Ford Motor Company is the second largest industrial corporation in the world, employing 370,000 people in 200 countries across the world with revenue over $144 billion.
The auto industry has become very competitive on a global level, forcing automobile companies to cut costs and stay competitive. In trying to remain competitive, Ford introduced a plan called Ford 2000. This was done to cut costs, streamline the organization and processes globally, and increase economies of scale.
The current issue concerning Ford is that it has seen companies much smaller achieve market capitalization much greater than Ford’s. Corporate staff began looking at other business models, such as Dell, to understand what Ford could be doing differently to increase shareholder value.
Staff were divided on the different views. Some believed that the new technology was needed and virtual integration, based on Dell’s business model, was essential for the continued success of Ford. Others were more cautious. They felt that the automotive industry and businesses like computer manufacturers were very different. Ford’s supplier network was much more complex.
A decision needs to be made on how Ford will use the current information technologies to interact with their suppliers. Issue Identification
1. Ford is not able to have a complete pull system as Ford’s Independent Dealerships and Suppliers have limited IT Capabilities. 2. Ford’s Complex Supply Chain. 3. Ford is unable to devise an accurate forecast as it does not have a direct connection with its end customers as dealerships were independently owned. Root Causes and Environmental Analysis
1. Ford, being one of the largest companies in the world, have the ability to keep up with the fast pace of technology. Ford’s suppliers and Car Dealerships are much smaller, therefore cannot keep up with the technological advances Ford is able to keep up with.
Ford has independent car dealerships and 3 tiers of suppliers. With no information coming back from the dealerships, this makes it difficult to have the information flow back to the manufacturing facility and suppliers quick enough to maintain the pull system. 2. The final product that Ford is selling is much more complex than what Dell’s final product is. There is a much larger number of individual components required to build a car. Due to the amount of products required, along with the level of expertise, Ford has three tiers of suppliers.
These suppliers were chosen on based on the cost of the product, the cost in the supply chain was not considered. The higher the number of companies used in the supply chain, the less likely there will be good information being passed on to the companies. This will lead to higher amounts of inventory, and increased costs. 3. With Ford having independent dealers, they are unable to speak directly and obtain feedback from their customers. The dealerships focused on being profitable in the short run. Alternatives
1. Keep the existing Supply Chain as is. Pro’s Con’s 1. No changes necessary. 2. No costs incurred 1. Risk of not remaining competitive in the industry. 2. Possible loss of sales in the future.
2. Create a virtual integrated supply chain based on Dell’s model. All orders would be completed on the Ford Website. Suppliers would be required to update their technology in order for information to be shared seamlessly up and down the Supply chain. A full pull system would be able to be put in place.
Pro’s Con’s 1. A full pull system would be created. 2. Minimize overflow of inventory and increasing information sharing up and down the supply chain. 3. The number of suppliers would be reduced. Suppliers would be chosen on the ability to provide a quality product at a cost effective price. 4. Reduce Order-to-Delivery from 60 days to 15 days.
5. Direct contact with customers. Dealerships are eliminated from the supply chain. 1. Change would be costly and time consuming. 2. Suppliers may not want to upgrade their technology. 3. Customers may not feel comfortable making a large purchase online without getting a feel for the item. 4. Customers may not want to wait 15 days for their vehicle.
3. Create a hybrid operation with a mixture of the current operations in the supply chain process and the virtual integrated system used by Dell. The main focus would be on the Tier 1 suppliers and Dealerships.
Tier 1 suppliers would be asked to upgrade the technology used in order to share information in real time with Ford, in addition to managing the tier 2 and 3 suppliers. In exchange, Ford would help with the cost of the upgrade and provide training to staff of the suppliers. Ford would also provide assistance with the Quality Department at Tier 1 suppliers to catch defective parts before reaching the Ford Plants for final assembly when rolling out new cars requiring new parts.
Dealerships would become vertically integrated with Ford and remain open to showcase the car and give the customer an opportunity to drive and feel the car. Customer Service Representatives would help customer’s complete orders online. Pro’s
Con’s 1. Virtual Integration partially created from Tier 1 suppliers to Dealerships. 2. Improved relations with Tier 1 suppliers. 3. Reduce number of Tier 2 and 3 suppliers. 4. Reduction in inventory costs. 5. Direct control of customer service experience. 6. Ford manufacturing plants would receive 100% of parts within spec. 1. High cost in changing over. 2. Time consuming. 3. Tier 1 suppliers may not want to update their technology.
My recommendation is to implement Alternative 3; to create a Hybrid option combining part of the existing operations in the Supply Chain with partially integrating Virtual Integration. This option is less costly and time consuming than Alternative 2, total implementation of Virtual Integration.
Relationships with Tier 1 suppliers would improve with the sharing of information reducing the inventory in the supply chain from Tier 1 suppliers to Fords manufacturing plants. With a pull strategy in place at Tier 1 Suppliers, it would make it easier to manage tier 2 and 3 suppliers, and even reduce the amount of suppliers.
Tier 2 and 3 suppliers would be forced to streamline their processes to meet the needs of Ford and Tier 1 suppliers. With Ford in assisting Tier 1 in quality control, parts not in spec would be caught prior to the building of the car and speeding up the time of addressing issues with the parts. Tier 1 companies would be able to identify and mange the tier 2 and 3 suppliers to fix the problem quicker.
Ford would control the customer service aspect at the end of the supply chain, giving them direct contact and getting feedback from their customers. Dealerships would be able to generate forecasts, which could be passed back through the supply chain to its suppliers.
Ford would design and provide IT assistance for dealerships and Tier 1 suppliers to update their IT infrastructure and ensure that the transition went smoothly. First, Ford would ensure that the information from the dealership to Ford manufacturing captured all the necessary information. Once the orders were entered and a Bill of Materials was generated correctly, the BOM would then be passed on to the manufacturing plants and Tier 1 customers. Tier 1 customers would then pass on the information manually to Tier 2 and 3 customers.
Monitor and Control
For the first 6 months, there would be an emphasis on ensuring that all information would was shared accurately and in real time.