Ford Motor Company: Supply Chain strategy

Marcus Eatmon MIS 689

Teri Takai, Director of supply chain

systems contemplate recommendations to senior executives. The questions asked extremely important to Ford¶s 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 ³virtual 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. 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 Dell¶s ..e.

Enterprise Model Comparison Dell Operating Principles Ford Breakthrough Objectives/Key Initiatives Customer Intimacy Demand to Delivery Ford Retail Network Ford Production System Order to Delivery Supply Chain Mgmt. Leadership Demand Pull Velocity Order to Delivery Ford Product Development System Virtual Integration Fixed to Variable Cost Shift Modular Assemble ³Extended Enterprise´ .

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

Michigan. core business had remained the design and manufacture of automobiles for sale on the consumer market  Since Henry Ford had incorporated in 1903.Company and Industry Background  Based in Dearborn. .000 employees  Operations spanned 200 countries. the company had produced over 260 million vehicles. ± obtained significant revenues and profits from its financial services subsidiaries.  Second largest industrial corporation in the world  Revenues of more than 144 billion  About 370.

Toyota and Honda)  Facing increasing overcapacity  Advantage in the industry was fast becoming global .e. automakers²General motors (GM). Ford. and Chrysler  Foreign-based auto manufactures ± (i.S.Last Two Decades (Industry Grew more Competitive )  Big Three U..

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

European. began 1995 ± Included merging its North American. and international automotive operations into a single global organization  Called for dramatic cost reductions to corporate organizations and processes by: ± reengineering ± globalizing .Ford 2000  An ambitious restructuring.

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 Ford¶s production. and what is economy of scale? .

the less it costs for each additional unit. a plant that produces 1. .Economies of Scale An economic theory stating that a plant's marginal cost of production decreases as the plant's operation increases. For example.000 cars would be more efficient than a plant producing five cars. The more of a good you produce.

information technology (IT) was critical ± deployed to enhance material flows and reduce inventories ‡ substituting information for inventory .Ford¶s 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.

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 .

industry lead ± profit per vehicle ($1. Power Initial Quality Study ± (in fourth place overall behind Honda.End of 1998  Profits of 6.770) from Chrysler  Most improved automaker on the 1997 J.9 billion  Employees enjoyed record profit sharing  Return on sales (3.S. .9 percent in 1997) ± trending solidly upward  World leader in trucks  Taken over the U. Toyota and Nissan).D.

Ford¶s Existing Supply Chain and Customer Responsiveness Initiatives .

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.Existing Supply Base  As the company had grown over the years. . 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? .

 Ford made its expertise available: ± just-in-time (JIT) inventory ± total quality management (TQM) ± statistical process control (SPC) .Existing Supply Base  Beginning in the early 1990s:  Shifted toward longer-term relationships with a subset: ± tier 1 ± tier 2 ± below suppliers.

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 .

and how were they going to do this? .What was Ford¶s intentions when reengineering its production system.

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.Exhibit 2 Moving from Push to Pull Process Design Design strategy Vehicle combinations Pricing strategy Vehicle purchase Incentives Capacity planning Push Please everyone More is better Pull Mainstream customer wants minimal Marketing Budget-driven Higher Market-driven Lower Manufacturing and supply Multiple material/ capacity constraints. 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 .

and leveled vehicle schedule.´  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 . sequenced. utilizing flexibility and lean manufacturing concepts.One Important Part of FPS was Synchronous Material Flow (SMF)  Ford defined as ³a process or system that produces a continuous flow of material and products driven by a fixed.

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 Ford¶s supply chain: ± Marketing ± material planning ± vehicle production ± transportation processes .

Ford¶s 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 plant¶s order bank ± to increase manufacturing stability  (3) regional ³mixing 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. . Oklahoma ± under the newly formed Ford Investment Enterprises Company (FIECo). launched first Ford Retail Network (FRN) in Tulsa.  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.

700 2. Malaysia) Ford Automotive Financial Services 363.892 194. Ireland. Asia.Comparative Metrics (latest fiscal year) Employees Assets ($millions) Revenue ($millions) Net income ($millions) Return on sales Cash ($millions) Manufacturing facilities Dell 16. Australia) 66.300 122.8% 320 14.200 7.2% 2.500 3 (Texas. Europe.00 30.886 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 .7000 7.300 85.200 180(in North and South America.900 944 4.100 4.100 12.7% 3.

8 ± 10 key. 100 permutations Ford     .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 critical²changes are shared immediately within Dell And with supply base Demand pull throughout value chain²³information for inventory´ substitution Focused on strategic partnerships: suppliers down from 200 to 47 Complexity is low: 50 components.

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 Ford Retail Network Dealers Sales R&D Assembly Order Mgmt FP S FP S CFOP .

The End Any questions? .

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