract. In effect, they are saying that they are unwilling to invest a dime in the supply chain until their customer guarantees their return. Then that supplier wonders why the customer feels no loyalty to them, and readily dumps them for a lower cost source.
As the Supply Chain VP for a major consumer products company, I saw the middle of this foolish game up close. We shipped to Kmart and others, who demanded shipment within 5 days, but paid in 90 days. In effect, they did not want any of their cash invested and at risk in the supply chain. At the same time, I dealt with suppliers who demanded 45 day delivery lead times and 30 day payment terms. In effect, they wanted us to bankroll their business. The combined pressure was for us to finance the entire supply chain, with no one’s money on the line but ours.
The net result of that supply chain was that all players – customers, us and our suppliers – viewed each other as the enemy – the competition. We devoted enormous time and mental energy at trying to skim a few cents from each other. We spent a lot of time looking for other suppliers and other customers. Nobody in the chain saw it as a cooperative effort to satisfy the end customer, with each of us entitled to reap a reward commensurate with our investment and risk in the supply chain. We took the end customers for granted, and saw getting the upper hand on each other as the key to becoming more profitable.
That was ten years ago. Kmart is gasping to survive. The company I worked for is now located in Taiwan. The suppliers are all either gone or dying. And we wonder why American manufacturing is in so much trouble.
The big manufacturers have made battering the supply chain an art form. They have used ‘lean manufacturing’ as an excuse to implement "JIT’ and force their suppliers to carry all of the inventory. They have used the Internet as a vehicle to put the supply chain under the same old pressure, but ratcheted up several notches. They are notoriously slow at paying their bills. And all for what?
The Ford/Firestone story is it in a microcosm for automotive supplier customer relationships. They bludgeoned each other to death. Ford is a junk bond investment. Firestone is a money losing arm of a Japanese company. The automotive supply chain is lined up at bankruptcy court. And the number one strategy for every automotive supplier, including their sister companies Delphi and Visteon? Find another customer.
The days when men of integrity cut mutually beneficial deals, investing family fortunes and family reputations on the strength of the other man’s word are tragically, long behind us. Supplier management is becoming a legal function. The Ford/Firestone debacle was not Bill Ford’s fault, in fact the courts put most of the responsibility on Firestone. But Henry and Harvey would not be proud of what happened between their companies on their great grandson’s watch.