Ford Motor Company Supply Chain Strategy

Executive Summary Upon studying Ford‟s existing supply chain it is not hard to see the high level of complexity within. This level of complexity blended with other internal and external factors have made Ford realize they need to explore solutions to deal with the supply chain challenges leading to cost and the reality they are facing and may continue to face in the future. The majority of issues in Ford‟s present chain result from inefficient control of their large supplier base and the complexity of their supplier network in addition to inability to communicate to server their end customers. Ford has realized the urgent need to change their supply chain in order to be more cost effective and more profitable for its shareholders. Since Dell and Ford are two different types of markets, one is in the computer manufacturing/distribution business and the other is in the automobile business, it does not seem right for Ford to implement the exact “virtual integration model” deployed by Dell. The fact the car buyer usually wants to touch and feel the car before they make a purchase of a car would put Ford at risk of losing their customers to the competitors. On the other hand when customers buy computers on-line they don‟t have to worry about touching and testing the computers and they require a better price than the other retail avenues to buy computers. Some other considerations in this case are the consideration of the buying frequency of cars versus computers and financing requirements for a car versus a computer. Another consideration would be the number of suppliers to support Ford manufacturing versus Dell‟s computer manufacturing. Although the model deployed by Dell seems to be a stretch there are certain aspects of the model Ford can fully adopt or partial implement to place them in a better position to grow and realize more profit for the shareholders.

Ford Motor Company: Supply Chain Strategy Case Analysis Issue Identification Ford has a need come up with a solution to the below issues to try to determine which information technology strategy will work best for their supplier interaction as well as with their current engineering designs and projects.

1)

Ford‟s current supplier base: a.

Ford has recently decreased their supplier base to have a better long-term

relationship and closer relationship with fewer suppliers called „Tier 1‟ suppliers. The Tier 1 suppliers provide Ford with complete vehicle sub-systems. The Tier 1 suppliers work with multiple Tier 2 suppliers who provide the components that make up the vehicle sub-systems. b.

The Tier 1 suppliers do not have the capital to invest in the new technologies that

Ford seeks to get into. However, the Tier 1 suppliers do have fairly solid IT capabilities, but these capabilities severely drop when dealing with the Tier 2 suppliers. Ford has also made it expertise available to support the Tier 1 suppliers through tools like Just-in-Time inventory, Total Quality Management and Statistical Process Control.

2)

Purchasing organization: a.

Ford‟s purchasing department is independent of the product development area.

However, purchasing has a strong dominance over the product design price negotiations because “a very slim reduction in purchasing cost could result in very significant savings” for the company.

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Ford Motor Company: Supply Chain Strategy Case Analysis b.

Dell‟s vertical integration has these areas working very closely together. Could

Ford also successfully merge these two areas to get reach a common goal?

3)

Forecasting within the Ford 2000 projects: a.

Two key initiatives under the Ford 2000 project are the Ford Production System

(FPS) and Order to Delivery (OTD). The FPS project was geared at steering Ford manufacturing operations to be leaner, more responsive, and more efficient. This would be promoted by focusing on continuously flowing material through using vehicle inprocess storage units and proper assembly order sequence. The OTD project was started to reduce the order time from the present of 45-65 days down to only 15. b.

The accuracy of Ford‟s forecasting is an integral step in being able to maintain the

continuous flow of materials from suppliers as well as being able to turn the vehicles around within 15 days. This is the first time that Ford had ever involved the dealers with forecasting the customer demand. c.

In 1998 Ford launched the Ford Retail Network (FRN), which was put in place to

address the changing face of retail vehicle distribution systems in North America. One of the principles was to buy the local dealers so the dealers competed with the competition instead of each other. This may provide Ford with another level of detail to the customer requirements.

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Ford Motor Company: Supply Chain Strategy Case Analysis Environmental and Root Cause Analysis In the 70‟s Ford‟s main competition was General Motors and Chrysler. With the entrance of Japanese companies like Honda, and Toyota the Ford Motor Company faced stiffer competition in the market. Ford along with General Motors and Chrysler were forced to react to the foreignbased auto manufacturers. They also had to face the reality of an industry issue of an overcapacity due to economic reasons. This drove Ford to develop and expand their export-oriented auto industry reach. The focus in the auto industry changed to becoming a global force and Ford and other North American automakers looked at acquiring such companies as Sweden‟s Volvo. The addition of further automakers abroad for Ford only added more complexity to the supply chain and the need to manage more supplier relations. To deal with the complexities added by the vast number of suppliers Ford in the 1990‟s implemented a tiered approached. The focus was long term relationships with Tier 1 suppliers who in turn would manage and handle Tier 2 and Tier 3 suppliers. In order to deal with the further complexities Ford initiated the Ford 2000 plan which aimed at restructuring many of their key processes. The systems and processes identified were Order to Delivery (OTD), Ford Production System (FPS) and Ford Retail Network (FRN). The goal was to minimize the complexity in the supply chain and manage costs to the business. Takai has been tasked with a task of deciding quickly which approach or decision to put forth and whether to adopt Dell‟s model. Dell‟s model of virtual integration is a full swing the other way from Ford‟s current vertical integration model. There is a great deal to implementing a full virtual integration model successfully. The best approach may not be a full commitment to virtual integration due to the over complexity of Ford suppliers compared to Dell. The approach to adopt the parts of Dell‟s model which will be seen as feasible may be optimum decision. The overall cost to implement a virtual integrated system may not be feasible

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Ford Motor Company: Supply Chain Strategy Case Analysis or successful. There are certain aspects of buying a car and buying a computer that have similarities although they do drive different behaviors.

Alternatives and Options 1) Keep its existing supply chain a) Advantages: No major changes and additional costs involved. b) Disadvantages: Ford‟s IT will eventually become obsolete and Ford will slip away from not embracing technology across its organization.

2) Create mix of online and offline operations and put processes & procedures in place to enable customization and ordering by customers over the internet but maintain physical dealerships and FRN‟s. a) Advantages: Customization to clients, start of vertical integration, b) Disadvantages: Could be costly, time consuming, requires internal and external changes which are not easy to handle and integrate with other operations.

3) Create a virtually integrated supply chain based on Dell's model. Ford and all its suppliers would share information between their systems and the Internet to coordinate the flow of materials and production. All customer orders would be taken either via Ford's web site or at the dealership via Ford‟s intranet and then built. A pull system would be implemented completely. a) Advantages: Customization to clients, start of vertical integration in the supply chain.

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Ford Motor Company: Supply Chain Strategy Case Analysis b) Disadvantages: Ford's traditional processes and production methods would have to be changed to make full of this new form of supply-chain management. It is a very costly and time consuming activity, the difference in the two industries makes it a risky option.

Recommendations In order for Ford to keep embracing technologically they will need to keep their Tier 1 suppliers on track with them and develop direct links to Tier 2 suppliers. Ford facilitate setting up a web-based supply chain system that would allow the Tier 1 suppliers to use their advanced IT capabilities without having to invest a lot of capital in emerging technology. This would allow Tier 2 suppliers to access the system to input progress of production as well as to take part in future designs. There are numerous reasons why this web-based supply chain would be beneficial to Ford and its suppliers. First, suppliers would be able to work off of a central design database in which Ford could control their level of access. Due to Ford‟s aggressive purchasing strategy a discrete access to supplier costs the lower tier suppliers would not disclose costs and contract terms between suppliers. Second, Ford would be able to control the technological level that it would like to operate at. Each supplier would have their access limited depending on the functions needed. Ford would be able to update and modify the program with little or no program changes needed on any of the supplier‟s systems. The system would be secured and segmented to individual suppliers and the risk of proprietary information or software getting out would be minimalized. Third, the initial investment for levels of suppliers would be minimized. This could drive lower material prices and decrease the risk of losing valuable Tier 2 or even Tier 3 suppliers. Currently the relationship with Tier 2 suppliers does not exist. If something 5

Ford Motor Company: Supply Chain Strategy Case Analysis happened with the Tier 1 supplier, Ford would lose the relationship with all of the Tier 2 suppliers working under that one supplier possibly. With a direct relationship with the Tier 2 suppliers it would create a more secure environment for that supplier because they would not only have a relationship with the Tier 1 supplier but also directly with Ford.

Ford could change focus within the purchasing department by realigning them with the product development area leading to cost reduction and increased efficiencies. The purchasing team could provide proposals to standardize components the engineers should use so that purchasing can decrease the batch cost of a component by ordering more without running the risk of building large amounts of inventory. In addition to standardizing, purchasing could source suppliers and analyze which one can provide certain components at the most reasonable price based on batch run size. Purchasing would then work directly with product development and design to use that component in a new or existing designs.

One of the challenges faced by most manufacturers, including Ford is forecasting. Ford‟s current model does support the “Pull” system and automobiles are just a “Push” into the end dealerships. Ford has internet sites in place today which would be not too far from the Dell Model. You essential chose your model and add options. A V6 engine or a V8 engine is comparative to an Intel I5 processor to an Intel I7 processor. The internet site would need to have the ability for a customer to essential build their automobile the same as a computer and request a quote or price. The different base level models would be available at the dealerships for a test drive. The order would be placed by the dealership or from the online quote provided by the customer. The financing and arrangements would take place in the traditional sense at the dealer. This would

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Ford Motor Company: Supply Chain Strategy Case Analysis drive the dealerships to understand and possibly forecast for base model requirements. The vehicles would be then manufactured and suppliers would provide the parts required to meet the specific customer orders.

Implementation The recommendation is for Ford to extend its IT investment by going partially to the Dell‟s model of supply chain. There are parts of the virtual integration model used by Dell that do not fit Ford‟s model and they need to be discarded. The dealerships would still play a role in the distribution since we understand the need for customers to still test drive and sit in the vehicles as virtual tours does not do it for them. The IT systems should be centralized since its Tier 2 and Tier 3 suppliers might not be able to update their IT infrastructure as frequently as Ford or have the money to invest. Suppliers can have access to Ford‟s design database while Ford controls the access and functionality as required. The whole coordinated system would ensure a smooth flow of materials and reduced bottlenecks and enhance the efficiency of the supply chain giving a competitive edge to Ford. The dealers should play a more important role in forecasting customer demand and Ford should explore the option of outsourcing it to a company who is specialized in forecasting systems.

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Ford Motor Company: Supply Chain Strategy Case Analysis Monitor and Control Metrics will be an important part of determining the success of the changes and investments put forth by Ford Motor Company. Some key measurement will be manufacturing efficiencies, cost control, supplier performance and Order to Delivery times. Manufacturing efficiencies will be measured by the number manufacturing line changeovers and/or model changeovers. Supplier performance will be measured on the basis of their ability to supply the right parts required and on time. Another important measurement of a successful automobile manufacturer is the recall figures. This would also allow Ford to recognize a low quality or off spec supplier. And the last area to monitor and provide metrics on would be the overall order to delivery time. The bar has been set at 15 days. With the new supply chain in place it may be reasonable to put in a target of less than 15 days based on performance.

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