FORD MOTOR COMPANY-SUPPLY CHAIN STRATEGY

Diensh Jain Bhavesh Shukla Vishwanbar Pohenerkar Kumar Vikas

INTRODUCTION

Teri

Takai,

Director

of

supply

chain

systems

contemplate recommendations to senior executives. The questions asked extremely important to Fords future:

How should the company use:

Emerging information technologies (i.e. Internet technologies)?

Ideas from new high-tech industries to change the way it interacted with suppliers?

TEAM HAD DIFFERENT VIEWS ON THE SUBJECT

One group favor utilizing modern technology and redesigning its supply chain
favored virtual integration modeling the Ford supply chain on that of Dell

Another group believer difference between automobile & Computer industry are substantive as ford

Has more layer of supplier network Prominent and independent role purchasing organization

difficult to decide the appropriate and feasible scope for redesigning

COMPANY AND INDUSTRY BACKGROUND

2nd

largest industrial corporation in the world $144 billion + & 370,000 + employees spanned 200 countries. services subsidiaries is significant revenues and manufacture of automobiles for sale in 1903 by Sir Henry Ford,

Revenues

Operations

financial

and profits generator.

designing

is core business
Incorporated Produced

over 260 million vehicles since inception.

GROWING COMPETITION
U.S. automakersGeneral motors (GM) and Chrysler Foreign-based auto manufactures (i.e. Toyota and Honda) Facing increasing overcapacity Advantage in the industry was fast becoming global Need to improved quality and reduce cycle time Looking for the ways to take advantage of global presence and network

FORD 2000

Internet Revolution:

created new possibilities for reengineering processes within and between enterprises

Launched a public Internet site in mid-1995

mid-1997 visits more than 1 million per day A companywide Intranet mid-1996 January 1997 business-to-business (B2B) Extension potential of an Extranet

FORD 2000

An ambitious restructuring, began 1995

Included merging its North American, European, and international automotive operations into a single global organization

Called for dramatic cost reductions to corporate

organizations and processes by:

reengineering Globalizing corporate organization Processes

FORD 2000

Product development consolidated into five Vehicle Centers (VCs)

each responsible for the development of vehicles in a particular consumer market segment

Making processes and products globally common

Eliminate redundancies

Realize economy of scales

CREATING CONSISTENCY

Ford teamed with Chrysler and General Motors to

work on the Automotive Network Exchange (ANX)

Why important?

Network aimed to create consistency in technology standards and processes in the supplier network

Suppliers:

Pressed to lower costs Interaction would be the same

END OF 1998

Profits of 6.9 billion

Return on sales (3.9 percent in 1997)

trending solidly upward

World leader in trucks

Taken over the U.S. industry lead

profit per vehicle ($1,770) from Chrysler

Most improved automaker on the 1997 J.D. Power Initial Quality Study

(overall fourth place behind Honda, Toyota and Nissan).

EXISTING SUPPLY BASE

Huge supply base

late 1980s: several thousand suppliers in a complex network of business relationships

Suppliers were picked primarily on the basis of cost,

little regard was given to:

overall supply chain costs complexity of dealing with such a large network of suppliers.

SUPPLY BASE IN EARLY 1990S:

Shifted

toward longer-term relationships with a subset:

tier 1 tier 2 below suppliers.

Ford

made its expertise available:

just-in-time (JIT) inventory total quality management (TQM) statistical process control (SPC)

FORD PRODUCTION SYSTEM (FPS)

One of 5 corporate wide reengineered project Integrated system aimed at making Ford manufacturing operations:

Leaner more responsive more efficient

Aspired to level production and move to a more pullbased system, with:

synchronized production continuous flow Stability throughout the process

SYNCHRONOUS MATERIAL FLOW (SMF)

Important aspect of FPS a process or system that produces a continuous flow of

material and products driven by a fixed, sequenced, and leveled vehicle schedule, utilizing flexibility and lean manufacturing concepts.

In-Line Vehicle Sequencing (ILVS) on key:

used vehicle in-process storage devices (such as banks and ASRSs) and computer software to assure that vehicles were assembled in order sequence

Benefit:- Helped accurate forecasting of components requirements.

ORDER TO DELIVERY

The purpose of OTD:

reduce to 15 days from 45 to 65 days

Identified bottlenecks in Fords supply chain:

Marketing
material planning vehicle production transportation processes

IMPLEMENTING IMPROVED OTD PROCESS

Approach

relied on :-

ongoing forecasting of customer demand from dealers 2. a minimum of 15 days of vehicles in each assembly plants order bank
1.

to increase manufacturing stability

regional mixing centers that optimize schedules and deliveries of finished vehicles via rail transportation 4. a robust order amendment process
3.

to allow vehicles to be amended for minor color and trim variations without the need to submit new orders

FORD RETAIL NETWORK

July

1, 1998, launched first Ford Retail Network (FRN) in Tulsa, Oklahoma

under the newly formed Ford Investment Enterprises Company (FIECo).

Two

primary goals:

to be a test bed for best practices in retail distribution and drive those practices throughout the dealer network to create an alternative distribution channel to compete with new, publicly owned retail chains such as AutoNation.

DIFFERENCE IN BUYING A CAR TO THE OF BUYING A COMPUTER ONLINE ?

WHAT DO YOU THINK EXPLAINS THE DIFFERENCES?

BUYING CAR

Dealer personal attention important Order to delivery time/ availability of model Availability of color options

Physical feel
Ride experience On site decision of accessories More capital is involved Replacement is issue!

BUYING COMPUTER ONLINE

Easy to use portal More variety is available Ease of customization

Delivery time 5 -7 days

Physical feel may not be important factor as

products are standardize Replacement not issue! Decision is less capital intensive

1. WHAT ADVANTAGES DOES DELL DERIVE FROM VIRTUAL INTEGRATION? 2. HOW IMPORTANT ARE THESE ADVANTAGES IN THE AUTO BUSINESS?

VIRTUAL INTEGRATION

use of the Internet to replace physical components of a company with information way of getting advantage of vertical integration without actually integrating vertically.

DELL VIRTUAL INTEGRATION ADVANTAGES

Superior demand forecasting

Better communication and coordination with supplier.

Real time responsiveness and inventory management. Consistency in technology and processes Reduction in working capital

Low risk of inventory obsolescence

VIRTUAL INTEGRATION :- ADVANTAGES HOW IMPORTANT ARE THESE IN THE AUTO BUSINESS?

Superior demand forecasting from dealers

Forecasting of customer demand from dealer main

basis of Order to Delivery time from 60 to 15 days.

Real time responsiveness and inventory

management.

Developed extranet for Just in time delivery Devised FPS with Synchronous material flow

Consistency in technology and processes

Achieved through information sharing via ANX

Conclusion:- Equally important, integration more challenging

ENTERPRISE MODEL COMPARISON

Dell Operating Principles Ford Breakthrough Objectives/Key Initiatives
Customers Customers order delivery
OTD

Dealers

Ford Retail Network

Sales R&D Assembly

Order Mgmt FPD S DTD Outbound Logistics Supply chain Leadership Bill of Material

Commodity Suppliers Component Suppliers

FPS

Plan/Site Operations Inbound Logistics Suppliers

FPS

CFOP

ENTERPRISE MODEL COMPARISON

Dell Operating Principles Customer Intimacy Demand Pull Velocity Ford Breakthrough Objectives/Key Initiatives Demand to Delivery Ford Retail Network Ford Production System Order to Delivery Supply Chain Mgmt. Leadership Order to Delivery Ford Product Development System Fixed to Variable Cost Shift Modular Assemble Extended Enterprise

Virtual Integration

WHAT CHALLENGES DOES FORD FACE THAT ARE NOT ALSO FACED BY DELL? HOW SHOULD FORD DEAL WITH THESE CHALLENGES?

DELL AND FORD COMPARED

Dell Processes Suppliers own inventory until it is used in production Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour External logistics supplier used to manage inbound supply chain Customers frequently steered to PCs with high availability to balance supply and demand Demand forecasting is criticalchanges are shared immediately within Dell And with supply base Demand pull throughout value chaininformation for inventory substitution Focused on strategic partnerships: suppliers down from 200 to 47 Complexity is low: 50 components, 8 10 key, 100 permutations Ford

SUPPLIER BASE
Challenges Several Thousands of suppliers How Ford Dealt Shift towards reduced capable long-term suppliers Divided suppliers in based on subsystem Tier I, II, below supplier Focus on overall supply chain cost

Complex network of business relationship

Little regard to overall supply chain costs Little regard to overall supply chain costs

Build extranet to manage information with suppliers

DEMAND FORECASTING
Challenges Ford was not in direct touch with customers Product sold through dealers How Ford Dealt Start taking ongoing forecast of customer demand from dealers

ORGANIZATIONAL STRUCTURE
Challenges Purchase was independent of product development How Ford Dealt Initiatives to improve communication and coordination between purchase and production

MOVING FROM PUSH TO PULL

Process Design Design strategy Vehicle combinations Marketing Pricing strategy Vehicle purchase Incentives Capacity planning Push Please everyone More is better Pull Mainstream customer wants minimal

Budget-driven Higher

Market-driven Lower

Manufacturing and supply

Multiple material/ capacity constraints, Driven by program Budget

Market-driven and (no constraints FPV/ CPV* + 10% for vehicle, +15 for components Schedule from customer-driven order bank, build to schedule

Schedule and build

Maximize production make whatever you can build

MOVING FROM PUSH TO PULL

Process Dealer network Dealer ordering Pull Orders based on Allocations and Capacity constraints Push Orders based on customer demand

Order to delivery Longer (60 + days) times

Shorter (15 days or less)

Inventory

High with low turnover

Low with rapid turnover

Dealership model Independent Companydealerships, controlled negotiations with dealerships (Ford company Retail Network)

GLOBAL APPROACH
Technology was employed to overcome constraints usually imposed by geography Teams on different continents needed to be able to work together as if they were in the same building In every reengineering project, information technology (IT) was critical

deployed to enhance material flows and reduce inventories

substituting information for inventory

IF YOU WERE TERI TAKAI, WHAT WOULD

YOU RECOMMEND TO SENIOR EXECUTIVES? TO WHAT DEGREE SHOULD FORD EMULATE

DELLS BUSINESS MODEL?

RECOMMENDATIONS
Ford 2000 program must be strengthen Develop strong Demand Chain to meet & exceed customer satisfactions in term of: Exclusivity: flexible for customization Performance, reliability Service: intervals, cost and convenience Competitive price

Better Relationship Management through out the value chain by:

Better segmentation strategies: to drive the value chain and to utilize the strength of brand. Procurement & R&D Integration focus on consumer surplus rather than cost only. Develop multi-skills between procurement & product development. Better utilize the Internet to facilitate sharing information/ fast response to customers Simplify IT (Electronic Data Interchange links) so that more suppliers can joint the value chain

Drive the organization for more efficiency:

For more effective operation & coming over the exceed capacity issue: the outsourcing production/ co-production are good alternatives. In applying direct selling approach (from B2B to B2C) Reducing the complexity by applying standardizing criteria for part supplier networkMore availability, more flexibility & faster in OTD. Recruit, Training & Develop high skills work forces that can sense & response to rapid shift.

THE END
Any questions?