Driving Supply Chain Sustainability

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ISM - Publications - Inside Supply Management - Driving Supply Chain Sustainability

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Driving Supply Chain Sustainability Author(s): Jonathan W. Newton Jonathan W. Newton is global lead - supply chain sustainability for Ford Motor Company in Dearborn, Michigan, and a member of ISM's Committee on Sustainability and Social Responsibility.

April 2013, Inside Supply Management ÂŽ Vol. 24, No. 3, page 32

Sustainability: Responsible Supply Management Ford Motor Company is enhancing sustainability management and performance across its supply chain through an innovative supplier partnership initiative.

The automotive supply chain is one of the most complicated of any industry. Automakers like Ford rely on thousands of tier-one suppliers to provide the materials, parts and services to make its final products. Many suppliers serve numerous automakers, and each of those suppliers, in turn, has multiple suppliers. Other industries' supply chains (such as electronics) are intertwined into the automotive supply chain. There are often six to 10 levels of suppliers between an automaker and the source of raw materials that eventually enter the manufacturing process. The breadth, depth and interconnectedness of the automotive supply chain make it especially challenging to effectively manage business and sustainability issues. www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=23540

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In pursuing its supply chain sustainability objectives, Ford has taken a three-pronged approach to effectively engage suppliers throughout the chain.

1) Individual facilities. Training and capability building are the fundamental basis of Ford's supply chain sustainability program, supported by assessments of individual tier-one supplier factories.

2) Corporate engagement. Ford is building stronger supplier relationships and leveraging an innovative supplier partnership initiative, called the Aligned Business Framework (ABF), to enhance supplier ownership at the corporate level for supply chain sustainability management and performance systems at its suppliers and throughout the automotive supply chain.

3) Industry collaboration. Ford is driving collaboration and tool development for global supply chain sustainability issues through industry and cross-industry partnerships.

Building Strong Supplier Relationships Ford has undertaken several key initiatives to strengthen its supplier relationships and manage supply chain sustainability performance across its supply chain, including its ABF. Strong relationships with suppliers must be based on open communication, clear expectations and consistent requirements and processes.

Ford's strong supplier relationships encourage and influence the sustainability goals and management processes of its suppliers, and, in turn, the subtier suppliers within the automotive supply chain.

In 2005, Ford introduced the ABF with its strategic suppliers to strengthen collaboration, increase mutual profitability, improve quality, drive innovation and help ensure a shared commitment to sustainability goals.

As part of the ABF process, Ford signs bilateral agreements with ABF suppliers that comprehensively and formally spell out specific business commitments.

These bilateral agreements identify 20 key principles that address specific Ford commitments, bilateral commitments and supplier commitments. To date, the ABF network includes 102 supplier companies representing more than 65 percent of Ford's annual total global buy of US$75 billion, up from 34 percent in 2006.

Ford's commitments to ABF companies include long-term sourcing, improved parts commonality and increased information sharing of product and manufacturing plans, as well as forecast information. Supplier commitments include items such as increasing financial data transparency, committing to minority- and women-owned enterprises and bringing leading-edge technology innovations to Ford.

These efforts have led to innovative partnerships with ABF suppliers. As an example, Ford seeks to convert metal components to recycled content plastic where technologically feasible, and has worked with select ABF suppliers to create tailored air intake manifolds that include the addition of post-consumer recycled resins. Initiatives like these result in mutual savings for Ford and the supplier, and help reduce environmental impact across the life cycle of the vehicles through benefits such as weight reduction from the plastic components and related fuel economy improvements. www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=23540

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These ABF principles promote communication and transparency, and encourage trust. They not only drive technology and collaboration, they also mitigate risk and spark innovation. Beyond the fact that it's the right thing to do, the integrated sustainability commitments provide specific business benefits to Ford as well as to its suppliers by reducing operational or reputational risks that could impact production. The commitments also provide an opportunity for joint action by Ford and its suppliers to promote responsible behavior throughout the automotive supply chain.

The commitment by Ford's ABF suppliers to manage and assure proper working conditions, including responsible environmental management systems in their own operations and in their supply chain, is important for several reasons. Like all of Ford's suppliers, its ABF suppliers must adhere to Ford's global terms and conditions and integrated expectations laid out in its Code of Human Rights, Basic Working Conditions and Corporate Responsibility. Also, as with all its suppliers, they are subject to external certification requirements, such as ISO 14001, and third-party verification of working conditions and sustainability performance, among other requirements.

A Three-Phase Developmental Process Ford expects the ABF suppliers to develop a shared commitment to our sustainability goals and effective systems for managing sustainability issues in their own operations and throughout their supply chain through alignment with a three-phase developmental process.

1) Supplier code of conduct. Ford verifies that its ABF suppliers have, or will develop with guidance from Ford, a code of conduct aligned with its Code of Basic Working Conditions, Human Rights and Corporate Responsibility and other internationally accepted principles, which address issues including child labor, forced labor, work hours, compensation, harassment and discrimination, freedom of association, and health, safety and environment.

2) Training and compliance process. Training is provided as needed to suppliers that are asked to conduct and provide evidence of their own internal training to ensure understanding of their code of conduct and related internationally accepted principles within their own operations. Ford also verifies that suppliers have developed an appropriate compliance system supporting their code within their global operations.

3) Extending expectations to their supply chain. Finally, suppliers are expected to extend the shared sustainability goals and expectations to their own subtier suppliers via established expectations and supporting management systems for communication and performance verification. This expands the impact of Ford's sustainability goals throughout the multiple tiers of its supply chain.

Ford's supply chain sustainability department has developed supporting tools and a robust process of review at each of the three phases, thus ensuring suppliers meet expectations. The intent is for ABF suppliers to wholly own responsibility for sustainability expectations and performance in their own operations and their supply chain. Ford is making good progress in this developmental work; currently, nearly 80 percent of production ABF suppliers have aligned codes in place. In addition, more than 50 percent have provided evidence that they 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.

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Through work with ABF suppliers to date, Ford has found key success factors that have allowed companies to make notable progress, including: the identification of executive decision-makers to coordinate cross-functional alignment efforts (for example, sustainability, human resources, legal, environmental health and safety, purchasing); the support of executive management and/or the board of directors; and facilitation by Ford of discussions and implementation support through individual or regional in-person meetings and discussions.

The sustainability work with ABF suppliers leverages the company's efforts to manage human rights and environmental responsibility issues in its supply chain in a more collaborative, in-depth, integrated and aligned manner. In Ford's view, it is embedding ownership for social and environmental issues throughout its value chain, leading to the development of more robust sustainability management systems across the automotive supply chain.

For more information, send an e-mail to author@ism.ws.

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