IT marks road to profit for Ford

Effective use of IT is the key if the automotive industry wants to make higher profits at a time of falling car prices, says Ford Britain chairman Ian McAllister.

Speaking before he addressed last week’s Microsoft Digital Britain Summit, McAllister claimed web-based data links are creating a new relationship between manufacturers and their suppliers – whether each side likes it or not.

‘There is a new attitude which says manufacturers and component suppliers have both got a problem,’ said McAllister. ‘Consumers aren’t going to pay more, so if we both want to make more money we’ve got to find a way of taking costs out of the system. The enabler of that is IT.’

According to McAllister, e-business is the only effective way to build the longer-term, more transparent relationships Ford wants with its supply chain.

But the Ford Britain boss admitted the idea of suppliers as long-term partners had not come easily to the automotive sector. McAllister said playing two or three suppliers off against each other to drive down cost was the norm until the mid-1990s, but had been replaced by a more constructive approach.

‘Rather than this confrontational relationship where your margin becomes my profit if I can persuade you to give some of it up, the issue is: how do we jointly change this design to achieve manufacturing cost savings?’

He denied that web technologies will merely give manufacturers like Ford the ability to drive down prices across a wider choice of suppliers. Instead, McAllister said the flow of information would benefit everyone.

‘We will say to the component suppliers ‘give us your ideas’. Let us define what outcome we want, and you tell us the best and cheapest way of getting there.’

McAllister said fears that Covisint – the automotive industry portal launched by some of the world’s biggest manufacturers – would crack under the strain of asking deadly commercial rivals to co-operate were groundless.

He claimed suppliers of the many components common to vehicles from all manufacturers would use Covisint to assess the industry-wide demand for their products.

‘Imagine we want a particular component, and a manufacturer is already building half a million of them for Opel.

‘Via Covisint, they could offer us another half a million and bring the cost down by 10%, because they have now got a production run of a million. That’s where the savings will come, said McAllister.’

‘Because the component manufacturer knows what volume is required, they can put in a bid that provides value to them and value to us,’ he added. ‘That knowledge is key, because it allows them to invest to meet demand which they can beconfident is really there.’

The Ford boss admitted creating the infrastructure for this level of information sharing is far from easy.

‘There are some very big issues, for example linking your new portals with your legacy systems. A tremendous amount of effort has to go into that, but we are doing it in record time.

Ford already has 3,000 suppliers linked to its online systems, with 30,000 registered users. As it increasingly outsources functions such as engineering design, McAllister said any company wishing to do significant levels of business with Ford would have to embrace the new ways of working. Ignoring the online revolution is not an option.

‘We need to make sure the data links between Ford and its suppliers are solid and effective. We are doing that, and suppliers are seeing the opportunities it opens up. That’s how we will be doing business from now on.’

McAllister urged Labour to use its second term to boost the level of IT skills in the general workforce. ‘When people come to work for us it helps if IT isn’t a foreign language to them. Government can create the environment in which basic IT skills are seen as important, and to be fair I think they are doing that.’

McAllister joined other senior figures from the IT, manufacturing, retail and public sectors at Microsoft Digital Britain to talk about the role of digital technologies in the modern economy.