A fire at Meridian Magnesium Products of America plant in Eaton Rapids, Mich revealed just how fragile supply chains can be. It stopped production of Ford’s F-150 due to a lack of critical parts from this supplier.
The F-150 is Ford’s most popular and most profitable model. In addition to Ford, other auto manufacturers have been impacted as well, including BMW, Chrysler, GM, and Mercedes-Benz.
At first, Ford believed the factory fire would stop production for weeks or longer. With Meridian’s help, and the rescue of specialized tooling that wasn’t damaged in the fire, Ford cobbled together a new worldwide supply chain for the affected parts on its F-150.
At the time of the May 18th article from Detroit Free Press, Ford expected to re-start production within a few days.
This post is based on the Detroit Free Press article, From panic to triumph: Behind the scenes of Ford’s epic F-150 restart, by Phoebe Wall Howard, May 18, 2018, and the NPR.org article, Ford Halts Production of F-150s After Fire At Supplier’s Facility, by Camila Domonoske, May 10, 2018. Image source: Iconotec/Glowimages.
1. Why did a fire at one supplier force Ford to temporarily halt production?
Guidance: Many companies have reduced the number of suppliers that they use for specific parts. This is the case with the parts from Meridian Magnesium Products of America. They are one of only a few companies that produce magnesium castings. As a result, finding a replacement supplier on short notice is difficult. Reducing the number of suppliers was made popular by Toyota and the Toyota Production System (TPS). This approach allows for better relationships with the remaining suppliers. Over time, a better relationship should result in better quality parts at a reduced price. This, combined with lean production that has very little work-in-process (WIP) inventory in the supply chain, caused the shutdown of the F-150 assembly plants.
2. Should Ford consider adding an additional supplier for the parts provided by Meridian Magnesium Products of America?
Guidance: There are many benefits to reducing the number of suppliers. However, this factory fire also illustrates the risk of reducing suppliers — if something happens to one of those few suppliers, it could shut down the entire supply chain. The fire at Meridian Magnesium Products of America did exactly this at Ford (and other companies). A cost/benefit analysis would indicate whether the added cost of additional suppliers would be worthwhile to prevent future shutdowns.
3. Does Ford have any buffer to offset this parts shortage?
Guidance: In the supply chain, the answer is no. However, their Dealer’s Inventory (finished goods inventory) is at 84 days. As a result, you can still go to a Ford dealer and purchase an F-150. However, Meridian Magnesium Products of America needs to be back up and running in the near future or there could be a shortage of Ford’s best-selling model—the F-150.