Ford Motor Company: Supply Chain strategy

Marcus Eatmon MIS 689

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?

Members of The Team had Different Views on the Subject

Some argued that the new technology made

it inevitable that entirely new business models would prevail Ford needed to radically redesign its supply chain and other activities or risk being left behind
favored virtual integration
modeling the Ford supply chain on that of companies, such as Dell

Exhibit: Dell and Ford Compared

Exhibit Dell and Ford Compared Traditional Model
order

Suppliers

Manufacturer

Distribution Channel
delivery

Customers

Direct Model
order

Suppliers

Dell

Customers

delivery

Members of The Team had Different Views on the Subject

Another group was more cautious, believing that

the difference between the auto business and relatively newer businesses
(i.e., computer manufacturing) were important and substantive

Ford supplier network had many more layers and

companies Purchasing organization played a more prominent and independent role than had Dells

Enterprise Model Comparison

Dell Operating Principles Ford Breakthrough Objectives/Key Initiatives

Customer Intimacy

Demand to Delivery Ford Retail Network

Demand Pull

Ford Production System Order to Delivery Supply Chain Mgmt. Leadership

Velocity

Order to Delivery Ford Product Development System

Virtual Integration

Fixed to Variable Cost Shift Modular Assemble Extended Enterprise

Dell had delivered on these dimensions, do you think the same methods would deliver results for Ford?

Company and Industry Background

Based in Dearborn, Michigan, Second largest industrial corporation in the world Revenues of more than 144 billion About 370,000 employees Operations spanned 200 countries. obtained significant revenues and profits from its financial services subsidiaries, core business had remained the design and manufacture of automobiles for sale on the consumer market Since Henry Ford had incorporated in 1903, the

company had produced over 260 million vehicles.

Last Two Decades

(Industry Grew more Competitive )
Big Three U.S. automakersGeneral

motors (GM), Ford, and Chrysler Foreign-based auto manufactures

(i.e.,Toyota and Honda)

Facing increasing overcapacity Advantage in the industry was fast

becoming global

How could Ford and other large automakers improve quality and reduce cycle times while dramatically lowering the costs of developing and building cars?

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

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

How would making processes and products globally common help to improve Fords production, and what is economy of scale?

Economies of Scale An economic theory stating that a plant's marginal cost of production decreases as the plant's operation increases.

The more of a good you produce, the less it costs for each additional unit. For example, a plant that produces 1,000 cars would be more efficient than a plant producing five cars.

Fords New 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

What major company processes could major reengineering projects be initiated around?

Ford 2000
Internet Revolution: created new possibilities for reengineering processes within and between enterprises Ford 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

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 Employees enjoyed record profit sharing 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

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

Fords Existing Supply Chain and Customer Responsiveness Initiatives

Existing Supply Base

As the company had grown over the years, so had

the supply base In the late 1980s: there were several thousand suppliers of production materials 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.

How could Ford improve its existing supply base?

Existing Supply Base

Beginning in the 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

Ford 2000 initiative produced five major,

corporationwide reengineering projects One was Ford Production System (FPS) Aimed at making Ford manufacturing operations:
Leaner more responsive more efficient

Ford Production System

Aspired to level production and move to a

more pull-based system, with:

synchronized production continuous flow Stability

throughout the process

What was Fords intentions when reengineering its production system, and how were they going to do this?

Exhibit 2 Moving from Push to Pull

Process Push Pull

Design

Design strategy Vehicle combinations

Pricing strategy Vehicle purchase Incentives Capacity planning

Please everyone More is better

Mainstream customer wants minimal

Marketing

Budget-driven Higher

Market-driven Lower

Manufacturing and supply

Multiple material/ capacity constraints, Driven by program Budget Maximize production make whatever you can build

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

Exhibit 2 Moving from Push to Pull

Process Dealer network Dealer ordering Push Orders based on Allocations and Capacity constraints Longer (60 + days) Pull Orders based on customer demand

Order to delivery times

Shorter (15 days or less)

Inventory

High with low turnover Independent dealerships, negotiations with company

Low with rapid turnover Company-controlled dealerships (Ford Retail Network)

Dealership model

One Important Part of FPS was Synchronous Material Flow (SMF)

Ford defined as 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. One key to SMF was In-Line Vehicle Sequencing (ILVS):
used vehicle in-process storage devices (such as banks and ASRSs) and computer software to assure that vehicles were assembled in order sequence

Order to Delivery
The purpose of OTD: reduce to 15 days from 45 to 65 days
Pilot studies in 1997 and 1998 identified

bottlenecks throughout Fords supply chain:

Marketing material planning vehicle production transportation processes

Fords Approach to Implementing an Improved OTD Process

(1) ongoing forecasting of customer demand from

dealers (2) a minimum of 15 days of vehicles in each assembly plants order bank
to increase manufacturing stability

(3) regional mixing centers that optimize

schedules and deliveries of finished vehicles via rail transportation (4) a robust order amendment process
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: (1) to be a test bed for best practices in retail distribution and drive those practices throughout the dealer network (2) to create an alternative distribution channel to compete with new, publicly owned retail chains such as AutoNation.

Comparative Metrics (latest fiscal year)

Employees Assets ($millions) Revenue ($millions) Net income ($millions) Return on sales Cash ($millions) Manufacturing facilities Dell 16,100 4,300 85,100 12,300 122,900 944 4,7000 7.7% 3.8% 320 14,500 3 (Texas, Ireland, Malaysia) Ford Automotive Financial Services 363,892 194,00 30,700 2,200 7.2% 2,200 180(in North and South America, Europe, Asia, Australia) 66,886 10* 6% per yr 33.4% per yr

Market capitalization ($millions) Price-earnings ratio 5yr average revenue growth 5yr average stock price growth

58,469 60 55% per yr 133% per yr

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

Enterprise Model Comparison

Dell Operating Principles Ford Breakthrough Objectives/Key Initiatives
Customers Customers order delivery OT D FPDS Bill of Material DTD Outbound Logistics Commodity Suppliers Component Suppliers Plan/Site Operations Inbound Logistics Suppliers Supply chain Leadership

Dealers

Ford Retail Network

Sales R&D Assembly

Order Mgmt

FP S FP S CFOP

The End
Any questions?