Ford's F-150: Have It Your Way Truck-loving consumers want ever more custom features. "Flexible manufacturing" finally makes it possible.
(Business 2.0) – It's a well-worn but revealing bit of auto-industry lore: When Ford Motor ruled the business in the early years of the last century--during one six-year stretch, it didn't bother advertising--Henry Ford joked that his customers could order a Model T in any color they wanted, as long as it was black. (The punch line: Black paint dried fastest, which kept his assembly line chugging at top speed.) By the 1920s, though, the joke was on Ford, as rivals like Buick, Chrysler, and Oldsmobile wooed drivers with a dizzying array of colors and styles. Ford swallowed his pride and, to save his company, began building a greater variety of autos to match customers' evolving tastes.
Today, Henry's great-grandson, company chairman and CEO Bill Ford, is scrambling once again to keep pace with customers' capricious tastes, and this time the stakes are higher than ever. In 2001, broadsided by recession and the impact of 9/11, Ford began veering toward the industry junkyard, with $5 billion in losses in the fourth quarter alone.
The company that rode the SUV boom to record profits in the 1990s--and had been focused on getting more productivity, but not variety, out of its factories--suddenly found itself out of step again with big shifts in customer demand. Several plants saw production fall from near capacity to 70 to 80 percent, while others were clocking expensive overtime. Despite slashing payroll and closing plants, Ford ran up another $1 billion in losses in 2002. By the end of 2003, the company's U.S. market share had sunk to a 75-year low, 20.7 percent, and Toyota passed Ford in the number of autos sold worldwide.
Yet Ford believes it's installed a long-term fix to the biggest problem facing it and the industry: keeping up with surging demand for new vehicles, colors, and custom features while keeping costs at bay. The company spent two years and more than $400 million gutting factories in Norfolk, Va., and Kansas City, Mo., that produce the bulk of its top-selling and highly profitable F-150 trucks, replacing their assembly lines with a host of cutting-edge production tools and techniques. Dubbed flexible manufacturing, it's a system that allows factories to much more quickly respond to demand--switch from making one vehicle type to another in record time and build different models in different factories using the same assembly platform. That, in turn, sharply reduces months of factory downtime and millions in lost sales. If, as many believe, Ford's return to consistent profitability depends on the F-150 outselling its American and Japanese competitors, flex manufacturing is what will get it there.
Ford estimates that the new system will save it as much as $2 billion this decade by slashing operating costs up to 15 percent and cutting model changeover costs in half. "We used to be down for three months between models," says David Savchetz, plant manager at Ford's overhauled flex plant in Kansas City, which cranks out all five versions of the redesigned 2004 F-150. "Now we've cut that to two weeks."
Flipping the Switch
That sort of advantage is just what Ford needs to hold off mounting competition from rivals like Nissan, which unveiled its would-be F-150 killer, the Titan, last fall. At the moment, Ford's F-Series remains the industry's best-selling pickup, as it has been for 27 years running, and the best-selling auto of any stripe for more than two decades. More important, the F-150 is Ford's biggest profit machine: Last year it accounted for 24 percent of vehicles sold by Ford in the United States and, according to analysts, every cent of its $495 million in net income. Operating profit per truck runs $6,000 to $8,000, two to three times that of a more mechanically complex sedan.
Riding a wave of SUV fatigue among many male buyers, Ford and other automakers are hot to deliver what guys want instead: a real truck and the bigger engine and cab configurations that go with it. Women buyers are also migrating to pickups, driving demand for an array of creature comforts inside the cab like leather seats, comfy second-seat benches, and overhead flat-screen DVD players.
Soccer moms may love the new features, but such custom items wreak havoc on an automaker's balance sheet. Until recently, introducing a new type of F-150 meant creating a unique assembly platform for it--one that couldn't be adapted for other models or even other factories. Worse, model switchovers forced factories like Ford's biggest F-150 plant, in Norfolk, to shut down for as long as five months to retool for the next model. By the late 1990s, Bill Russo, Ford's top manufacturing guru, knew that customization posed a serious threat. And Toyota had already pioneered flex assembly as part of an upgrade to its Toyota Production System, which has long been considered state of the art. "Flexible manufacturing is completely demand-driven," Russo says. "We had to respond."
Ford's new system, launched at its Norfolk plant last June, builds eight different truck models on just two manufacturing platforms. The key is standardized equipment--everything from welding and painting robots to adhesive appliers--that works in step, switching assembly tasks from a standard cab to a five-person SuperCab or vice versa. At the center of the action are metal pallets, about the size of a truck's undercarriage, that slide onto a conveyor belt to start the assembly process. Each pallet carries an ID tag that contains all the custom specs of that truck--cab type, box length, fender treatment, and so on. If the specs don't match an item being added to the truck body--say, a type of door panel--the line stops until a worker resolves the mismatch with a handheld bar-code reader.
Switching to standardized machinery, of course, means that Ford can reconfigure the factory floor much quicker between production runs of different models. In older plants, Ford had to swap out almost all of the equipment between runs. Now if demand dictates that a plant step up production of, say, the F-150's luxury edition, the $36,000 Lariat, and pull back on the Explorer SUV, factory managers have to replace just 20 percent of the assembly hardware and computer software to make the switch; most of the equipment remains intact. The move to flex in Kansas City has also led to a 25 percent drop, to about 300, in the number of fasteners and other components.
The enhanced shop-floor choreography also helps ensure that parts are in place when and where needed. At Ford's F-150 body shop in Kansas City, suppliers ship parts to one of five Ford warehouses in the area, based on six days' worth of orders that the company beams to suppliers via satellite. "Not only do they know what we're going to assemble six days out," Savchetz says, "they know the exact order in which the trucks will be produced." The system works so smoothly, he adds, that 999 trucks out of 1,000 leave final assembly in the order in which they started.
What's good for the truck will soon be good for the sedan: Ford has begun standardizing the cells in each factory it upgrades for flex. The Kansas City plant was configured like Norfolk, and the revamped Dearborn, Mich., plant will start making F-150s the same way later this year. Ford plans to use its upgraded plant in Chicago to start making its recently introduced Freestyle, Five Hundred, and Montego cars, as well as a new "crossover" model.
By the end of the decade, Ford expects to have "flexed" three-quarters of its 21 North American auto-assembly plants. "Several years ago, body shops from one plant to the next used to be dramatically different," says Jim Jenkins, truck body area manager at the Kansas City plant. "Now you can go from one plant to the next and feel like you're in the same shop."
Flex factories, of course, are no longer a trade secret in the United States; GM is also converting. "It's the next stage in the business," says industry consultant David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "Ford is dead meat if they can't do it."
Ford needn't worry about becoming road-kill quite yet. So far, the F-150 is helping to keep the company's nascent recovery on track--Ford cut costs last year by a greater-than-expected $3.2 billion and reported pretax operating profit for 2003 of about $1.4 billion. In December, Ford sold 85,000 F-150s, a company record for the month, while offering incentives less generous than in the previous two years--another good sign. Flexible manufacturing appears to be boosting product quality as well. In-house quality ratings on the truck already equal or exceed those for last year's model, unusual for a vehicle in its first months of production.
That news is most welcome to Ford's Russo. "It's a big risk to take your No. 1 volume product and use it to introduce a new method of manufacturing," he says. Fortunately, as it turns out, his company didn't have much choice.