Ford Motor Case Module 1

Instructor: Perry Davidson Student: Sergiy Tereshchenko # 066577131 Date: 11.18.2013

Table of Contents

Executive Summary Issue Identification and Root Case Analysis Alternatives and Options Recommendations Implementation Plan Monitor and Control Conclusion Exhibits

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Executive Summary

The first glance at Fords existing supply chain shows its highly complex nature. This high level of complexity includes different from Dell relationships not only with suppliers but also with dealers and customers. All these factors pushed Ford to search for solutions in order to overcome the costly supply chain challenges that they are facing and may continue to face in the future. Fords major difficulties in the present system include the inefficient control of the large database and complex network of suppliers, the existence of independent distributors and their inability to communicate and serve their customers directly. Realizing an urgent need to modify their supply chain in order to make it more cost effective and more profitable, my decision as Teri Takai is partial implementation and execution of the virtual integration direct business model invented by Dell. Through this model Ford will use the emerging information technologies and internet as well as new ideas from Hi Tech industry in order to interact and transact with their suppliers and end users. Furthermore, Ford can boost its sales by providing better customer service and improving communication between all tiers: suppliers, manufacturer, and customers. This proposed system will have to run concurrently with the existing supply chain so that Ford will cover both market segments at the same time. Since Dell and Ford are two different types of industries, one is in computer manufacturing and the other is in auto industry, it does not seem right for Ford to implement exactly the same virtual integration model as Dell. In fact, if Ford implements the full direct business model alone and abolished its existing supply chain then 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 buy it for a large amount of money. On the other hand, when customers buy computers online they dont have to worry about touching and testing the computer, all they require is a better price than the retail shops and the products specs are according to their needs. To measure the performance of this model, Ford should schedule periodical review and evaluation meetings. Recommendations for improvements should be noted along the way in order to be evaluated. The improvement of customer service and shareholder value should be the main aim of the whole project.

Issue Identification

The following are a list of issues that must be addressed:

Complexity of relationships with suppliers and dealers Lack of modern and common IT infrastructure Real-time inventory management Strong purchasing power No control of end users Dealers and suppliers concerns Challenge of forecasting

Issue Identification including Root Case Analysis

Complexity of relationships with suppliers and dealers The fundamental issue for Ford is the management and control of the large data base of their business partners, particularly suppliers and sub-suppliers. Unlike Dell, which has only about 50 suppliers, Ford has several thousand suppliers (Exhibit 2) and operates in a more complex network of business relationships. To produce a single product, Dell needs less than hundred parts whereas Ford needs several thousands. In addition to such large data base of suppliers, Ford also has a large number of dealership networks who are widely spread in large geographical areas around the world. 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. Lack of modern and common IT infrastructure: The inability of Fords first and lower level tier suppliers to keep up to date with IT technology that is need by Ford to stay up to speed in managing their production operations as intended is a major bottleneck within the supply chain. The lack of proper IT technology could result in miscommunication and lack of coordination between the supply partners and the outcome could be a higher order lead times, higher cost and operational hassle. Real-time inventory management Dells virtual integration with suppliers provides additional benefits because it operates in realtime (or near real-time). The service strategy describes how integration with systems of third party maintainers helps improve responsiveness to customer needs and keep component inventory moving while simultaneously tracking quality problems. As described above, the same system for Ford is hard to achieve due to old IT infrastructure and even lack of IT technologies at 2nd and 3rd tier suppliers. If Ford suppliers could see into assembly plants in a transparent and real-time manner, then they would be able to see out-of-sequence problems as they developed in real-time and to adjust their own component flows in real-time to compensate. Lack of direct control of end users: Due to the use of independent dealership networks to sell their products, Ford lacked control on their product end users. Such lack of control combined with dealer markups had negatively impacted their ability to directly control their customer service experience.

Strong purchasing power Another major difference between Dell and Ford is organizational. At Dell, purchasing activities report into the product development organization. At Ford, purchasing is organizationally independent of product development and a powerful force within Ford. Because of the sheer volume of materials and services that Ford purchased, a very slim reduction in purchasing cost could result in very significant savings, thats why purchasing was involve d in nearly every product decision. Engineers were counseled to avoid discussing prices in interactions with suppliers as it was the sole prerogative of purchasing agents. Consequently, it is hard to imagine how it might work in virtually integrated supply chain. Dealers and suppliers concerns By comparing Dell and Ford it becomes clear of the potential for partner conflicts that arise as incumbent firms move to buy and sell via internet. Fords independent dealers, for example, are worried about losing sales to new web-based channels and they might oppose to Takais initiative implementing new technologies. As for the suppliers, they are worried about costs required for developing web capabilities and about the implications for the kind of information sharing that more direct models seem to involve (historically sharing information with automakers would lead to lowering suppliers margins). As for the Dell, these factors are either absent or less consequential. Challenge of forecasting There is a big challenge of forecasting what customers will buy. Once again, Dells industry is simpler than Fords. Most of Dells sales are direct to large institutional customers (Exhibit 1) who can be canvassed concerning the future needs. Because of its independent dealer network, Ford does not even own data it needs to forecast sales, and there are multiple issues that can arise in forecasting and delivering on forecast in an industry with such a complex supply chain.

Alternatives and Options

OPTION Design a mixture of online and offline operations and form procedures to enable customization and ordering cars by customers over the internet, but maintain physical dealerships as well. PRO - Customization to customers, start a supply chain vertical integration business model. - Open new market segment and attract clients who like online shopping. - Reduction in overhead and inventory carrying costs. - Direct control on customer service experience. - Customization to clients, start of vertical integration in the supply chain. - Customers needs are met faster at higher profits due the elimination of resellers mark-ups. - Directly control customer service. - Minimal inventory carrying costs and higher order lead time. - The ability to forecast demand is significantly better. - Improved relationships with both customers and suppliers. CON - Costly, time consuming and requires internal and external changes which are not easy to handle and integrate with other operations. - Independent dealers will complain due to internal competition. - Suppliers inability to keep up to speed with Fords modern IT technology. ALTERNATIVE - Creating online option of choosing a car, but the actual sale will be at dealers location. - Creating together with suppliers a common IT modern system for real-time order/materials flow tracking. - Ford should combine virtual integration business model to their existing supply chain. Advantages: their overhead and inventory carrying costs will decrease, and Ford will be in a better position to have a direct interaction with their customers.

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.

- 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. - The loss of dealerships will mean a loss of business to competition. - Change management has to take effect which is costly and emotionally sensitive.

Recommendations

The following is a summary of my recommendations: 1. Ford should extend its virtual-business strategy by partially implementing the Dells model of supply chain. 2. The part of the Dells model which does not fit with Ford need to be discarded. 3. Creating a new up to date website to allow private customers choosing a favorite car to buy. At the same moment dealers would still play a role in the distribution and final sale since the buying experience of a car from a dealer cannot be substituted by something virtual like a 3d model on a computer or images and description online. 4. Fords IT system should be centralized, upgraded and shared with suppliers since its Tier 2 and Tier 3 suppliers might not be able to update their IT infrastructure as often as Ford. 5. Developing and implementing new IT system to allow real-time tracking of materials flow and orders flow together with suppliers. They should have access to central design database while Ford controls the access and functionality as per the operational requirements. 6. 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. 7. The dealerships and Ford should explore an option of cooperation in the forecasting process in order to improve inventory velocity and reduce cash to cash cycle.

Implementation Plan
Recom Activity mendation Who Primary
Teri Takai TT Head Office HO IT Dept IT Dealers D Suppliers - S

Who Support
Teri Takai TT Head Office HO IT Dept - IT

When
Immediate Short run Medium Long run

1 2 2 2 3 4 5

Partial implementation of Dell model Upgrade of the IT system IT system centralization Sharing of the IT system with suppliers Launching a new up to date website Involving dealers in forecasting operations Creation and implementing a real-time materials flow and orders tracking system.

HO HO HO HO IT HO HO

TT IT IT IT IT D S

L I I M I I I-L

Monitor and Control

In order for the new system to function appropriately as intended, Ford must perform the following functions:

1. Appoint an IT specialist as a liaison to coordinate all IT activities with all suppliers in order to insure a smooth flow of information among the supply chain partners and immediately resolve issues as they arise. 2. Monitor customers orders by reviewing all order lead times. The time from the customer order initiation to delivery must not exceed a standard period of time which has been set by the company. The new real-time approach should help to reduce the lead time. 3. Initiate an online customer satisfaction program in which customers will evaluate and rate their customer experience with Ford. 4. After every 6-8 month, review the performance and make recommendations on improvements to the appropriate authority. 5. Annual executive meetings should be held to review the progress of the business model. As well, review the shareholder value to check whether its increasing or decreasing.

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Conclusion

By making such major decision to combine virtual integration business model to their existing supply chain (Exhibit 3), Ford can look forward to a much more efficient and profitable future as a result of implementing the recommendations concerning the online business model: their overhead and inventory carrying costs will decrease, and Ford will be in a better position to have a direct interaction with their customers. Furthermore, the overall success of this business model will depend mainly on the performance of their shareholder value. The full copying of Dells virtual supply chain model is impossible, from my point o f view, due to significant difference between computing and automobile industries and complexity of the latter one. But, implementing modern technologies throughout the all tiers of the supply chain will allow Ford to track flow of materials in real-time and provide a significant help in improving its forecasting function. Consequently, by upgrading its supply chain using modern technologies will lead Ford to better customer service and other internal and external improvements within the whole supply chain.

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Exhibits

Exhibit 1 - DELL
Institutional

DELL

Customers

Suppliers

Individual Customers

Exhibit 2 - FORD Customers Dealers

Suppliers (in tiers)

T3

T2

T1

FORD

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Exhibit 3: Combination of virtual and vertical supply chain

Customers Real time

Website FORD

Dealers

Suppliers
Forecasting Customers

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