Ford : Supply Chain Strategy

Ford Motor Company: Supply Chain Strategy case focuses on the viability of implementing a supply chain strategy following Dell's model.

Ford's supply chain has a complex nature. My recommendation is an implementation of the virtual integration strategies that has been used by Dell. Ford should set up a special department responsible for handling new business processes. Capital investment in new high tech equipment is required. Ford also should educate their employees as well as third parties how to use a new system and present benefits to all.

Suppliers' computers should be linked to Ford's master computer network and customers should be aware of this new shopping experience for buying an automobile.

Ford should review and evaluate a performance of the new model during rapid meetings. Recommendations for improvements should be noted along the way in order to be evaluated.

Customer satisfaction and shareholder value should be the main aim of the whole project. It is hard to estimate whether the project will be fully successful; however with the good planning, control and time invested, I am positive new system will be a great asset to the company and will give a competitive advantage in a long term.

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.

In fact, Ford will certainly run into a high risk of losing their business to competitors due to the fact that customers want to test and feel the car before they purchase it. On the other hand, when customers buy computers online they don't have to worry about touching and testing the computer, all they require is a better price than the retail shops and the product's specs are according to their needs.

ISSUES IDENTIFICATION: Long / Short

Strategic long term issues

The main issue for Ford is the control of their large data base of their business partners, suppliers and sub-suppliers. Ford has several thousand suppliers and has more complex business relationships network than companies like Dell with only 50 suppliers or so. To produce a single product, Dell needs less than hundred parts whereas Ford needs several thousands. Ford also has a wide chain of dealerships in different geographical areas around the globe. Managing both suppliers and customers in a single efficient supply chain had always been a challenge for Ford who is constantly looking for new ways to better control and manage their supply chain operations in a more productive and cost effective way.

Short term issues

Lack of up to date IT infrastructure: The biggest bottleneck in supply chain is to stay up to speed with production as per schedule as there are lack of up to date IT technology within first and lower levels suppliers. The lack of proper IT technology could result in miscommunication and bad coordination between the supply partners. The outcome could be a higher order, longer lead times, higher cost and operational hassle.

Lack of direct control of end users: Due to sales structure through independent dealerships, Ford doesn't have a control over the end user of their product. Such lack of control combined with dealer markups had negatively impacted their ability to directly control their customer service experience. Procurement issue

ROOT CAUSE ANALYSIS

1 Quantitative and qualitative analysis

With over 370,000 employees worldwide and revenue of more than $144 billion, Ford Motor Company has been classified as the world's second largest industrial corporation. Ford was established by a visionary Henry Ford in 1903 and it has been in business ever since. Ford's core business is the production and distribution of cars and trucks. In addition to that, Ford earned substantial revenues and profits from its financial subsidiaries that operated mainly in North America with limited operations in Europe and everywhere else. In its 1997 financial statement, Ford reported close to $ 7 billion in net income and a 5 year average revenue growth rate of %6.These positive financial statement figures were an indication of Ford's strong market and financial positions. Its main competition till 1970's was with General Motors and Chrysler.

However with the entry of Japanese companies like Honda, Toyota and Nissan the firm faced stiffer competition with the auto market being over-capacitated. In order to take advantage of their global presence and deal with the increasing global competition, Ford along with General Motors and Chrysler saw an urgent need to consolidate their industry and started merging with other automakers around the globe. Such urgent remedial action had enabled these giant firms to achieve better quality products at a reduced cycle time and lower costs due to the economies of scale.

After merging with Daimler-Benz, Ford's database of suppliers has increased substantially in both home and abroad. Having this huge number of suppliers has made their supply chain more complex, expensive to run and difficult to manage. In order to deal with the supply chain issues, better manage suppliers, improve their production processes and ultimately lowering their cost, in 1995 Ford initiated the Ford 2000 plan which aimed at restructuring many of their key processes like Order to Delivery (OTD) and Ford Production System (FPS). They wanted to reduce the OTD from 60 or more to 15 days or less. FPS was created to convert the supply chain from a push type to a pull type. Ford strives at reducing the number of suppliers which had grown to several thousand over the years as the company grew. Rather than focusing on selecting suppliers based on costs they wanted to develop close long-term relations with the Tier 1 suppliers who in turn managed and handled Tier 2 and Tier 3 suppliers.

The aim was to create a more cost effective supply chain. Ford provided its suppliers with its expertise and techniques to help them better manage their operations. Another important initiative taken by Ford was the Ford Retail Network (FRN) to reduce competition among its dealerships in the same locality by having only one unified dealer who provides the best possible level of customer experience. The director of supply chain system, Takai was making a decision whether they should use Dell's integrated supply chain system or not.

ALTERNATIVES AND OPTIONS

Alternative 1

Design a mixture of online and offline operations and form procedures to enable customization and ordering by customers over the internet but maintain physical dealerships as FRN's.

Advantages:

a) Customization for clients, a vertical integration supply chain business model.

b) By opening new market segment, new customers with preference for online ordering could be gained.

c) Reduction in overhead and inventory carrying costs.

d) Direct control on customer service experience.

Disadvantages:

a) Costly, time consuming requires internal and external changes which are not easy to handle and integrate with other operations.

b) Independent dealers will complain due to internal competition.

c) Suppliers' inability to keep up to speed with Ford modern IT technology.

Alternative 2

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 by phone and then build. A pull system would be implemented completely.

Advantages:

a) Customization to clients, start of vertical integration in the supply chain.

b) Customers' needs are met faster at higher profits due the elimination of reseller's mark-ups.

c) Directly control customer service.

d) Minimal inventory carrying costs and higher order lead time.

e) The ability to forecast demand is significantly better.

f) Improved relationships with both customers and suppliers.

Disadvantages:

a) Ford's traditional processes and production methods would have to be changed to take advantage of this new form of supply-chain management. Since it is a very costly and time consuming activity, the difference in the two industries makes it a risky option.

b) The loss of dealerships will mean a loss of business to competition.

c) Change management has to take effect which is costly and emotionally sensitive.

RECOMMENDATIONS AND IMPLEMENTATION

Recommendations

In order for Ford to keep it's technologically at efficient level they will need to keep their Tier 1 suppliers on track with them and develop direct links to Tier 2 suppliers. By setting up a web-based supply chain system Ford will allow Tier 1 suppliers to use their strong IT capabilities without capital investment in emerging technologies. It also will allow Tier 2 suppliers to input progress of production and suggest future designs. There quite a few reasons why Ford will benefit from web-based supply chain system:

Supplier access to the central design database. Ford could control the level of access for each supplier. Due to Ford's aggressive purchasing strategy there should be a limited or no access to supplier's costs, contract terms and other proprietary information. Ford would be able to control the technological level that it would like to operate at.

Each supplier should have an access only to the area of their function. Ford would be able to update and modify the program with little or no program changes needed on any of the supplier's systems. By segmenting system to individual suppliers, there will be a minimum risk of information or software getting out.

Minimum investment for level of suppliers. This may decrease material prices and minimize risk of losing Tier 2 or even Tier 3 suppliers. There is no relationship with Tier 2 suppliers at this point of time. If something happened with the Tier 1 supplier, Ford would lose the connection with Tier 2 suppliers under it.

Direct relationship with the Tier 2 suppliers will insure more secured environment with that group as all of them will have a direct access to Ford.

MONITOR AND CONTROL

In order for the new system to function in effective and expected way, Ford must perform the following functions:

Assign an IT specialist as a liaison to coordinate all IT activities between suppliers and Ford Company. IT specialist should resolve all issues arising in order to increase a level of communication and insure smooth flow of information between partners. The company must insure the leading time met for every request by monitoring online orders.

Ford Company should have an online survey to monitor customer satisfaction and evaluate their experience. Performance control should be done by analysing results every 6-8 month. Improvement recommendations should be provided accordingly. Annual executive meetings should be held to review the progress of the business model. The shareholder value should be analysed and monitored for any increases and decreases.

CONCLUSION

Ford should continue its process of building strategic relationships and work on its' internal culture. Integration of supply chains on the scale practiced by Dell can only occur in an environment where information flows freely to all points of the supply network. By making such major decision to combine virtual integration business model to their existing supply chain, Ford can look forward to a much more efficient and profitable future.

Questions:

1. What are the supply chain strategies discussed in the case that Ford followed to be successful?
2. What improvements in the supply chain process would you recommend to the company?
3. Summarize the supply chain journey of Ford in the case.