The room looked like it belonged at some NASA facility. The walls were covered with computer printouts, each one a dark mass of data. Every few minutes, someone would enter the room with a new bundle and begin replacing old charts with new ones. When they did, men and women stood before them, eyeing the numbers nervously, pointing here and there with pens and shaking their heads. But this wasn't Houston or Cape Canaveral. It was Conference Room 3B007 in Ford Motor Co.'s redbrick Product Development Center — the secret headquarters of Project Quark.
By the fall of 2008, the Detroit Three weren't the only ones struggling to stay in business. Most of their suppliers were also on the brink of bankruptcy. Several had already crossed it. And the failure of either General Motors Co. or Chrysler Corp. would push many of the rest over the edge. Without parts, nothing else Ford did would matter. Its factories would wheeze to a halt, and even Ford Chief Executive Alan Mulally would be unable to jump-start them.
To make sure that didn't happen, Ford Vice President of Global Purchasing Tony Brown proposed setting up a cross-functional team to monitor parts manufacturers, prevent supply chain disruptions, and accelerate Ford's effort to shrink its supply base. He code-named the effort "Project Quark" after the family dog in the movie "Honey, I Shrunk the Kids."
Mr. Mulally didn't get the reference, but he got the point. The team would include representatives from all of Ford's business units and all of its departments. Human resources would be there in case Ford needed to assign some of its own employees to help a supplier sort out its problems. Treasury would be on hand to authorize loans or other financial aid. Information Technology would manage the computer system the team would use to monitor Ford's business partners.... And legal would be there to make sure everybody played by the rules.
It would be a perfect example of Mr. Mulally's matrix organization in action. That system divided the company neatly into business units and functional areas with clear leaders at each level of responsibility.
"Let's do it," Mr. Mulally told Mr. Brown. "I want regular reports every Thursday."
Ford was now three years into Mr. Brown's supplier consolidation campaign. Since the end of 2005, the company had been working its way down its long list of suppliers, deciding which ones to keep and which ones to let go. Now that effort shifted into high gear.
The walls were soon covered with printouts listing each company, its financial condition, the plants it supported, the specific parts it provided, and all of its other customers.
The team created a risk profile for each supplier, based primarily on how much of its business was with Chrysler or GM and how much was with Ford's stronger foreign competitors. Priority was given to those companies that were heavily dependent on work from Chrysler because it was seen as the most likely to fail first. Ford tried to end its relationship with these suppliers as quickly as possible. But Ford also weighed the complexity of the products each company provided. It was relatively easy to find another company to make plastic trim; it was a lot more difficult to find another supplier for exhaust systems.
Similar rooms were set up at Ford's regional headquarters in Europe and Asia, each reporting back to the main team in Dearborn, Mich. Together, they pared the list down to 850 suppliers that Ford wanted to keep. Making sure these companies survived the current crisis became Project Quark's top priority. But that didn't mean Ford could simply sever its ties with the rest.
Switching automotive suppliers wasn't like switching paper vendors. The components these companies provided were often highly engineered and involved proprietary technology. Extricating Ford from these relationships required a carefully coordinated strategy. If the company in question was in relatively good shape, Ford might simply continue with them until the vehicle they provided parts for was due to be replaced or refreshed, then switch to another manufacturer.
All of this work had to be conducted in the utmost secrecy. If a bank learned that Ford was planning to ditch a particular supplier, it might call that company's loans. Other auto makers might take their own business elsewhere. Or the supplier might retaliate by withholding parts before Ford was ready to make the jump to its competitor.
The real heavy lifting came when a supplier ran out of cash. If the company in question was already marked for elimination, Ford would usually try to shift its work to another manufacturer and let that supplier go bankrupt. If Ford could not — or if the company was one that Ford had committed to for the long haul — the Project Quark team had to figure out a way to keep it afloat. Sometimes things got ugly.... In a few cases, Ford was forced to make "hostage payments" to suppliers that, as a last desperate gamble, refused to ship Ford's parts unless they received cash.
The Project Quark team met every day, often gathering before 7 a.m. and working late into the night. The situation was so fluid that they briefed Mr. Brown two or three times a day. They were constantly war-gaming a series of scenarios, updating them throughout the crisis as the situation evolved and new data became available. These included the collapse of Chrysler, the failure of GM, and a decision by Toyota Motor Corp. or Honda Motor Co. to close one or more of their U.S. factories.... Mr. Brown's team tried to predict how each scenario would impact each of Ford's suppliers and recommended specific actions that would be necessary to support those deemed worthy of saving.
From the beginning, Mr. Brown knew that Ford could not prop up the global automotive supply base on its own. He reached out to other manufacturers for help. GM refused. It claimed that what Ford was proposing violated U.S. antitrust laws. GM was also a lot more concerned about saving itself. Chrysler was more receptive, but it was losing people so fast that Ford had a hard time even knowing whom to talk to in Auburn Hills. But the American auto makers weren't the only ones who were worried, and Ford soon found some unlikely allies on the other side of the Pacific.
Thanks to globalization, all of the world's auto makers had become mutually dependent on a complex web of suppliers that fed one another across oceans and national boundaries. Ford bought parts from members of Toyota's keiretsu partners, and those suppliers bought components from American parts manufacturers like Delphi Corp., which also supplied Toyota's plants in the United States. By late 2008 that web was in danger of collapsing, and everyone in the industry knew it. The fear was as palpable in Tokyo and Nagoya as it was in Dearborn and Detroit.
Both Toyota and Honda were just as concerned....as Ford about the impact that the failure of GM or Chrysler could have on their suppliers, as well as about the growing number of parts producers who were already in trouble.. When they heard about Ford's effort to support its suppliers, they wanted in. So Mr. Brown forged a tripartite alliance with Ford's archrivals to prevent a cascading collapse of the entire automobile industry. All three companies agreed to coordinate their efforts to support the suppliers that were critical to each of them. In many cases, they agreed to share the cost of keeping a particular supplier in business.
At times it got down to real horse-trading. Ford might agree to keep doing business with a parts manufacturer that was vital to Toyota in exchange for Toyota maintaining its relationship with a supplier that was critical to Ford. All of these deals had to be carefully vetted by Ford's antitrust attorneys.
Ford, Toyota, and Honda even sent a letter to the U.S. Treasury Department explaining how interconnected the automotive supply base was and urging the federal government to take concrete steps to protect it. They persuaded Nissan Motor Co. to sign it, too. A year earlier, this would have been unthinkable. These companies had been trying to kill one another for the better part of forty years. Industry veterans like [Executive Chairman] Bill Ford had a hard time stomaching it, but Mr. Mulally was thrilled: It was his working together philosophy taken to its logical extreme.
Adapted from American Icon: Alan Mulally and the Fight to Save Ford Motor Co. Copyright 2012 by Bryce G. Hoffman to be published by Crown Business on March 13.