As director of Supply Chain Systems, I have decided to implement the new supply chain strategy of Virtual Integration, and model its supply chain after companies like Dell. Although there are several key differences between the companies, Dell’s direct business approach can be applied to every facet of Ford’s operation. Special care will need to be taken to address the unique dependency of our custom “tier- one” suppliers.
A modification of the virtual integration system currently used by Dell could be applied to Ford’s dependent supplier base, while the management of lower tier suppliers of general or generic components would be more effectively suited by the standard procedures used by Dell. STATEMENT OF ISSUE: In 1913, Henry Ford revolutionized product manufacturing by introducing the first assembly line to the automotive industry. In the 1980’s, Ford picked suppliers based on lowest cost and the overall costs of the supply chain were ignored. Dealing with so many suppliers led to a higher overall costs and a complexity that was difficult to control.
In the 1990’s, Ford cut down on the number of suppliers drastically and shifted towards more long term relationships with a set of suppliers that would provide entire vehicle sub systems. Although the number of suppliers were lower, our supply base was different and more complex then the one used by Dell. After many decades of success, customers have increasingly become harder to find. Due to relatively new threats to the industry, an increasing numbers of cars and trucks are parked in dealer lots and showrooms, creating an alarming trend of stagnation and profit loss.
Foreign based automakers such as Toyota and Honda have expanded into domestic shores and in turn have wrestled marked share from American and Canadian automakers. To answer these threats, we have made recent attempts to transform our dated vertical (not virtual) integration model into a manoeuvrable, efficient supply chain. We have implemented Just in Time Inventory (JIT), total quality management (TQM), and synchronous material flow (SMF), as well as a multi-tiered system of supply. The tier system consists of numerous generic suppliers and tier one suppliers that provide us total vehicle sub systems.
These suppliers are totally dependent on us for survival as they cater solely to our specific requirements. We face many challenges in implementing a virtual supply chain that Dell did not have to face. Some of which include: – product complexity and rigid supplier networks – communication channels and procurement procedures (such as the typical phone and fax). – manual ordering and accounting procedures. – a lack the money to invest into internet technology, leaving little incentive to upgrade. – historical dealer retailing and traditional consumer buying habits.
All of these challenges inhibit the full scale implementation of virtual integration. CRITERIA: In order to judge whether or not a good decision about implementing a new virtual integrated system has been made in this case, I would look at the potential outcome. The questions I would like to have answered are: Is it possible to successfully implement the virtual system and maintain our supplier relationships and help them to a successful integration? Can we reduce our OTD (order to delivery time) to 15 days effectively and keep it that way?
Will customers be provided with the right products at the right time and in the right place? Can we reduce our costs and waste and move towards a more pull orientated supply chain then the push orientated situation we are currently in? ANALYSIS: Despite the revamping efforts we have made, Ford remains plagued with prolonged Order to Deliver (OTD) time periods, congested inventories and error-ridden procurement processes. Upon investigation, these troublesome issues appear to be well addressed by the radically new direct business model of the Dell Computer Corporation.
Dell differentiates itself through the utilization of virtual integration, an efficient and effective direct business model facilitated by electronic business providing Build to Order (BTO) products directly to customers. The process begins with the customer specifying exactly which features are to be included in the desired computer. Dell then buys components from several different suppliers via Internet-based JIT ordering. By using Dell’s process of JIT ordering, misallocation of company resources is avoided and unnecessary inventory is limited resulting in core competency and considerable cost reductions.
By substituting information for inventory, Dell’s lean business structure offers mass customized machines that are ordered, assembled and delivered with reduced lead times without sacrificing margins or maintaining inventory. Although the direct business model of Dell is very attractive, there are several key differences between the computer and auto industries which cause barriers to Ford implementing a this virtual supply chain scenario. Ford’s similarities to Dell are summarized below: • suppliers are close with nearby ship points
• external logistics supplier is used to manage inbound supply chain • customers are encourages to use PC’s to balance supply and demand • both companies are focused on strategic partnerships with its suppliers. Differences include: • Dell supplies its own inventory until it is used in production and Ford does not. • Dell forecasts its demand regularly with short-term forecasts and any modifications are immediately shared with the company and its suppliers, whereas Ford relies on long term forecasting.
• Ford’s supply chain is more complex then Dell. Ford must also tackle some obstacles that Dell did not have to. These obstacles range down the delivery chain from the supplier to the manufacturer to the dealer and, ultimately, to the customer. Overall, the intricate and historic process of manufacturing and selling automobiles contradicts the technological innovation necessary for a true virtually integrated system to exist. Product complexity and supply channel constraints are key limiting factors of lean manufacturing that must be addressed.
Due to the generic nature of computer parts, Dell possesses the ability to negotiate and procure necessary items for plant assembly from several independent suppliers. Therefore, the business to business (B2B) transactions are accomplished with relative ease and minimal cost. Although generic items, such as spark plugs and windshield wipers, are provided to Ford by lower tier suppliers, there are wholly-dependent, `tier-one“ suppliers that supply components such as dashboards and drive trains, that are tailored to meet our specifications. Thus the flexibility of Ford’s chain of supply is vastly compromised.
Communication channels and procurement procedures at Ford and our tier network are bound within the limits of traditional phone and fax methods resulting in delayed purchasing functions, clogging inventories and affording errors typical of a manual process. Unlike the fully automated online system of Dell, Ford’s manual ordering and accounting procedures waste manpower, collect stock and in the end, prolong OTD. Furthermore, many suppliers lack the money to invest into an Internet Technology infrastructure required to fully support virtual integration.
The dealer segment of Ford’s supply chain has been completely omitted in Dell’s business model. Dell takes orders directly from the customer and delivers the product, again, directly to the customer. In the case of Ford, dealer showrooms and car lots have been the only ways of retailing a new car since the inception of the automobile. Consumers are accustomed to shopping for cars in the first person. Car shopping appeals to the senses of the consumer, and the Internet is not yet capable of delivering such an experience.
If we at Ford could find a solution to the obstacles of virtual integration, it could make our supply chain run smoothly with less bottlenecking, inventory, and just better overall performance. Managers could overcome the burdensome and error-prone manual process of forecasting and procuring parts which would result in reduced OTD, lessen costs and enhance customer satisfaction. Although there are several key differences between companies, Dell’s direct business approach can be applied to our operation. As noted previously, special care should be taken to address the unique dependency of Ford’s custom ‘tier-one’ suppliers.
In regards to the supply channel – communication and procurement, Ford can make substantial gains by standardizing all B2B transactions. By offering incentive programs throughout the tier network, Ford can encourage all partners to make the necessary technological capital improvements in order to utilize and organize the wide extranet that will aid in fault-free procurement, real-time inventory and speedy OTD. Bottlenecking between channels would be averted as synchronous information will flow up and down the supply chain via one, standard medium.
Cost savings derived from the direct working relationship should be enough to subsidize the development of the extranet project as well as to reward the suppliers who successfully upgrade and integrate in the system. I feel the most difficult situation we must overcome is the traditional consumer buying habits. Although relatively few consumers feel comfortable purchasing a new car over the Internet, an online virtual showroom could aid prospective buyers to find the right model and features to fit their budgets and needs.
Dealerships could use the corporate extranet to locate and ship already manufactured cars from existing lots that would meet customers specifications. By doing so, dealers could lessen normally stagnated inventory stocks, while enhancing customer satisfaction with reduced OTD. Although we may never be able to achieve the efficiency of Dell computer company, we can achieve a low cost position in the industry by integrating a direct supply network. Our goal of TQM could be easily met by implementing a variation of Dell’s already successful virtual integration business model.
Fostering cooperation through incentives is key since compliance of supply chain partners is necessary to gain first-mover advantage. PLAN OF ACTION: Year One– set up a team of IT professionals to work on the virtual system in house. Year Two – implement the system internally nation wide, including internal use of the system throughout the entire supply chain. Implement virtual users and suppliers with incentives for numbers of the automated system used. Year Three – implement virtual show rooms and utilize throughout dealerships with customers.
CONCLUSION: In today’s competitive environment, it is important for any business to focus on the customer and to provide unique value in order to achieve a sustainable competitive advantage. Without virtual integration, competitive advantage is lost. Successful implementation of virtual integration initiatives allows supplier companies, which are performing only certain processes, to work together as one entity. Therefore operations become more efficient by reducing inventory delivery time.
More importantly, the organization maintains the ability to thrive in a competitive marketplace by achieving increased customer satisfaction through unique and strategic core competencies. My decision to proceed with virtual integration should help redefine Ford as a competitive, cost effective company, who perhaps can become a leader in the automobile industry by implementing a system not currently used elsewhere within the automobile industry. Rather than remaining static, Ford must seek change and model their systems after successful companies such as Dell. I feel we should proceed with the integration process here at Ford starting Monday.