c

c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c

c
Ford Motor Company: c

Supply Chain Strategy c

c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c

CONTENTSc c

1c INTRODUCTION ................................................................................................................ ....c 2c

2c CASE DESCRIPTION ............................................................................................................. c 3c

c 2.1c Company History ............................................................................................................... c 3c

c 2.2c Automotive Industry ......................................................................................................... c 3c

c 2.2.1c Traditional Supply Chain.............................................................................................. c 6c

c 2.2.2c Virtually Integrated Supply Chain ............................................................................... c 8c

3c FORD MOTOR COMPANY AND DELL COMPUTERS COMPARISON ............... c 9c

c 3.1c Similarities ................................................................................................................ ...........c 9c

c 3.2c Differences.................................................................................................................. ........c 9c

4c ALTERNATIVE SOLUTION PROPOSALS................................................................... c 12c

5c E-BUSINESS STRATEGY AND AFTER 1999............................................................... c 13c

c 5.1c Transformation of the Customer, Dealer, and Owner Relationships .....................c 15c

c 5.2c Customer Assistance Centers and In-Vehicle Communication ............................... c 16c

c 5.3c Supply-Chain Integration: The Trading Hubs........................................................... c17c

c 5.4c Transforming the Supply Chain.................................................................................... c 18c

6c CONCLUSION .................................................................................................................. .....c 19c

7c REFERENCES............................. ........................................................................................... c20c

c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
1. INTRODUCTIONc
c
Henry Ford, founder of Ford Motor Company, was in his time an innovator in
offering 'cars for the masses'. He introduced to the car industry methods and
systems innovative in their day. After then, Ford Motor Company finds itself in a
dynamic business environment where new technologies and practices offer the
potential to alter in a signi ficant way the landscape in which it operates. Ford
needs once again to forge new paths to ensure future competitive advantage. c
c
c
In the fall of 1999, Jacques Nasser, Ford Motor Company¶s president and chief
executive officer, announced a grand new vision for the firm: to become the
³world¶s leading consumer company providing automotive products and
services.´ Key to that dream was the transformation of the business using Web
technologies. The company that taught the world how to mass -produce cars for
the consumer market was going to become the leading e -business firm. c
c
c
Executives at Ford have been considering the 'Direct Model' created by Dell
Computer Corporation and finds that there is considerable appeal. Dell has
been able to speed up inventory velocit y such that there is only eleven days of
inventory on hand. This has led to an inventory turnover rate of thirty times per
annum. This achievement, termed by Michael Dell 'Virtual Integration' has been
achieved by blurring the line between supplier, Dell a nd client, to the extent that
third party service staff are often thought, by clients, to be Dell's own staff. c
c
c
In order to see how congruent the Dell model is to Fords' business the similarities
and differences between the two companies should be examined. But, before that,
the company history will be explained in the following section. Then the similarities
and differences between Dell & Ford will be examined. After elaborating the
possible roadblocks that Ford will probably confront with while trying to implement
Dell Model, alternative courses of action will be discussed shortly. And lastly
current decisions and situation of the company will be explained. c
c
c
c
c

c
c
c
c
c
1 CASE DESCRIPTION c
c
1.1 Company History c
c
The Ford Motor Company was founded by Henry Ford on June 16, 1903, in Dearborn,

Michigan. Five years later, he introduced the Model T, and five years after that the Model T
was being built on a revolutionary moving assembly line. In 1914, Ford produced 308,162

cars, which was 299 more than all other auto manufacturers combined. In 1919, Ford bought

out the smaller investors and reincorporated the company in Delaware. Soon after began the
construction of the River Rouge plant, the largest and perhaps the best-known industrial

complex in the world: 90 buildings, 330 acres of windows, a plant that took iron ore in at the
1
Lake Erie end and rolled out finished autos at the other. From 1919 to 1956, the company

was privately held by the Ford family, the Ford Foundation, and the Edison Institute. During
that time, the company gave up most of the dominant market position it had achieved with

the Model T. Stock was first offered to the public in 1956, trading on the NYSE under the

symbol F. As the twenty-first century began, Ford had produced 270 million vehicles. It was

the number-one maker of trucks, the world¶s number-two maker of autos and trucks, and the
industry leader in profitability. With 345,000 employees, it had car and truck operations in 38

countries. The company produced Ford, Mercury, Lincoln, Aston Martin, Jaguar, and Volvo

autos. It also owned 33 percent of Mazda and 81 percent of Hertz, the world¶s largest auto-

rental firm. Hertz rented vehicles in 140 countries. Ford Credit, operating in 36 countries,
was the world¶s largest auto-finance company, with 16,000 employees and nine million

individual and corporate customers. Ford also owned Kwik-Fit Holdings, Europe¶s largest

auto-repair operator, which had been acquired in 1999.c

c
c
1.2 Automotive Industry c
c
In order to fully understand the case, it is important to understand the auto industry as well.
2
The auto industry was the world¶s largest, what Peter Drucker proclaimed ³the industry of

industries.´ It consisted of tens of thousands of firms giving employment to millions of

individuals and generating revenues from the sale of new and used vehicles, parts, and
service in excess of $1.3 trillion. Not only was it one of the oldest industries, but it was also c

c
1

c
John A. Byrne, The Whiz Kids (New York: Doubleday, 1993) c
Peter Drucker, The Concept of the Corporation (New York: John Day, 1946 ) c
c
c
c
c
c
c
c
arguably the most fragmented. Critics said its purchasing activities had not
changed much in 100 years, that its costs were excessive, and that its customers
were thoroughly dissatisfied with automobile manufacturers and dealers. c

c
The industry had undergone several fundamental

transformations since its inception in the late nineteenth

century. Ford¶s use of mass production was the first,

followed by the rise of the Japanese auto industry and its

commitment to lean production in the 1960s and 1970s. In

the past three decades, the auto industry has grown more

competitive. Since the 1970s, the Big Three automakers

(GM, Ford, and Chrysler) have seen their home markets

invaded by foreign-based auto manufacturers (Toyota and

Honda). The bar chart on the right shows the US sales ofc
c
various car manufacturers in 2001. You will notice that Toyota and Honda are beginning
to nip on the heels of the ³Big 3´ and Toyota has alread y surpassed Dodge in sales. In

addition, the auto industry was facing overcapacity of an estimated 20 million vehicles.
This led to decreased profit margins for automakers as well as reduced sales. c

c
Another trend in the automobile industry, as well as many other industries at this
time, was consolidation. With increased technology and economies of scope and
scale, companies wanted to capitalize on the benefits of being a larger company, so
they frequently merged. Two notable consolidations were Chrysler merging with
Daimler-Benz in the summer of 1998 and Ford acquiring Volvo in early 1999. So,
with all of these changes going on in the automobile industry, it was no wonder that
Ford felt like it needed to make some changes within its organization to compete. c

c
Ford¶s large-scale plans for change began in 1995, with an ambitious framework called Ford

2000. The first part of this plan included merging North American, European, and

international automotive operations into a single global operation. Just like with

consolidation, this allowed for economies of scale and scope, allowing Ford to save huge

amounts of money by reengineering and globalizing corporate organizations and processes.c

c
c
c
c
c
c
Next, product development activities were consolidated into 5 Vehicle Centers (VCs),

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

c
The major reengineering projects that were part of Ford 2000 were initiated around
major company processes like, Order to Delivery (OTD), Ford Production System (FPS),
and the Ford Retail Network (FRN). Order to Delivery is the time that it takes from a
customer placing an order to delivery of a finished product. The goal in the OTD project
was to reduce the current 45-60 days it took to deliver the finished product to the
customer in only 15 days. These manufacturing efforts were dependent on a couple of
other changes that were being made at Ford during the same period of time namely;
continual forecasting of customer demand, a minimum of 15 days of vehicles in each
assembly plant, regional centers that dealt with optimizing schedules and deliveries,
and a order amendment system to replace the need to submit new orders. c

c
The Ford Production System, FPS, was designed to make Ford more responsive to change,

just like OTD. This system focused on the production process. The goal of this revised

process was to make the production of goods a relatively stable process, balancing out the

bumps that occur in the process along the way. The case also mentioned Synchronous

Material Flow (SMF), an important part of FPS. SMF strives to produce a continuous flow of

products and ensures that the vehicles are assembled in the consistent manner. When the

cars are assembled in a consistent manner, Ford can easily predict with great levels of

accuracy, when the vehicles will be completed and ready for delivery. This is quite a

difference from the old, ³guess when the car will be done´ methodology employed by Ford.c

c
The Ford Retail Network, also known as FRN, was the fin al piece in the Ford
2000 reengineering process and was a relatively new Ford venture that was
formed under the Ford Investment Enterprises Company (FIECo). FEICO had
two goals; to be a testing environment for best practices in retail distribution
and to create an alternative distribution channel. Ford expected FRN to
reduce advertising and personnel costs while increasing business. c
c
c
c
c
c
c
c
c
c
c
In short, by adopting new supply chain and production techniques, Ford was hoping to
achieve the same cost savings that their Japanese adversaries in the automobile
business have already achieved. This would allow Ford to offer vehicles at lower prices,
while generating higher revenue for the company. As a secondary benefit, Ford hoped
that their Ford 2000 plan would create a competitive advantage through the lowering of
prices and the associated reduction in production cycle times. c

c
While Ford 2000 was underway, the Internet burst onto the scene. The Internet created
new opportunities for Ford and the y embraced these opportunities in a timely manner.
First, came the public Web site in 1995, then a corporate Intranet site came in 1996. And
by 1997, Ford had launched a Business-to-Business (B2B) Web site that connected the
company with its suppliers. As well, Ford teamed up with Chrysler and General Motors
to work on the Automotive Network Exchange (ANX), to create standards in the supplier
network. Through the creation and use of these Web sites, Ford positioned itself not

only as an innovator in the automotive industry, but also in a position to capitalize on

further Information Technology developments as they emerged. c

c
In the case, Ford, like many older companies, is still using traditional supply chain methods.

Ford has tried to control as many aspects of the end vehicle production as possible; from

the production of raw materials in steel mills and rubber plantations, through all of the

design, manufacturing, and assembly and distribution activities. This has resulted in a truly

vertically integrated supply chain within Ford Motor Company. Unfortunately, this approach

makes it difficult for Ford to compete in the global automobile industry, and for that reason

in the case study, Teri Takai wondered if it was time to change Ford¶s supply chain.c
c
1.2.1 Traditional Supply Chain c
c
In order to understand the proposed changes to the Ford supply chain, it is important to

understand how the traditional supply chain model is comprised. The most simplistic or

basic model of a traditional supply chain has one company performing all functions of the

supply chain. Within this company, the planning/purchasing department is in charge of

manufacturing and orders to internal or external manufacturing locations. After the orders

have been completed within the company, the finished goods are then stored at thec
c
c
c
c
c
c
c
company¶s warehouse and shipped out using the company¶s trucks or a
distribution company when ordered by the customer. This type of approach was
what Ford used until the late 1980s, when their suppliers, which numbered in
the 1000¶s, got to be unmanageable and they needed to make a change. c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
Figure 1 ± Traditional Supply Chain c
c
The change that was made in the late 1980s had Ford using a modified version of
the traditional supply chain approach, by utilizing outsourcing and partnerships to
handle certain functions of the supply chain. Ford does this through its ³Tier 1´
suppliers. These ³tier 1´ suppliers would manage relationships with a larger base of
suppliers of components of subsystems-tier 2 and below suppliers. Ford made its
expertise available to assist suppliers in improving their operations. c

c
Unfortunately, the traditional supply chain model is fragmented and slow to adapt to
change in the market, which makes it difficult for companies to effectively control all
aspects of the production process. This along with other issues has led Teri and her
team to consider changes to the Ford supply chain. Teri¶s team has recommended to
her that Ford should utilize emerging Inf ormation Technologies and model Ford¶s
supply chain after Dell¶s. Dell utilizes a virtual integration approach to their supply
chain, but Teri is not sure if virtual integration will work as well for Ford¶s supply chain. c
c
c
c
c
c
c
c
c
c
1.2.2 Virtually Integrated Supply Chain c
c
With a virtually integrated supply chain, they have loose affiliations of companies organized

as a supply network. In virtual integration physical assets are replaced by information.

Within a virtually integrated supply chain, manufacturing continues to be controlled by the

company¶s planning department. However, this is no longer done directly through the

issuing of purchase orders, but instead by providing logistics management and forecasts for

demand and receipts. The company can then pass along this production information to their

manufacturing partners to use in planning their production to meet the needs of the original

company and the market. The company no longer delivers finished goods to the customers;

instead the finished goods are completed by one partner and then go to the

warehousing/distribution partner who sends the products to the customers as orders come

in. The largest benefit of virtual integration is that it allows partners to be located far apart

from each other, they do not even have to be within the same country. This means that

companies can choose strategic partners based on skills and pricing, not only on proximity,

literally opening up a world of options. The key to virtual integration is Information

Technology. Information Technology allows the companies to work as though they are one

company, without the physical and other constraints of actually being one company.

Through the use of computer software, the Internet, and other emerging technologies,

companies are able to selectively share their information with partners in real time, allowing

for collaboration like never before.c

c
Executives at Ford have been considering the 'Direct Model' created by Dell
Computer Corporation and finds that there is considerable appeal. In order
to elaborate the possibility that the Dell model fits to Fords' business, these
two companies will be compared and analyzed below. c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
2 FORD MOTOR COMPANY AND DELL COMPUTERS COMPARISONc
c
To begin the comparison of Dell Computer and Ford Motor Company, let¶s
begin by discussing the similarities between the companies. c
c
c
c
2.1 Similarities c
c
The main similarity between two companies is in their operating principles. All of the

principles that led to Dell¶s success are in place in some form at Ford. It should be noted

that most of these operating principles are newer additions to Ford, through the Ford 2000

efforts, but they are still part of the company¶s operating structure. Main similarities between

two companies that are related to the supply chain issue are listed below.c
c
v Both cars and computers are consumer items that are directly bought
and used by consumers themselves.
v For both of the companies suppliers are often located close to manufacturing

facilities. From its historical background Ford maintains local links with its suppliers.

v Both companies try to keep long term relationships with smaller number of

suppliers. Especially, Ford tries to have strategic alliances with its main suppliers.

v For both of the companies customers varies from large corporations,

governments to individual consumers.

2.3
c Differences
The differences between the automobile and computer industry present challenges for

Ford to implement a virtually integrated supply chain like Dell. Such a major change to

Ford's supply chain structure could also be very costly if not properly managed. c

c
a) Company Size c
c
Specifically size is a big difference. Dell has 16,100 employees while Ford
(including automotive and financial services) has 363,892 employees. There
is also significant difference in assets, revenue, manufacturing facilities and
more financial information between Dell and Ford. As the size increases it is
more difficult to adopt changes for a company, which is also true for Ford. c
c
c
c
c
c
c
c
c
b) Company Age c
c
Ford is a 107 years old company, Dell on the other hand founded 27 years
ago. Because it is difficult to break the habitual ways of doing things, being
an old company limits the flexibility and responsiveness of Ford. c
c
c
c) Company Culture c
c
Dell and Ford have different corporate cultures. Dell is an entrepreneurial, new company that

can react quickly to change and does not have a lot of people or history to slow it down. On

the other hand, while Ford is innovative, they are slow to react to changes in the industry

and the employees do not have the same way to doing things as the Dell employees.c

c
d) Supplier Base c
c
One major difference is in the supplier base. Ford has derived a multi -tiered system of
supply. The tier system consists of numerous generic suppliers, "tier two" and below,
who are managed by "tier one" vehicle sub-system suppliers. The "tier one" suppliers,
by nature, are completely dependent upon Ford's survival since the provided sub-
system component is specific solely to Ford. Ford has such a complex network of
suppliers to deal with, and much of their supplier base does not have the IT knowledge
or capabilities of Dell's suppliers. This difference could be a problem because virtually
integrated supply chains require considerable IT capability for sharing inf ormation.c

c
e) Product Complexity c
c
Product modularity also works for Dell, but not for Ford. ³Dell Direct´ depends heavily on

the modular product architecture of a personal computer, which is made up of a small

number of separately-produced, physically independent ³modules´ joined along a common

interface. The current dominant product architecture for automobiles is still substantially

integral rather than modular, and closed rather than open. That is, most components are not

standardized across products or companies, and have no common interface, hence they are

highly interdependent with other components and idiosyncratic to a particular model.c

c
Due to the generic nature of computer parts, Dell possesses the ability to negotiate and

procure necessary items for plant assembly from several independent purveyors. Therefore,c

c
c
c
c
c
c
ã
i



ã
i


ãã 
 i

 mli
 i l i 
 
 mi
iml
 

. l   
i i m
,
 

 l 

 i

il i
,  i 


  l i
li
,  ll


, i 
 


l m


,

  
, l
.c




 i i

,   il
i ill

c
 P  Vi c
c
P  i  i
i
 

m   il m  i

  

m    i l ml.

m   
l  

 

m  ml
 i   ,    i  i
m  i  
ll.c
c
c
c
c
c
c
c
c
r
i
i P  Vi ,   j Vl m l
c
c
i    i  l
c
c
v Y
m
 l
m  i
ii l m

i

i
.
v P  i
i   i
ii l m



 l
 i

  m
 m
.
 i
  i
i  l



   
 il.

 P

mli 
c
!ll 
  
i
ii
l i



l    

i
 i

,
li
, 
i
, 
 m
. l
, 
 i m
m


  il 
 m  

 

  
il
i i

 .  i
m
i

 i
 
l  i
 m  ll
i
.c
c
c

  i
 i



i
  
i i
ll    
i
  ii i


m 
 i 
 i i
l li
 i i


li
. ,

 i ll i
 

m  i
l
 ll i

  

i i
m i

i


i
li
, 
  ll i
l
 mi 
li i '
  
i
 .c

c
c
c
c
 l, 
, P  l
, 
    I

 i
 

i
  
 Vi , i m i I

, c
c
c
c
c
c
c
c
In addition, since Ford sells most of its cars through traditional dealerships, the selling

process is not as efficient as Dell's direct sales model. For Ford to truly adapt Dell's

model it would have to eliminate these distribution channels. However, it would be very
difficult and unlikely for Ford to ever completely eliminate its dealers. c

c
Possibly the biggest obstacle of transforming the supply chain is the effect on the rest of

Ford's operations and traditional processes. Significant changes to Ford's factories, vehicle

design, logistics, forecasting methods and other processes would have to be made. There

would also be a need to overcome resistance from existing dealers and suppliers, as well as

to re-train employees to handle the new procedures and information technology.c

c
c
c
3 ALTERNATIVE SOLUTION PROPOSALS a)
No Change Alternative c
c
First alternative may be considered as keeping the processes and the supply chain as it is

and not to implement major changes. This strategy, obviously, is the safest strategy as there

is no risk related to the changes. Also it may be least costly in short run. However, Ford

wouldn¶t choose this alternative in order to keep up with the market competitiveness. The

risk of falling behind other manufacturers and also the opportunity cost of (reducing costs

by adopting some changes in the processes) this alternative will probably compel Ford to

make some changes in its processes and supply chain.c

c
b) Total Virtual Integration Alternative c
c
An alternative strategy to consider would be a total jump to a virtually integrated supply

chain based completely 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 by phone or on Ford's web site and then built. A

pull system would be implemented, where production and material orders were based on

real time data from customer orders, thus reducing inventory. Once orders were built they

would be shipped out directly to the customer. However, many of Ford's traditional

processes and production methods would have to be changed to take advantage of this new

form of supply-chain management. As it is mentioned before, there are significantc

c
c

c
c
c
c
c
differences between Dell and Ford, which would obstacle Ford from jumping
to a complete virtual integration. c
c
c
c) Extending E-Business Alternative c
c
A third and a hybrid solution alternative must be proposed if the differences between
Ford and Dell are considered. This option would be to extend Ford's E -business
strategy with customers and suppliers and make a partial jump towards virtual
integration. The Internet would serve as a primary tool for dealing with suppliers and
allow for customization of automobiles by consumers. This strategy incorporates many
of Dell's supply chain activities like direct sales, customization, and information sharing
over the Web. There would also be IT initiatives taken to reduce order to delivery time
and inventory, share production data with suppliers, and track materials throughout the
supply chain. However, this approach would not fully adopt Dell's virtual integration
model. There would still be dealers serving as distribution centers for the product, only

the cars sold on the Internet would be built to order, and Ford's factory operations
would remain largely the same. E-Business alternative, which the company chose as
the heart of its new vision, will be examined in detail in the following sections. c
c
c
4 E-BUSINESS STRATEGY AND AFTER 1999 c
c
Beyond the information presented in the case a further look to Ford¶s
decision, after 1999, will be summarized at this section. c
c
c
In September 1999, Ford announced an ambitious Internet strategy that
was endorsed by CEO Nasser. c
c
Nasser¶s vision is a sweeping one. He pictures the day when a buyer hits a
button to order a custom-configured Ford on-line, transmitting information
to the dealer who will deliver it, the finance and insurance units that will
underwrite it, the factory that will build it, the suppliers that provide its
4
components, and the Ford designers planning future models. c
c
c
4
Jennifer Reingold, Marcia Stepanek, and Diane Brady, ³Ford: Accelerating into the On -line Age,´ Computing 9 March 2000 c
c
c
c
c
c
c
c
The old ³push´ model built cars at maximum capacity and then showed them to dealers,

where aggressive selling and rebates unloaded the units consumers did not otherwise find

attractive. The new ³pull´ model would build cars quickly in response to customer orders, at

least for the more popular combinations. Unusual configurations would take longer. Cars

would be built to order, dealerships would report problems immediately to the factories for

quick changes, and suppliers would control inventories at Ford plants. The new ³order-to-

delivery´ basis would generate a constant flow of consumer preference information to

suppliers who would fill parts orders in real time without waiting for a purchase order.c

c
Brian P. Kelly, Ford¶s e-business vice president, described Ford¶s plan to rebuild itself
as a move to ³consumercentric´ from ³dealercentric´ and stated that Ford would
transform itself from being a ³manufacturer to dealers´ into a ³marketer to consumers´.c
c
Our consumer-connect business has a totally integrated strategy to reach
the consumer in conjunction with our dealers at every touch point. . . . Ford
continues to be at the forefront, integrating our global e-commerce activity
from the consumer back through the entire supply chain, including linking
5
our Customer Assistance Centers and in-vehicle communications. c

c
New Web sites were launched for buyers and owners. In-car computer and communications

services were announced that would bring travel, security, entertainment, and Web access

to the motorist and an electronic connection between consumers and the Ford Motor

Company. In February, the company announced it was purchasing Internet PCs for all

employees, ³to reach its vision of being on the leading edge of technology and connect

more closely with its customers.´ In March 2000, the company announced the creation of a

business- to-business integrated supplier exchange through a single global portal ± a joint

venture with GM and DaimlerChrysler to create the world¶s largest virtual marketplace. It

seemed as if Ford had adopted the Dell model:c

 Sell direct
 Mass-produce customized products
 Build to order
c
c
Brian P. Kelly, ³Ford Motor Company: Inside the Company News Room,´ 15 September 1999.c
c
c
c
c
c
c
c
c
 Substitute virtual integration with suppliers for vertical integration
 All hosted and integrated on the Web
c
c
c
4.1 Transformation of the Customer, Dealer, and Owner Relationships c
c
Goal of becoming the world¶s leading consumer company required a fundamental change in

the selling process; a new, continuous relationship between Ford and the customers; and a

restructured and integrated set of processes from buyer through the supply chain. Nasser

also had to address the role of the retail dealer. Any change in the buying process for autos

and any direct company-to-consumer relationship had to either embrace the dealers and

incorporate them into the process or circumvent them, risking an all-out fight because the

dealers controlled the market space between the consumer and the manufacturers.

Disintermediating the dealers with technology and information was a tempting thought.c

c
As the new vision began unfolding, it became clear that the role of the dealer
would be a central issue. In Kelly¶s words, ³. . . from dealer -centric to consumer-
centric had an ominous ring for dealers.´ Harold Kutner, group vice president of
worldwide purchasing at GM and the company¶s e -business thought leader,
rejected the idea that people wanted to buy cars from dealer inventories. He
said 70 percent of customers would want to custom -order and would be
6
happier . Neither Ford nor GM seemed quite sure what to do with their dealers. c

c
Dealers saw both hope and danger in Ford¶s new directions. A more market -aware
Ford could be producing vehicles much closer to what consumers actually wanted.
Shorter cycle times would also help dealers. Dealers took ownership when the
vehicle rolled off the assembly line and hit the common carrier. But it could be
anywhere from a week to five weeks before the vehicles actually reached the dealer.c

c
The ³consumercentric´ aspect of the new strategy concerned dealers. Dealers with an

aggressive Web-selling capability were suspicious of the selling practices on the Ford.comc

c
c
c
6
Philip Evans and Thomas Wurster, Blown to Bits: How the New Economics of Information Transforms c
c
c
c
c
c
c
site. Also some dealers were not convinced that the ³lowest price on the page´
type of selling encouraged by the Web was what buyers really wanted. c
c
c
But some dealers thought the Web would help them more than it would help Ford.
As a dealer explained, ³Fifty percent of my business will soon be Internet-related. I
have a list of 5,000 names. We¶ll use that list and what we know about those
vehicles to fill up my service bays ² we¶ll target special mailings and notices to
segments of that data base: people who need an alignment or an inspection, who
have a vehicle about to come off lease, or who¶re about ready for a new car.´ c
c
c
c
4.2 Customer Assistance Centers and In -Vehicle Communication c
c
Ford¶s plan to build a direct relationship with its customers was
implemented with the Customer Assistance Centers and its In -Vehicle
Communication products. There were three new consumer sites: c
c
v BuyerConnection, where buyers could custom -order a vehicle, receive a
quote from a local dealer, and apply for financing and insurance (the first
national on-line ³request-a-quote´ system);
v DealerConnection, where buyers could find a dealer, review dealer inventories,
c
see dealer service specials, and make appointments for service; and c
c
- OwnerConnection, which was a virtual community of owners providing
forums, maintenance schedules, and sp ecial offers from Hertz. c
c
c
These early efforts met with some success. Ford was the first automotive manufacturer
to include its family of brands on a single Home Page, allowing consumers single -click
access to the Aston Martin, Jaguar, Volvo, Lincoln, Mercury, Ford, and Mazda brands.
Ford.com was a leading automotive destination, with more monthly ³hits´ than any
other manufacturer, according to MediaMetrix. DealerConnection was giving 35,000
7
quotes a month to Ford and Lincoln Mercury dealers. c
c
c
c
c
7
³Car Dealer Group Plans to Link Its Members with E -Commerce Site,´ Wall Street Journal, 16 March 2000. c
c
c
c
c
c
c
c
Ford¶s interest in new strategy was not just as a means of building an enduring
customer relationship. Ford had also been intrigued with the other 57 percent of
the automobile revenue ³downstream´ from the first purchase. Several of its
acquisitions would take Ford further into this business, like Ford Credit used for
used-car financing or after market accessories online, etc. c
c
c
c
4.3 Supply-Chain Integration: The Trading Hubs c
c
On November 2, 1999, Ford announced the formation of AutoXchange, an automotive e-
business integrated supply chain to be created and run by a newly formed joint venture with
Oracle Corporation. The venture would initially facilitate Ford¶s $80 billion in annual

purchasing transactions with its more than 30,000 suppliers and $300-billion extended
supply chain. The two companies would create the world¶s first automotive on-line supply
chain network, and the world¶s largest business-to-business electronic network. It would

also be the e-business backbone for warranty transactions and design collaboration. This
new trading hub was expected to reduce Ford¶s purchasing costs dramatically and increase

its operating efficiencies through an integrated Internet supply-chain system. ³Thirty percent
8
of a vehicle¶s cost comes after it leaves the assembly line.´ Dealers typically carried 60

days¶ inventory, but with AutoXchange, ³You really don¶t need more than 30 days,´ observed

a Ford executive. 9Further, it would extend Ford¶s core business into a virtual e-business

enterprise, allowing direct connections of the supply chain to the consumer to reduce Ford¶s
time to market. AutoXchange would use catalogs as well as on-line auctions for components
and materials. Early applications would be the purchasing of production parts and

nonproduction goods and services; next would be order tracking, financial services, and

access to CAD drawings; later would come status of payments²a top priority for suppliers. c

c
AutoXchange would take a ³small fee´ from every transaction; first-year-revenue forecasts

were $200 million. In five years, revenues could be $5 billion. The trading hub was to be spun

off as a separate venture; some analysts estimated it might produce a market cap of $100

billion. It was expected that Ford¶s suppliers would be able to invest in the venture.c

c
8
c9 Robert Rewey, group vice president for Sales, Marketing, and Service, taken from customer profile brochure of Cisco, 2001 c
Davis Garrity, global auto-research coordinator at Dresdner Kleinwort Benson., taken from customer profile brochure of Cisco, 2001 c
c
c
c
c
c
c
c
There were also many concerns: the value of the long-established supplier

relationships could be jeopardized and those first -tier suppliers could themselves

become transformed in terms of their supplier relationships; smalle r suppliers and new
suppliers could be precluded from using the system through lack of knowledge. c
c
c
4.4 Transforming the Supply Chain c
c
As noted earlier, Ford¶s e -business vision for Ford was driven in part by the
promise of major reductions in existing supply-chain costs, which included both
real costs to the consumer and opportunity costs to the manufacturer. The latter
included stockout costs (lost sales from not having the right vehicle in the right
place), costs of suboptimal mix, and price discounts by the manufacturer and
dealer that were a result of manufacturing vehicles based on the needs of the
inflexible supply chain and the sales force, rather than the needs of the consumer. c

c
Inventory costs were only one of the costs associated with the material component
of the vehicle supply chain. Purchased materials were the largest component of
cost for an automotive OEM manufacturer (and the single largest category of costs
10
across the entire supply chain), roughly 50 percent of the retail sales price . The
costs of procuring these materials included both product-related costs (direct and
indirect materials), which were fairly easy to determine, and process-related costs
(the costs of activities associated with procurement), which were less easy to
determine. Such activities included needs identification, vendor selection and
material ordering, review and approval, and inventory costs. c
c
c
In pursuing their e-business vision, Ford executives acknowledged that the transformation

of the business would start with B2B supply-chain initiatives at the ³back end´ of the chain,

connecting the manufacturer with its thousands of suppliers, as noted earlier. By moving

suppliers away from their EDI systems onto the Web, dramatic reductions in back-end

supply-chain costs were possible. Web-enabled forecasting, planning, and schedulingc

c
10
³eAutomotive: Gentlemen, Start Your Search Engines,´ Goldman Sachs R esearch Department, January 2000 c
c
c
c
c
c
c
c
c
processes could drive out work-in-process inventory at both suppliers and
manufacturer; manufacturing productivity would also rise through improved asset
utilization and reduced overtime. On -line procurement processes could eliminate much

of the low value-added administrative work now associated with purchasing. A rich
database of on-line material requirements and transactions could enable material cost

reductions by aligning material specification s, coordinating and leveraging volume

scale across the entire supply chain, and consolidating the buy with cost -advantaged
suppliers. The implementation of a true make to -order system would have even greater
economic implications, both in terms of cost red uction and revenue enhancement, by
providing consumers with exactly the product they desired. c
c
c
5 CONCLUSION c
c
Ford extended its E-business strategy attempt a partial move towards virtual
integration. This supply chain strategy takes the nature of the auto industry into
consideration and adapts Dell's model to better fit Ford. Dealers would still play a
role with distribution, and core processes at Ford would remain the same.
Nevertheless, the Internet should become a greater part of Ford's sales methods to
consumers and communications with suppliers. Although it is not a complete
adoption of Dell's virtual integration model, utilizing these information technologies
will enhance supply chain activities for Ford and create value for the company. c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
6 REFERENCESc
c
Robinson, E. (2001) á


  
 
 c
c
³The Cutting Edge; On-Line Purchases Save Ford $10 Million.´ Los Angeles
Times, 10 February 2000 c
c
³Ford Motor Company: The American Road.´ Hoover¶s
(2000) Dohring Report on Automotive E -Commerce (1999)c
c
Georgievksi, Biba (1999). ³The Case for Higher Levels of Integration,´ Presented at
Interiors Exposition; Working Paper, Visteon Automotive Systems, Dearborn, MI. c
c
³The Power of Virtual Integration: An Interview with Dell Computer¶s Michael
Dell,´ Harvard Business review, March -April 1998c
c
Cusumano, Kahl, Suarez (2008). ³A Theory of Services in Product Industries´ c
c
Holweg, Greenwood, Product Variety, Life Cycles, and Rate of Innovation ±
Trends in the UK Automotive Industry, 1991 c
c
Brandt, A. 



 , Oct. 21, 2008 c
c
³Ford 2000 a Global Vision´, The Irish Times, Business 2000 Associates, J.

F. (2001) —



 


 Washingtonc
c
Helper, S., & MacDuffie, J. P., (2000).  


— 
 




  
 




  
 , Berkeley University c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c
c