In June, Hau Thai-Tang, Ford Motor’s head of global purchasing, was given a second job as executive vice-president of product development. Thai-Tang, who joined the carmarker as a trainee in 1993, sees the combined responsibilities as an opportunity to get more out of the relationship between Ford and a rapidly changing supply base. “We have to collaborate with our suppliers much earlier,” he said in a telephone interview with automotiveIT. In the interview, Thai-Tang, 51, also discussed Ford’s software-focused strategic goals, the reasoning behind some of its recent investment decisions, and the implications of the industry’s move to electric mobility.
automotiveIT: Please describe how Ford’s purchasing role is changing
Hau Thai-Tang: The supplier playing field has been leveled after the crisis of 2008. There’s no longer a master-servant relationship beween automakers and suppliers; there’s much more of a collaborative partnership now. We are forced to step back and think through how we can differentiate the Ford brand in an environment that is increasingly becoming more connected, more autonomous and more electrified. That drives what we do our selves and what we outsource to partners.
And how do you characterize the nature of the relationship with suppliers today?
We’re adopting a whole new way of dealing with the supply base. The shift from hardware to software is changing the cost structure. It’s no longer about capital equipment and asset intensity, but much more about people and resources and recouping initial investments. Suppliers are changing much faster. With traditional hardware, we assume 10 year amortization and depreciation of physical assets. In the software space, assets may be out of date after a mere 10 months.
How do you decide which components and systems you buy, where you want to take equity stakes in specialist companies and whether you need to own a particular technology.
We look at whether a technology is key to differentiating the brand, whether we expect there to be an imbalance between supply and demand and whether our product portfolio will have sufficient scale to justify the capital investment. And we ask the question: what value does it bring to the company?
You’ve clearly identified lidar as a technology you want to own.
We see lidar as a critical enabling technology for level 4 driving and above. Lidar is an integral part of how we are developing our virtual driving system, so we felt we needed a very strong and close partnership with lidar companies. That’s why we took an ownership stake in lidar specialist Velodyne. And why our Argo AI subsidiary recently acquired (lidar sensor maker) Princeton Lightwave. If we we want access to that technology or have preferential treatment, it’s helpful to have an equity stake.
Batteries will also be key as the industry moves to electric propulsion. Do you expect to get into battery cells too?
Battery cell production is very asset-intensive. Look at Tesla’s Gigafactory, which will cost billions of dollars. It also requires quite a bit of scale to justify such an investment. At the moment, the Ford product portfolio doesn’t have enough volume to justify that level of investment. That’s why it would be better to buy battery cells from the supply base, which can leverage demand across various automakers and even across industries. For us, that’s a much more efficient and better use of capital. We’re also not sure whether battery chemistry will change. So today we cannot justify the investment. That may change over time.
How – and how fast – are electric vehicles changing the industry?
Electric motors simplify things with much fewer moving parts than a combustion engine. Electric vehicles have really reduced or even eliminated barriers to entry into the automotive space. The internal combustion engine has served as a barrier to entry for 100 years, but now we don’t just find companies such as Tesla, Apple and Google coming in, but also the likes of Dyson, which makes vacuum cleaners and hair dryers, and several Chinese start-ups. All can become automakers. But even if there will be a tipping point for electric vehicles around 2025, a big chunk of new products will be hybrids. The transition period will be a couple of decades, which means we will still have to master both electric-motor and combustion-engine technologies. But electric mobility will have a lot of repercussions all the way through the value chain. Fewer moving parts means less service revenue. It will affect the aftermarket and dealerships, where a big part of the profits come from service. There will be no more oil changes and a lot of the traditional maintenance will go away.
Ford has embarked on a course to become a mobility and software company. How are things going with this massive culture change?
We’re a public company but the family’s name is on the building and Bill Ford is executive chairman. The perspective of the Ford family is very much long term. We realize the shift in the value chain is happening right before our eyes. Once the car becomes part of the internet of things, you’re no longer just selling a physical product. You have data and services you can provide and that’s where you’ll be able to capture value. Microsoft CEO Satya Nadella told us that Google makes more money per PC than Microsoft does. Microsoft was slow to reocgnize the shift in value creation and that’s a lesson for Ford. W’re going to make sure we still deliver great products, but we realize that the value creation will move beyond the physical hardware. That’s the future we’re trying to prepare for.
As of June 1 you head both purchasing and product development. Is that a good combination?
I spent 25 years in product development before moving to purchasing these past four years. The biggest thing I learned in the past four years was that, if we want to deliver innovative solutions and bring new technology to market, we have to start collaborating with our suppliers much earlier. The traditional product-development model, where you engineer a part and let purchasing requests quotes, does work, but there’s a lot more that can be done to make designs more efficient. If the supply chain comes up with a great idea, it’s typically to late to incorporate it. The shift we’re making is to let suppliers better use the parts and investments they’ve already made. That approach creates greater value and improves quality. There’s a huge opportunity for us to work together more efficiently with product development, purchasing and the supply base.
Like many executives in the auto industry, you have a mechanical engineering degree. Does that mean you’ve had to learn a whole lot of new skills as the automotive focus is moving more toward digital technologies?
Evolving and learning is a lifelong process that doesn’t end when you get out of school. Having a good grounding in mechanical engineering is a good solid technology foundation to build on.
And how do you divide your time between product development and purchasing?
I spend most of my time managing the progression of the 60 or so product programs that are somewhere between engineering, launch and mass production. That includes making sure we have the right supplier partners, are sourcing business to the right people and are delivering best value. I probably spend about 65 percent of my time on product-related measures and about 35 percent on the procurement side of the business.
Interview: Arjen Bongard