Enabling a sophisticated Pay-on-Production model in the Fastener industry
This case study demonstrates how component manufacturers can harness services as a strategic lever for growth. Authored by Nick Frank, who led the development of the Textron EMEA Full Service Provider Business, it highlights the practical experience and deep expertise that all Si2 partners bring to their clients. The story shows why collaborating with Si2 can elevate your service capabilities to new heights. Originally based on the 2012, A Service Revolution in Fasteners: The story of two businesses with the same goal but very different strategies the customer story is as relevant today as when it was written
1. Background / Context
The fastener industry is rarely seen as fertile ground for business model innovation. With its focus on commodity components such as nuts, bolts, and washers, the sector has historically competed on cost, quality, and volume. However, over the last 30 years, the industry has been forced to confront growing customer demands for leaner supply chains, lower total cost of ownership, and greater operational efficiency.
This backdrop led to a service-led transformation in how fasteners are supplied and integrated into production systems—particularly in the automotive sector. One of the most notable examples of this shift occurred at Textron Fastening Systems (TFS) in the early 2000s, when the company was selected by Ford Europe to implement a revolutionary Full Service Provider (FSP) model.
This case study explores how TFS responded to the call for a fixed-price, pay-on-production service—requiring not just new logistics and commercial models, but a fundamental cultural and organizational transformation.
2. Business Challenge
By the late 1990s, European automotive OEMs were under pressure to cut costs, streamline operations, and offload non-core functions. Fasteners, despite accounting for only 1–3% of the material spend, represented 25–30% of the part numbers managed in production. Moreover, they consumed significant overhead in procurement, quality assurance, logistics, and inventory.
At the same time, competitors like INFAST were gaining market share by offering Just-In-Time (JIT) and Vendor Managed Inventory (VMI) solutions. These service-centric models provided simplified supply chains and better cash flow—qualities that appealed directly to purchasing departments.
For TFS, a company deeply rooted in engineering excellence and high-value fastening technology, this was a serious threat. Their traditional model emphasized premium part quality and application engineering—an approach that struggled to compete on pure logistics and cost in an increasingly commoditized market.
The situation came to a head when Ford Europe issued a strategic tender for its Fiesta production lines in the UK and Germany. The company wanted a supplier who could not only provide all fastener components, but also manage the entire value chain—logistics, engineering, inventory, and even design collaboration. Most radically, Ford demanded a fixed cost per vehicle model, effectively converting the entire scope into a pay-on-production contract.
For TFS, this was both an opportunity and a daunting change management challenge.
3. Solution
A New Service Model Rooted in Operational Integration: To meet Ford’s demands, TFS needed to build a radically new business model. The requirements went far beyond traditional account management or technical support. Ford was seeking:
One supplier for over 500 fastener part numbers.
Complete engineering responsibility throughout the vehicle design lifecycle.
Just in time delivery into two assembly plants.
Elimination of fixed costs from their supply chain.
Payment only upon vehicle production (not on delivery or consumption of parts).
This necessitated not just a strategic pivot but a cultural transformation—one that would test TFS’s organizational agility, internal alignment, and willingness to let go of legacy thinking.
Key Components of the Change
A significant business change of this nature required the coordination of five key activities. Within what was historically a manufacturing company, gaining buy in and commitment from other parts of the organisation was a significant challenge.
Dedicated Cross-Functional Teams
TFS formed a multidisciplinary project team to break down internal silos between engineering, manufacturing, sales, and supply chain. This was essential to drive shared accountability for outcomes that spanned traditional departmental boundaries.Engineering and Design Integration
For the first time, TFS engineers were embedded within Ford’s vehicle design teams. This required a significant mindset shift—from “selling parts” to “delivering solutions”—as the supplier assumed responsibility for part selection, sourcing, and prototyping. How much responsibility to take and where to draw the line was a key factor in ensuring a profitable programme.Commercial Innovation
The fixed cost per vehicle model forced TFS to adopt a longer-term, value-based pricing strategy. This meant assuming greater commercial risk and investing upfront in engineering and logistics infrastructure with payback tied to vehicle volumes. How to manage these new ways of thinking required Finance professionals to take a wider more holistic view of risk, and where margin is created.Logistics & IT Infrastructure
TFS developed advanced inventory management and global logistics capabilities to support high-volume, high-precision operations. This required integrating their systems with Ford’s planning environment and managing delivery performance across borders in real time. Understanding that essentially this was a digital business where knowledge and transparency in the supply chain was probably more important than the products themselves required a huge shift in cultural thinking.Internal Communication and Leadership Alignment
Perhaps the most significant challenge was aligning internal stakeholders around a common goal. Manufacturing functions, used to product-centric KPIs, needed to understand and support service-led objectives. This often meant redefining success metrics and rethinking organizational roles.
4. Outcomes Achieved
Despite the scale and complexity of the transformation, the initiative delivered a number of long-lasting benefits—both to Ford and to TFS.
For Ford Europe
Total Cost Reduction: Through engineering-driven part consolidation and supply chain optimization, Ford reduced both material and overhead costs.
Operational Efficiency: JIT logistics improved plant efficiency and reduced inventory holding.
Strategic Flexibility: The fixed-price-per-vehicle model helped Ford reduce internal fixed costs and gain better forecasting accuracy for fastener spend.
For Textron Fastening Systems
Revenue Growth: The manufacturing content of the Ford FSP program grew from 8% to over 50%, generating €8.4 million annually in incremental sales.
Margin Stability: Long-term contracts linked to vehicle production volumes created recurring, predictable revenue streams.
Customer Integration: TFS became more than a supplier; it became a strategic partner with embedded engineering and logistics roles within the OEM.
For the Industry
Model Replication: The FSP concept was soon adopted by other OEMs such as BMW, Jaguar Land Rover, and Volvo. Competitors like FACIL were formed specifically to pursue similar service-led models, and fastener services became a recognized segment of the automotive value chain.
5. Conclusions
The success of the Textron-Ford FSP program offers several key insights into what it takes to drive change in a traditional manufacturing organization:
i. Change Requires Structural and Cultural Alignment
Building a service business within a manufacturing environment isn’t just about adding capabilities—it’s about aligning structure, culture, and incentives to new outcomes. TFS was able to execute because it temporarily created a separate service-focused team with the autonomy to innovate. Over time, however, these capabilities were reabsorbed into the broader manufacturing P&L, which limited scalability.
ii. Focus Enables Execution
The clarity and focus of the FSP initiative helped TFS overcome organizational inertia. By concentrating resources and leadership attention on a single, high-impact customer initiative, the company could create a blueprint for what a service-led fastener business could look like.
iii. Co-Creation Strengthens Innovation
Ford’s willingness to share risk and collaborate deeply was vital. The pay-on-production model was untested and carried significant risk for both parties. Joint problem solving and transparency enabled the partnership to survive initial failures (such as pricing model adjustments) and evolve toward lasting value.
iv. Margins Require Trade-offs
Unlike INFAST—who had already divested manufacturing to focus purely on services—TFS had to constantly negotiate trade-offs between service investment and product margins. Embedding service KPIs into decision-making systems proved to be a long-term challenge.
6. Lessons for Industrial Firms Undergoing Servitization
This case study highlights that transforming into a service-driven enterprise is as much about managing change as it is about implementing strategy. The journey required:
Letting go of legacy product-driven assumptions.
Investing in cross-functional capabilities.
Redesigning commercial models.
Building deep, strategic relationships with customers.
While the initiative ultimately delivered measurable returns, it also exposed the limitations of embedding service transformation within traditional P&Ls. Competitors who structured themselves from the start as standalone service businesses, were better positioned for scalable growth.
For industrial firms looking to embark on similar journeys, this case underscores the importance of leadership alignment, team focus, and organizational design as critical enablers of service innovation.
The transformation of Textron Fastening Systems from a product-centric manufacturer to a service-integrated partner in Ford’s supply chain was not just a story of technical innovation—it was a story of deep organizational change. It required questioning assumptions, rethinking roles, and building a new business logic.
The outcome? A more resilient, customer-aligned, and strategically integrated business that helped set the standard for how service transformation can reshape entire industry dynamics—even in something as seemingly simple as nuts and bolts.
THE CAUTIONARY TALE
Like many case studies, this story illustrates the successful launch of a €25 million euroepan service business within the context of a large global multinational. However, if the momentum for change is not sustained, the business will ultimately fail—as Textron Fastening Systems (TFS) eventually did. In fact, there is more to learn from this part of the story. On reflection, the initial success stemmed from using many of the tools we now recommend at Si2:
Organisational Design: A focused team with its own P&L, co-located with the customer.
Project Management: Application of Agile principles, emphasizing value delivery and using milestones to manage risk.
Customer Co-Creation: Active collaboration with the customer during the design, implementation, and production phases.
Teaming with Sales: Consistent alignment between account management and service operations.
Process Mapping and Blueprinting: Development of clearly defined processes, supporting IT systems, and insights into customer touchpoints and stakeholder needs.
Service Design and Business Modelling: Tools to manage financials and anticipate challenges.
Strong Vision for the Team: A compelling vision enabled ordinary professionals to achieve something extraordinary together.
Despite these achievements, the service ultimately failed and was lost 15 years later. In hindsight, two key reasons stand out:
Leadership and Ownership Commitment to Services
Loss of Focus
1. Leadership Commitment:
There was a VP for Global Service responsible for over $250 million in revenue—including the Ford Europe project. Despite this position on the board and the success of the service business, we were never able to fully shift the deeply embedded product mindset of a traditional manufacturing company. While having 10% of revenue in services was a good selling point, once TFS was spun out of Textron and acquired by private equity, services were seen merely as an asset to be sold—not as integral to long-term success. The subsequent bankruptcy of the European business is testament to the flawed logic of that thinking.
There was a VP for Global Service responsible for over $250 million in revenue—including the Ford Europe project. Despite this position on the board and the success of the service business, we were never able to fully shift the deeply embedded product mindset of a traditional manufacturing company. While having 10% of revenue in services was a good selling point, once TFS was spun out of Textron and acquired by private equity, services were seen merely as an asset to be sold—not as integral to long-term success. The subsequent bankruptcy of the European business is testament to the flawed logic of that thinking.
2. Loss of Focus:
Our successful European service business was eventually reintegrated into the broader supply chain function, where it lost visibility and strategic priority. Crucial infrastructure—particularly in procurement and IT—was never developed to support the unique needs of this type of business. As a result, the service offering became uncompetitive and was unable to attract new customers. In reality, this was a digital business, though the owners and leadership did not recognize it as such at the time.
Benefits of working with Si2
Si2 has partners who have the real life hands on experiences of driving change over extended periods of time. It is this deep understanding, when combined with facilitation skills that make Si2 catalysts for sustainable change. There are many solution providers that have the knowledge, or the facilation/mentoring skills, but very few with the two combined. This is what makes Si2 unique as your advisory partner.
