Fires still smoldered as rescue crews entered the building to look for survivors. An explosion has ripped the factory apart, an accident that could quickly turn catastrophic for the Ford Motor Co.
The May explosion at Meridian Magnesium Products in Eaton Rapids, Michigan, forced Ford to shut down production of F-150 and F-Series Super Duty trucks. Analysts have estimated that each F-Series truck generates between $5,000 and $10,000 in profit, so with nearly 2,400 trucks sold daily, shutdowns could cost the company $12 million to $24 million daily – $1 million per hour on the high side of that estimate.
Had the accident shut off supplies for the Fusion sedan or the Explorer SUV, engineers and executives might have taken some time to weigh various options.
With the F-150, careful consideration and waiting were off the table.
Engineers entered the burning building to pull 19 casting dies from Meridian’s shop floor. Some dies were sent to another plant in the area, but the biggest, an 87,000 lb behemoth, needed to go to Nottingham, U.K. Ford trucked the die to Columbus, Ohio, and put it on a Russian cargo jet to cross the Atlantic. Within a day, it was producing parts for Ford plants in Michigan, Kentucky, and Missouri – parts that will have to arrive via 747 for the foreseeable future.
The rescue mission likely cost Ford millions or even tens of millions of dollars – a regular Tuesday in terms of F-Series profits.
How did Ford put itself in a position where one accident at one supplier could shutter three critical assembly plants? I put that question to Tobias Schoenherr, professor of purchasing and supply management at Michigan State University and co-editor of the International Journal of Operations and Production Management.
For more than a decade, Ford and other automakers have shrunk their supply chains, offering more work to a smaller number of providers. Consolidation has simplified purchasing and given companies more bargaining power.
“These advantages, however, have to be weighed against the risk of becoming too dependent on a supplier or a small set of suppliers,” Schoenherr says. “The repercussions of such risks were evidenced in the recent fire at a supplier site. A similar example – the (2011) Japanese earthquake and subsequent tsunami – also significantly impacted the automotive industry due to single-sourcing decisions.”
He adds that recently, automakers are starting to diversify their supplier bases again. And while consolidation may have played a role in Ford’s vulnerability, a bigger issue was likely the material.
Lightweight magnesium castings are just entering the auto world, and few companies are available to fill the void if a plant goes down. With critical components and vital products, having backup suppliers is ideal, but not always feasible.
“The application of new or rare technologies is risky, but at the same time, the reward can be tremendous because they are so risky,” Schoenherr says.