Ford Motor Company: Supply Chain

Strategy
Online shopping experience from Dell and
Ford

What is the difference between the two

buying experience
Ford
What are the roadblocks that make the direct
model difficult to implement at Ford
What historical legacies affect Fords ability to
move to a BTO model
Ford is 100 yrs old Founded 1903, Dell on the other
hand was founded 15 years ago

Product variety
Necessitates the management of large number of
individual component inventories
Production capacity for individual components get set
long in advance and cannot be changed quickly
Ford
What historical legacies affect Fords ability
to move to a BTO model
Process Complexity
A large number of suppliers
3 tiers of suppliers
Business was usually over the phone and fax
Ford a $150billion company enjoy a tremendous
leverage over its suppliers
Annual component price decrease and open book
Ford
What historical legacies affect Fords ability
to move to a BTO model
Powerful independent dealer network

Unionized labor force

Incompatible systems
Ford credit DEC
Parts and service IBM
Suppliers and dealers Variety of systems
Ford Motor Company:
Supply Chain Strategy
What is virtual integration? What benefits
does Dell gain from it
A way of capturing the advantage of vertical
integration without actually vertically integrating
Vertical integration solves production problems
related to communications, coordination, and
control but at a cost of the increased overhead
needed to arrange production organization

Virtual
integration therefore is the ability to
achieve the advantage of vertical integration
without incurring the overhead.
Ford
What benefits does Dell gain from virtual
integration
Communication and coordination
Vertical integration leads to efficient and effective
coordination, through a number of mechanisms that
include likelihood of physical proximity, established
patterns of communications, and greater willingness
to cooperate with other members of the same group.

Stitching together a business with partners that are

treated as if theyre inside the company Michael
Dell
Ford
What benefits does Dell gain from virtual
integration
Control
The prospect of improved control over the actions of
suppliers is another important rationale for virtual
integration.

Un-integrated partners can exert power over each

other as transactions unfold over time

Though Dell enjoy information sharing for now but

inventory are not completely aligned
Inventory not held by Dell may need to be held by a
partner who would rather not hold inventory either.
Ford
What benefits does Dell gain from virtual integration

Real time responsiveness and inventory management
Real-time updating of order status and the ability to check
order status regardless of where the order is in the fulfillment
process provided Dell with differentiating capabilities.
Inventory velocity

Forecasting
Dells direct relationship with customers are key to
forecasting.
Dell has easy access to data useful for forecasting; most of
the data are already in Dells systems
In case of Ford, the dealers own most of the direct data about
customer demand.
Ford has a very base of individual customer unlike Dell that
has a relatively small number of institutional customers
Ford
Compare Ford and Dell
Old channel players concerns
Costs of developing web capabilities
Implication for information sharing

Problems of connecting to suppliers and other

external parties who tend to be less technologically
advanced than the Ford
Forecasting what customers will buy for Dell and for
Ford
Difficulties in implementing a true build-to-order
model for so complex product as an automobile.
Ford
What practical challenges must Ford address
as it tries to establish Internet linkages with its
supply base
Difficulties in establishing B2B linkages
Lack of technology and technological
sophistication that prevail in the supply chain,
especially at lower tiers.
Ford Motor Company: Supply Chain
Strategy
How should Ford use Internet technologies to interact with
suppliers

To address this problem Ford must think about its relationships not
only with suppliers but also with dealers and customers.

As supply chain systems staff members study the Dell model in

particular, they come to appreciate that virtual integration must
include design not only of the supply chain but also of fulfillment,
forecasting, purchasing, and a variety of other functions that had
long been considered separately within the Ford hierarchy.

The question is in fact explosive in its implications, because it

inevitably leads to fundamental questions about the way Ford has
historically operated internally and how it has interacted with
important partner constituencies (including dealers)
Ford Motor Company: Supply Chain
Strategy
Recommendation on moving forward
One group are enthusiastic about the
technology and think that the only appropriate
way to answer the question is to consider,
evaluate and recommend radical changes to
Ford overall business model; this group
considers Dell a serious model for Fords
business
Ford Motor Company: Supply Chain
Strategy
Recommendation on moving forward
Another group is more cautious and believes
that the fundamental differences between
Dells industry and Fords industry necessitate
significant differences in business models.
Ford Motor Company: Supply Chain
Strategy
Recommendation on moving forward
What is your own recommendation?