The main issue at hand for Ford Motor Company is whether it would be beneficial to virtually integrate their supply chain, modeling themselves after Dell’s approach to supply chain management. Ford’s current supply chain is going through a time of change whereby new management feels that adapting to virtual integration could bring large benefits to the entire supply chain that could substantially reduce amount of inventory on hold.
Ford have historically engaged in a push system, which is defined as having a pre-existing schedule that allows goods to move down the supply chain according to what the organization believes will be sufficient to meet demand. Virtual integration would blur the lines in the supply chain process within and across the company’s boundaries. Ford have implemented new supply chain schemes to try to refine their supply chain to be more consistent, effective, and timely.
This can be seen in their the Ford 2000 initiative which focused on key attributes in their production basis to move towards a pull system, their order to delivery system to reduce order times from 45-65 days down to 15, and their Ford Retail Network which aimed at buying all Ford dealerships in local markets to reduce competing with one another and keep consistent looks between all of the showrooms.
At this time in Ford’s history with an increasing focus on connectivity via internet and intranet present in other organizations and being developed within their own organization, Ford has decided to look at Dell’s supply chain and decide whether it would be beneficial to adopt the same strategy, adopt specific processes that would could be carried over, go in a different direction, or maintain the status quo.
Environmental and Root Cause Analysis Advantages of Virtual Integration Integration of a virtual supply chain could bring about numerous benefits for Ford to refine their supply chain that would potentially make them more profitable and a leader in the industry for cost effective supply chain management. Since it is so competitive, any cost effective procedures could make their product more appealing to the end customer and to their suppliers to give them preferable terms and share information. The key advantage to virtual integration for Ford would be able to accurately forecast the amount of inventory they need.
Dell currently operates with a limited amount of inventory on hand by only ordering exactly what they need. For example, Michael Dell explains in his interview that when they order, they will say “Tomorrow morning we need 8,562, and deliver them to door number seven by 7 A. M”. Currently, Ford uses the Order to Delivery initiative which aims at reducing lead times and by sharing the information with suppliers, they would speed up the entire process and deliver the end product faster and with a reduced cost base for the organization.
Another big advantage of implementing virtual integration for Ford would be for its Ford Retail Network, where Ford aims to purchase each showroom and give a consistent design and reduce competition between dealerships that sell Ford automobiles.
Having the ability to communicate with each other in real time by pooling and share resources such as consumer demand and inventory would be crucial to perform above and beyond their competition, since Weaknesses of Virtual Integration The essential weakness for virtual integration for Ford is trying something in an industry that has historically never used such a supply chain method to deliver their product.
As Dell is in such a different industry, it may be hard to derive some of their benefits from their supply chain, such as having minimal employees and outsourcing a large part of their manufacturing and inputs. Dell’s industry is made up of much cheaper products that can easily be replaced and any fault will not cause danger to the end customer.
For example, Dell strives for only 1% of their monitors purchased from Sony to be faulty. If this was the case in the automobile industry, it can result in lengthy litigation as death or injury can happen due to faults in their products. Another weakness would be resistance internally from shareholders and employees to implement this system. Large changes would have to be made to the organization’s structure, such as terminating employees, retraining for new procedures, and relocating and redesigning the production facilities to better use resources under virtual integration.
For example, if Ford were to try to use as many of the same inputs as possible for all of their products, this could lead to significant problems and resistance from shareholders to invest more of their money into a business that is already realizing a good profit in their industry. Opportunities of Virtual Integration The main opportunity for Ford is to be at the cutting edge in the automobile industry in Supply Chain Management.
Being a trend setter in an industry that has not embraced Information Technology would give Ford huge cost advantages so that they can offer a product similar to their competitors at a lower price. Threats of Virtual Integration One of the key differences between Dell and Ford is their suppliers. Currently, Ford operates with a substantially larger amount of suppliers that currently do not have the systems and technological capabilities that Dell’s suppliers have. An automobile has thousands of components and inputs to their finished product whereas Dell has a significantly smaller amount.
Transforming this supply chain would come with significant resistance from both suppliers and dealers and would come at a significant cost to Ford to train their own employees and provide the technology to their supply chain partners. Another external threat from virtual integration is that adopting all of Dell’s processes does not translate effectively throughout its dealerships. If Dell were to eliminate showrooms and only deliver their product through internet selling, they would alienate a large part of their consumer base, especially the older generation that are not as technologically savvy as their younger counterparts.
Dell deals with this well as ordering a computer is not such a large financial decision but with Ford, the showrooms are essential to the demands of the business environment in which they operate in. Alternatives The alternatives for Ford would be to maintain the status quo or find new ways to integrate their supply chain and make it more efficient. By not changing their structure, it would be the safest course of action as they are already profitable and leading their industry. However, the drawback for this is that they may be left behind as other organizations seek to use virtual integration to refine their supply chain.
The second alternate is to partially integrate some methods of Dell’s virtual integration approach without fully copying their business model. Ford could use these methods to use internet and intranet to share data with suppliers and keep track of materials throughout the supply chain. Ford could try to make their interaction with customers through the internet friendlier by offering the ability to add and subtract components that they would want. For example, it would present all the colors and add-ons, and be able to visually take in what their future car would look like.
Recommendations As Terri Takai, Director of Supply Chain Systems at Ford, I would recommend to model themselves after some, but not all of Dell’s supply chain systems. Ford should try to reduce the amount of suppliers that they use to try to obtain preferable terms and make it easier to share information between the two stakeholders. Ford should also use technology to share information with all parties, including the customer to make better forecasting decisions of operating, whereby operating in a pull system would allow them to reduce their inventory on hand.
I would also recommend holding events with Ford’s customers such as Dell does to have an open forum to communicate ideas, needs, and wants. I think that Ford should emulate as much as Dell’s business model that is possible even though the industries vastly differ from one another. However, there are sizable differences between their products and would still need to conduct operations such as checking the finished product for mistakes.
I would recommend trying to benchmark their performance against other industries that are more similar than that of Dell’s situation, and in the meantime try to be leaders in the industry by using some of the key traits that can be translated to Ford. Monitor and Control To monitor the implementation of virtual integration, Ford should set up a committee made up of various employees along the supply chain. This would include upper management in the head office, the director of supply chain, logistics employees, managers at manufacturing facilities, managers running dealerships, and the Accounting/Finance department.
They would have to meet on a weekly basis, most likely through conference calls, to analyze how the implementation is functioning. This team would need to come up with contingency plans should things not go according to plan, budget for any unforeseen consequences, and communicate their plans throughout the organization to obtain feedback and new ideas from other employees. If Ford continue to do this throughout the implementation, they should be able to see how beneficial virtual integration can be for the firm.