Ford Motor Company:Six Sigma Initiatives Streamline Operations

Summary

Ford Motor Company, one of the world largest automotive manufacturers, has worked with Penske on several Six
Sigma initiatives. As its lead logistics provider (LLP), Penske quality team of associates are trained in Six Sigma
practices and work closely with Ford to streamline operations and create and maintain a more centralized logistics
network. Together they uncovered several areas for real cost savings as a result of reducing inbound carrier
discrepancies, eliminating unnecessary premium costs and reducing shipment overages. Plus, Penske implemented
accountability procedures and advanced logistics management technologies to gain more visibility of its overall
supply network.

Challenges   Solutions / Results

To develop, implement and
operate a centralized logistics
network for Ford.
To streamline supplier and
carrier operations for improved
performance and
accountability.
To provide Ford with real-time to measure carrier performance.
supply chain and financial
visibility.
Penske established 10 Order Dispatch Centers (ODCs) and
consolidated shipments to plants.  Approximately 1,200
trailers now ship to and from Fords ODCs per day, with most
trucks at 95 percent capacity.  Penske has reduced plant
inventory by 15 percent.
Penske trained more than 1,500 suppliers on a uniform set of
procedures and logistics technologies.  Stringent carrier
requirements and a Carrier Rating System were implemented
Penske implemented strict accountability procedures and
advanced logistics management technologies to gain real-
time visibility of delivery status, routing schedules and
productivity.  A new freight billing system was designed to
immediately capture logistics costs.
1. Executive Summary

This case study details a two-year implementation starting in 2005 during which The Pepsi Bottling
Group (PBG) Supply Chain Strategy team transformed the company’s production sourcing process.
Before the transformation, PBG’s sourcing strategy was updated annually and distributed to
autonomous business unit directors. The directors decided if and how the sourcing strategy should be
implemented. To address increased complexity driven by market factors, PBG investigated a network-
based approach to product sourcing. At the end of the implementation, PBG moved from a static
sourcing strategy to a dynamic one by implementing an optimized production sourcing strategy aligning
disparate business functions and demonstrating positive results. These results included:

• Reduction in raw material and supplies inventory from $201 to $195 million;

• Two percentage point decline in the growth of transport miles;

• Increase in the return on invested capital from 7.6% to 7.8%; and

• Reduction in warehouse out-of-stock levels providing an additional 12.3 million cases available to be
sold. To put the last result in perspective, the reduction in warehouse out-of-stock levels effectively
added one and a half production lines worth of capacity to PBG’s supply chain without any capital
expenditure. Ultimately, this approach graduated from a project into a business process, involving many
business functions, in which PBG continuously evaluates and optimizes production sourcing strategies,
enabling its supply chain to remain flexible and PBG to stay competitive.
[4:37 AM, 4/28/2020] Osaid Ahmed: https://sloanreview.mit.edu/article/the-mini-cases-5-companies-5-
strategies-5-transformations/

[4:38 AM, 4/28/2020] Osaid Ahmed: https://www.twago.com/blog/8-reasons-for-outsourcing/

[4:38 AM, 4/28/2020] Osaid Ahmed: http://en.link-

run.com/html/Tools/Case_Study/20071121/1549.html

[4:39 AM, 4/28/2020] Osaid Ahmed: http://en.link-

run.com/html/Tools/Case_Study/20071121/1549.html

[4:39 AM, 4/28/2020] Osaid Ahmed: https://www.thebalancesmb.com/global-sourcing-5-ways-to-make-

global-sourcing-a-success-1953496

[4:39 AM, 4/28/2020] Osaid Ahmed:

https://www.academia.edu/1607363/Case_Study_Transforming_Production_Sourcing_at_PBG