After analyzing Ford’s existing supply chain I immediately became aware of its highly complex nature. This high level of complexity combined with other internal and external factors that have pushed Ford to search for solutions in order to overcome the costly supply chain challenges that they are facing and may continue to face in the future. Ford’s major difficulty in their present system is the inefficient control of their large data base and complex network of suppliers, the existence of independent distributors and their inability to communicate and serve their customers directly.
There is an urgent need to modify their supply chain in order to make it more cost effective and more profitable. My decision is that there is a need of the partial implementation and execution of the virtual integration direct business model that has been used by Dell. Through this model, Ford will use the emerging information technologies and internet as well as new ideas from high tech industries in order to interact and transact with their suppliers and end users.
Furthermore, Ford can boost its sales by providing better customer service and by having faster communication between suppliers, manufacturers, and customers in the value chain. This proposed system will have to run concurrently with the existing supply chain so that Ford will cover both market segments at the same time. Since Dell and Ford are two different types of industries, one is in computer manufacturing and the other is in auto industry, it does not seem right for Ford to implement exactly the same “virtual integration model” as Dell.
In fact, if Ford implements the full direct business model alone and abolished its existing supply chain then Ford will certainly run into a high risk of losing their business to competitors due to the fact that customers want to test and feel the car before they buy it for a large amount of money. On the other hand, when customers buy computers on line they don’t have to worry about touching and testing the computer, all they require is a better price than the retail shops and the product’s specs are according to their needs. Ford should set up a special department in order to handle this new business process.
Investment in new high tech equipments is required as well as training should be provided before the new project’s start date. Supplier`s computers should be linked to Ford’s master computer network and customers should be made aware of this new shopping experience for buying an automobile. To measure the performance of this model, Ford should schedule periodical review and evaluation meetings. Recommendations for improvements should be noted along the way in order to be evaluated. ` The improvement of customer service and shareholder value should be the main aim of the whole project.
At this time it’s hard to anticipate its success or failure, but by investing time and effort into it I will be confident of its success if not in the short term it will definitely in the long run. Issues Fundamental Issue Strategic, Long term The fundamental issue for Ford is the management and control of their large data base of their business partners, suppliers and sub-suppliers. Ford has several thousand partners and operates in more complex network of business relationship. Ford also maintains a large leadership network widely spread geographically around the world.
Managing both suppliers and customers in a single efficient supply chain had always been a challenge for Ford who is constantly looking for new ways to better control and manage their supply chain operations in a more productive and cost effective way. Sub-issue Strategic, Short term 1. Lack of up to date IT Infrastructure The inability of Ford’s first and lower level tier suppliers to keep up to date with IT technology that is need by Ford to stay up to speed in managing their production operations as intended is a major obstacle within the supply chain.
The lack of proper IT technology could result in miscommunication and lack of coordination between the supply partners and the outcome could be a higher order lead times, higher cost and operational hassle 2. Lack of direct control of end users Strategic, Short term Due to the use of independent dealership networks to sell their products, Ford lacked control on their product end users. Such lack of control combined with dealer markups had negatively impacted their ability to directly control their customer service experience Environmental and root cause analysis
Quantitative and qualitative analysis With over 370,000 employees worldwide and revenue of more than $144 billions, Ford Motor Company has been classified as the world’s second largest industrial corporation. Ford was established by a visionary Henry Ford in 1903 and it has been in business ever since. Ford’s core business is the production and distribution of cars and trucks. In addition to that, Ford earned substantial revenues and profits from its financial subsidiaries that operated mainly in North America with limited operations in Europe and everywhere else.
In its 1997 financial statement, Ford reported close to $ 7 billion in net income and a 5 year average revenue growth rate of %6. These positive financial statement figures were an indication of Ford’s strong market and financial positions. Its main competition till 1970’s was with General Motors and Chrysler. However with the entry of Japanese companies like Honda, Toyota and Nissan the firm faced stiffer competition with the auto market being over-capacitated.
In order to take advantage of their global presence and deal with the increasing global competition, Ford along with Chrysler and General Motor saw an urgent need of consolidation of their industry and started merging with other automakers around the globe. Such swift action had enabled these giant firms to achieve better quality products at a reduced cycle time and lower costs due to the economies of scale. After acquiring the Sweden’s Volvo automaker, Ford’s data base of suppliers has increased substantially in both home and abroad.
Having this huge number of suppliers has made their supply chain more complex, expensive to run and difficult to manage. In order to deal with the supply chain issues and better manage their suppliers and improve their production processes and ultimately lowering their cost, Ford in 1995 initiated the Ford 2000 plan which aimed at restructuring many of their key processes like Order to Delivery (OTD) and Ford Production System (FPS). They wanted to reduce the OTD from 60 or more to 15 or less days. FPS was created to convert the supply chain from a push type to a pull type.
Ford aimed at reducing the number of suppliers which had grown to several thousands of different suppliers over the years as the company grew. Rather than focusing on selecting suppliers based on costs they wanted to develop close long-term relations with the Tier 1 suppliers who in turn managed and handled Tier 2 and Tier 3suppliers. The aim was to create a more cost effective supply chain. Ford provided its suppliers with its expertise and techniques to help them better manage their operations.
Another important initiative taken by ford was the Ford Retail Network (FRN) to reduce competition among its dealerships in the same locality by having only one unified dealer who provides the best possible level of customer experience. The director of supply chain system, Takai has to take an informed and well thought decision if they should implement the Dell’s integrated supply chain or not. Alternatives and Options Alternative 1 Design a mixture of online and offline operations and form procedures to enable customization and ordering by customers over the internet but maintain physical dealerships as well. Advantages:
The most visible advantages will be customization to customers, start a supply chain vertical integration business model, open new market segment and attract clients who like online shopping, reduction in overhead and inventory carrying costs and direct control on customer service experience. Disadvantages: Costly, time consuming, requires internal and external changes which are not easy to handle and integrate with other operations. Independent dealers will complain due to internal competition. Suppliers’ inability to keep up to speed with Fords modern IT technology Alternative 2:
A complete pull system to be implemented by creating a virtually integrated supply chain based 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 via Ford’s web site or by phone and then build. A pull system would be implemented completely. Advantages: The start of vertical integration in the supply chain will deliver a customization to clients. The customers’ needs will be met faster at higher profits due the elimination of reseller’s mark-ups.
Other advantages are the directly controlled customer service, minimal inventory carrying costs and higher order lead time. As well as the ability to forecast demand will be significantly better. All that will lead to improved relationships with both customers and suppliers Disadvantages: Ford’s traditional processes and production methods would have to be changed to take advantage of this new form of supply-chain management. Since it is very costly and time consuming activity, the difference in the two (computers and auto making) industries makes it a risky option.
The loss of dealerships will mean a loss of business to competition. Change management has to take effect which is costly and emotionally sensitive Recommendations and implementation Recommendation: By keeping the existing supply chain would continue to deliver the same negative results and declining profits for the company. After careful examination and review of the alternatives, I came to conclude that the long term implication of the second alternative is the company going out of business, which eliminates option 2.
This option seems illogical when we take into account the fact that Ford is an automobile manufacturing company and Dell assembles customized computers for its customers via the internet, eliminating dealerships all across and relying only on their website for its sales will put it at a great disadvantage with competitors My decision is Ford to extend its Virtual-business strategy by partially implementing the Dell’s model of supply chain (Alternative 1).
The part of the Dell’s model which does not fit with Ford need to be discarded. The dealers would still play a role in the distribution since the buying experience of a car from a dealer cannot be substituted by something virtual like a 3d model on a computer or images and description online. Implementation plan: In order for Ford to implement option 1, their IT systems should be centralized and shared with suppliers since its Tier 2 and Tier 3 suppliers might not be able to update their IT infrastructure as often as Ford.
Suppliers can have access to central design database while Ford controls the access and functionality as per the operational requirements. The whole coordinated system would ensure a smooth flow of materials and reduced obstacle and enhance the efficiency of the supply chain giving a competitive edge to Ford. And lastly, I feel that dealerships can play a more involved role in forecasting customer demand and Ford should explore the option of outsourcing it to a firm which specializes in forecasting demand and can work with each dealer or network of dealers.
Monitor and Control: In order for the new system to function appropriately as intended, Ford must perform the following functions: Appoint an IT specialist as a liaison to coordinate all IT activities with all suppliers in order to insure a smooth flow of information among the supply chain partners and immediately resolve issues as they arise Monitor customers’ online orders by reviewing all order lead times.
The time from the customer order initiation to delivery must not exceed a standard period of time which has been set by the company Initiate an online customer satisfaction program in which customers will evaluate and rate their customer experience with Ford After every 6-8 month, review the performance and make recommendations on improvements to the appropriate authority Annual executive meetings should be held to review the progress of the business model. As well, review the shareholder value to check whether it’s increasing or decreasing Conclusion:
My decision is that by making such major decision to combine virtual integration business model to their existing supply chain, Ford can look forward to a much more efficient and profitable future as a result of implementing the recommendations concerning the online business model: their overhead and inventory carrying costs will decrease, and Ford will be in a better position to have a direct interaction with their customers. Furthermore, the overall success of this business model will depend mainly on the performance of their shareholder value.