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Ford CEO Jim Farley Says Mistakes Led To Chip Shortage

The Blue Oval has struggled to match supply with overwhelming demand for virtually its entire lineup for well over a year now, a situation that has essentially become a long term issue for the company, and for the entire industry as well. Unfortunately, the supply chain crisis has no end in sight, as Ford CEO Jim Farley has stopped predicting when things might return to some semblance of normalcy. Additionally, he recently took the time to detail why the company failed to secure enough chips to sustain its manufacturing operations, per a new report from Bloomberg.

Speaking at the 2022 Semiconductor Industry Association dinner, Farley said that the crux of the matter is (and was) a lack of communication between the automaker and the companies that manufacture the chips that The Blue Oval desperately needs. “It’s too painful. We need to understand your technology roadmap better,” he said. “And we need supply chain people from your companies and our companies to get it right.”

At issue are the older chips that are responsible for simple tasks like operating the windshield wiper system in a vehicle. An inadequate supply of metal-oxide-semiconductor field-effect transistor (MOSFET) chips for the Ford F-150 resulted in the company losing out on 40,000 units of production. Additionally, the shortage has cost Ford 1.3 million vehicles since the start of the shortage. Unfortunately, the industry is less interested in producing legacy chips, as they bring less profits, which has led to a slower ramp up in production capacity. Farley said that the company failed to appreciate where the semiconductor industry was heading.

As Ford Authority previously reported, the automaker has entered into a non-binding agreement with GlobalFoundries regarding chip supplies and discussions about research and development initiatives. Earlier this year, Farley also said that Ford will sign more deals with chipmakers in the future. Currently, Ford has a sizable number of “vehicles on wheels” currently sitting at various lots waiting for chips and other parts, although it expects to deliver those vehicles to dealers by the end of the fourth quarter. Ford CFO John Lawler has said that the shortage will continue through 2023.

We’ll have more on the supply chain crisis soon, so subscribe to Ford Authority for the continuous Ford news coverage.

Ed owns a 1986 Ford Taurus LX, and he routinely daydreams about buying another one, a fantasy that may someday become a reality.

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Comments

  1. CHARLES STEMPLE

    NO KIDDING GEE THANKS

    Reply
  2. Mark B

    If “legacy chips” are a large issue as suggested, why not look into purchasing either the hardware to manufacture them inhouse, since they are valued less, maybe there are some relatively good buys to be made. The other option is to guarantee an existing manufacturer an extended contract to make these less attractive units at maybe more of a margin to keep them interested?

    At the end of the day $$$ are all that matters. Plus, there are segments of the aftermarket for other parts that are doing just fine. I can’t imagine that if the right need based climate exists, that there isn’t some way to leverage this outdated tech.

    Reply
  3. Michael Fornetti

    Jim Farley, thanks for coming clean.
    I can just imagine a 22 year old supply chain staffer, just out of college, or some new MBA all caught up in the “just in time delivery” trendy thinking a few years ago.

    Reply
    1. Francois

      Just FYI… JIT was dreamed-up by Peter Drucker and some of his contemporaries in the mid 60’s and adopted by the Japanese manufacturers in the 1970’s / 50 years ago. The US manufacturers finally signed-on with the Idea in the 1980’s or 40 years ago…

      Hardly some new fangled “Trendy thinking”. It’s been done and figured out a long, long time ago and certainly not the cause for the supply chain problems.
      Like all serious situations / incidents it’s rarely / almost never “One thing” that brought the house of cards down. It’s a bad combination of several trends like what Farley describes and also heavily influenced by Covid and the shutdowns.

      If you pay folks to stay home guess what they do? Stay home. The ‘”staying home” also meant that folks got bored and the ones with money doubled down on their online shopping, for some reason that translated into a giant boom for the auto business.

      So now you’re combining manufacturers facing shutdowns / compromised in their ability to produce with the general public feverishly clicking on the “Buy” button on their phones, it gets complicated… Given the fact that it’s a worldwide problems (As covid was) this is not something that gets fixed overnight.

      Reply
      1. RWFA

        I agree with your comments except two points:
        – AFAIK Drucker had no great role, if any, in the formation or implementation of JIT.
        – You reversed cause and effect. People were not paid to stay home. People had to stay home and were paid so they wouldn’t starve and default in their bills and mortgages while they couldn’t work.
        – the folks with money would have spent it anyway while by and large, folks getting checks to stay afloat bought groceries and paid their mortgages.

        Reply
    2. RWFA

      Trendy, few years ago? Are you kidding? JIT in Japan has been around since before WW2 and in widespread global use by the 1990’s:
      – The creation of Just-In-Time (JIT) manufacturing is generally credited to Taiichi Ohno, a Vice President of Toyota Motor Corporation (Hall, 1983). He started thinking of these principles in 1931 after reading Taylor’s 1911 book on the topic.
      – JIT arrived in Detroit in its modern form in 1980 (although even Henry Ford had rudimentary thoughts along these lines): “A seminal 1980 event was a conference in Detroit at Ford World Headquarters co-sponsored by the Repetitive Manufacturing Group (RMG), which had been founded 1979 within the American Production and Inventory Control Society (APICS) to seek advances in manufacturing. The principal speaker, Fujio Cho (later, president of Toyota Motor Corp.), in explaining the Toyota system, stirred up the audience, and led to the RMG’s shifting gears from things like automation to just-in-time/Toyota production system.[14]

      At least some of audience’s stirring had to do with a perceived clash between the new just-in-time regime and manufacturing resource planning (MRP II), a computer software-based system of manufacturing planning and control which had become prominent in industry in the 1960s and 1970s. Debates in professional meetings on just-in-time vs. MRP II were followed by published articles, one of them titled, “The Rise and Fall of Just-in-Time”.[15] Less confrontational was Walt Goddard’s, “Kanban Versus MRP II—Which Is Best for You?” in 1982.[16] Four years later, Goddard had answered his own question with a book advocating just-in-time.[17] Among the best known of MRP II’s advocates was George Plossl, who authored two articles questioning just-in-time’s kanban planning method[18] and the “japanning of America”.[19] But, as with Goddard, Plossl later wrote that “JIT is a concept whose time has come”.[20]”
      – Indeed, Plossi went from criticizing JIT in 1981 to accepting it by 1986.
      – Virtually every well run company uses JIT (aka Lean Manufacturing) methodology.

      Although it is not designed as a QC method, it supports TQM ideas by reducing batch sizes and stick buffers. The practical benefits are:
      – when a problem is solved, the lot sizes are not guaranteed but are likely to be smaller.
      – not having a large buffer stock of defective parts reduces pressure to use non conforming items rather than to scrap.
      – by having no buffer, missed non conformancies that can be caught at the customer plant allow for quicker feedback to the supplier (obviously this has less impact on latent defects as in this case.)

      The Ford MP&L Upper management who implemented JIT in the 1990’s are in their late 80’s and early 90’s now.

      Reply
  4. Chris

    So I work for very large tech company which does computer hardware design for our own needs. I also just ordered a 2023 super duty lariat and expect to wait a long time to get it. This chips shortage is not going away anytime soon. The CHIPs act, new export restrictions, and new restrictions on U.S. citizens working for Chinese chips manufacturing companies (trying to improve domestic manufacturing and crush high end Chinese chips manufacturing); all these actions are focused on the high end of the chips market. Think GPUs and powerful CPUs. This is due to the national security concerns around AI and other advanced weapon systems manufacturing. But at the low end, these “simple” chips are still primarily manufactured in China. Between their zero covid policies shutting down factories on and off, geopolitical tensions with the U.S, military actions of the PLAN in complicating shipping in the Taiwan straits, and the fastest rising labor costs in Chinese history; this low end of the chip market has no quick path to recovery. Companies like Intel, AMD, Samsung, and NVIDIA have a profit motive and U.S. government national security motive to prioritize the manufacturing of high end chips on U.S. soil first. The Chinese companies making these low end chips will continue to prioritize their limited production due to demographics and covid restrictions for their domestic market. The new chip plants that have been announced the past year or so are great, but they are 100% going to focus on the more profitable and national security priority of advanced chips for the next 5 – 10 years. If I worked at Ford, I would just bite the bullet and I would look to form a joint venture with other automakers and manufacture the low end chips the auto industry needs. Automakers do it for engines, transmissions, even entire cars sometimes. Why not chips? The longer they wait, the more painful and exacerbated the shortage will be. I dunno, maybe someone from Ford will read this and it will help justify a CAPEX expenditure.

    Reply
    1. David

      Chris is right. So much of our manufacturing is dependent on “outside” suppliers.
      Back when Ross Perot was running for president, he warned of the consequences
      of “globalization” of the manufacturing industry. Apparently, our industry leaders
      failed to heed his warning and this has led to the situation that our manufacturing
      is facing. Like Chris, I don’t understand why the auto manufacturers haven’t formed
      an alliance to manufacture common-use automotive tech here in the US.

      Reply
      1. RWFA

        At least as far as chips go it’s because the set up and operating cost of facilities, tools, machinery, IP licensing and qualified personnel to design, develop and make these demanding products are enormous.

        Auto OEM’s use a tiny sliver of most chips, so even a consortium would never reach the cost economies of scale to be competitive against an OEM who bought his chips from high volume outside experts.

        As pointed out by Francois, the causes of the chip debacle are numerous.

        Similarly, the answers to this problem are manifold but a big part is answered by what Ford is doing, reserving capacity with the manufacturing experts.

        Reply
        1. Chris

          The Automakers could 100% could set up a strategic partnership to develop the chips that their industry and other industries need. Sure, they might not use 100% of the capacity themselves if they want. But there are plenty of other businesses who use similar chips, Whirlpool corp in the Midwest comes to mind. Remember how you couldn’t find a Maytag dryer last year? But Home Depot was full of Samsung appliances? Same low end chips as the automakers use. All sorts of durable goods manufactured here need these legacy chips. Hell even Boeing buys them for certain subsystems. Every single car on the road in N. America that has a VIN start with a 1,2, or 3; was made on this continent, but they all fought over chips that came in from China. The Chinese are not even cost competitive anymore, Mexico has a more affordable labor rate and far lower shipping cost to N. America. The moment someone sets up a low end chip factory somewhere in Mexico, it will immediately have a massive labor rate, shipping cost, tariff, and timeline advantage. It is crazy to me with a massive business critical need, automakers have not worked overtime to diversify their supply chains. Sure it will take 5-7 years to get up and running, but if you started that back in 2020 when this problem first got started, you would be only 3-5 years out now. But the industry decided to take the “maybe things will go back to normal” approach. They won’t, we are in for a wild ride.

          Reply
          1. JDE

            I mean GM shuttered their chip plant in 2017, probably to meet investor profit requirements and then when the Cheap Chinese chips dried up during the pandemic, they parked the partially completed trucks on the former chip plant’s parking lot.

            Reply
  5. Tim

    Ford use to make not only the radios for their vehicles but they also manufactured televisions and stereos . But in today’s world they would never would think of producing their own chips.
    They have resorted to assemble vehicles not manufacturing them.

    Reply
    1. RWFA

      Ford bought Philco as part of the post war conglomeration trend, it kept the best parts and sold the rest as part of the later deconglomeration trend and because they were not competitive and profitable.

      You must have missed that the whole industry went from integrated manufacturers to engineering & development/system integrators, core competence producers (engine, trans stampings, body, paint and final assy) and assemblers; it only happened over the last 20-30 years.

      Outsourcing commodity products to specialist companies is the key to better tech and quality and lower prices. This is a fact and everybody does it to a high degree (70% of cost of car is bought outside.)

      Reply
  6. Richar

    Farley is good at introducing the “latest and greatest “, but can’t seem to think beyond that. This constant infatuation with EV’s will prove his undoing. The infrastructure is just not there or the supply chain for batteries and chips.

    Reply
    1. RWFA

      LoL. The comments like this above, show no historical perspective, and so little understanding of the industry or how things actually get done and moved forward.

      Reply
  7. EcoBoost29579

    Most of the manufacturers that have resorted to holding back production OR producing incomplete vehicles are doing so because of chips that are current-tech-related, NOT things like windshield wiper motors. Think IQ.DRIVE on VWs and rear parking assist on GMs.
    What’s “funny” about this is that stupidity is rewarded with over-the-top profits and disgusted customers. And once the chip supply returns to normal, there will be lines of buyers outside of dealerships, resulting in even higher profits, because the smart ones will then be driving old vehicles held together by duct tape. The whole thing is disgusting and the auto industry deserves a “least trusted” award. You’d think the Chinese manufacturers would have flooded the US market by now. Not saying I want that, but they’ll never get another chance like the present.

    Reply
    1. RWFA

      What happened to your predictions of impending economic calamity?

      What’s truly funny is you speak of the industry, do you suspect that they are colluding to create this situation? If not, and if as you note various makers throughout the industry are affected, do you really think it is stupidity? (Supposedly JLR’s otherwise successful CEO got sacked this week because he couldn’t squeeze chips out of a stone. Note: I think it was not due to the chips.)

      Stupidity is when the few don’t see or ignore the black swan.

      Complacency and misassessment probably better describes the issue, in which risk forecasting and counter measures were not acted on because the risk was under ranked and the costs to mitigate were high (iow not willing to pay a bundle for a perceived low frequency situation.)

      Reply
  8. Sam

    Jim said himself they were giving EVs priority on chips. He made the mistake because Americans aren’t being receptive to EVs. Get this Communist out of Ford.

    Reply
    1. RWFA

      If this thread had a “tell the world you don’t know what communism is with out shouting that out loud” contest, you would win.

      Reply
  9. Joe Face

    And yet somehow there always seems to be enough chip technology for cell phones….

    Reply
    1. RWFA

      Did you completely fail to comprehend how the concept of using legacy chips led the industry into its current predicament ?

      Reply
  10. JBbooky

    My ’50 Ford’s radio is made by Motorola, but has the Ford logo embossed on the housing. The tubes are marked FoMoCo, but who actually made them? They still work, btw, 73 years later.

    Reply
    1. RWFA

      A good example of both outsourcing and private label branding.

      Reply
  11. Jon Stemples

    Lead times in the 1970’s, 1980’s and 1990’s have not changed much. It takes at least 16 weeks from order placed to product delivered. Bricks and mortar has not changed. It takes two years to put a new fab on-line. Not different today. I started with National Semiconductor in 1971 and saw the beginning.

    Reply
  12. Tom

    I’ve been waiting for over two years for a BCM for my 2018 F150. I haven’t heard any idea as to when it may be available.

    Reply
    1. RWFA

      2 years? Sounds like there’s a problem somewhere. With the age of the truck, can’t you get one from a scrap yard?

      After all it’s the most popular vehicle made, after 5 years there should be plenty of salvage stock.

      Reply
  13. Leo Rokon

    Hire some good engineers and tell them to design a fix/replacement/whatever for these missing parts. It might cost extra but you won’t have millions of dollars of F-250’s sitting on lots.

    Reply
    1. RWFA

      Do you realize how impractical and impossible your suggestion is to implement in short order or how it could lead to more quality issues?

      Reply
  14. Mike says....

    The global geopolitics have permanently changed I suspect. Aside from the abundance of rearward looking comments contained here, Farley at least is looking forward and is ‘big’ enough to shoulder part of the blame. The U.S. is not an island in the stream, rather a global partner in business success and failure. Our (U.S) failure continues to be how poorly we treat our most reliable and secure trade partners… Canada being the best example. We need to figure this out, especially now that we are increasingly less influential and respected. Tough to hear but some need to pull their heads out of you know where. Just sayin….

    Reply
    1. RWFA

      Fully agree with your comment but you shouldn’t weaken the truths you tell by ending with “just saying”.

      The problems Farley is dealing with are not of his making. The legacy chips practice started long ago and worked well until chip demand exploded as production crashed due to external crises.

      The fact that much of the commentariat can’t grasp this and parrots right wing talking points or offers useless bromides is a sad thing.

      Reply
  15. Richard

    RWFA is apparently the only expert here with a full understanding of all issues.

    Reply
    1. RWFA

      There are others but some bring useless nonsense like you just did. Try harder.

      Reply
    2. Mike says...

      OK Richard,…. if all it took was ‘pot shots’ you would be the winner! It would not help anything… but at least you would be happy.

      Reply
  16. The Gentle Grizzly

    “Ford CEO Jim Farley says mistakes” would have told the story just fine.

    Reply
  17. Don Hunter

    If Ford has “entered into an agreement with Global Foundries” one presumes that means GF is going to produce chips for Ford . If Ford knows how many trucks are parked all over the country unfinished requiring chips why is GF laying people off and the end of the chip shortage chip shortage an unknown date . If this is an example of Fords ability to plan I can see why they lost out on selling half a Jillian trucks and I would suspect it spells the end of Ford one day soon . That’s too bad Ford is my favorite truck but with all their recalls , the price today , rust on the underbody ( that , hey that’s covered with our 36000 mile warranty or some such crap ) me buy a Ford truck today ? I don’t think so . Seems to me the company has been destroyed and is currently run by a bunch of over paid boobs .

    Reply

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