Despite the revamping effort, Ford remains plagued with prolonged Order-To-Delivery (OTD) time periods, congested inventories and issues with the procurement processes. After some research, these issues appear to be well addressed by the 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.
Although the direct business model of Dell is most attractive, there are several differences between the computer and auto industries which serve as barriers to Ford’s implementation of uniform, supply chain virtual integration. Ford must find a way to address obstacles that were not a factor with Dell’s implementation. These obstacles range down the delivery chain from the supplier to the manufacturer to the dealer and, ultimately, to the customer. BACKGROUND Henry Ford revolutionized product manufacturing by introducing the first assembly line to the automotive industry.
Ford’s achievement proved to be a key competence for the motor company as the low cost of the Model T attracted a broader, new range of prospective car-owners. However, after many decades of success, customers have become harder to find. Due to relatively new threats to the industry, increasing numbers of cars and trucks are parked in dealer lots and showrooms creating an alarming trend of lower profits. Foreign-based automakers have expanded operations onto domestic shores and have taken market share from American automakers.
As a direct result, unit over-capacity has steadily risen, while heightened competition and diverse product lines have led to increasing customer demands. THE CHALLENGE Senior Executives asked how the company should use the emerging information technologies and ideas from new high-tech industries to change the way we interact with Suppliers. Ford went on an exploration to find ways to improve the Supply Chain management and to increase shareholder value and Supply Chain responsiveness.
Specifically they are looking at how Dell manages their Supply Chain and incorporates the virtual integration strategy. Below are some of the issues that surfaced. First, 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 purveyors. Therefore, Business-To-Business (B2B) transactions are accomplished with relative ease and minimal cost.
This is not the case for Ford. Additionally, the communication channels and procurement procedures of Ford and its tier network are bound within the limits of traditional phone and fax methods resulting in delaying procurements, 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, amass stock and, in the end, prolong OTD. Finally, retail distribution and traditional consumer buying habits inhibit the full-scale implementation of 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. Closing all dealerships for the sake of advancement is impossible. The key if for Ford to find a solution to the obstacles of virtual integration, it could turn a new supply chain efficiency into a core competency.
Managers could overcome the burdensome and error-prone manual process of forecasting and procuring parts which would result in reduced OTD, lessened cost and enhanced customer satisfaction. ALTERNATIVES Option 1 Keep things as they are – maintain current Cycle Time strategy and Operational Procedures. This option would be supported by the most conservative associates in the company. This strategy is the safest and most cost effective in the short term. PROS: Lowest cost Least investment risk CONS: Risk of falling behind other manufacturers Continued OTD delays Excess inventory issues not resolved
Communication systems remain disjointed and not fully utilized Loss of Market Share continues Option 2 Launch a Partial Virtual Integration and supply chain strategy. Ford and Dell have some similarities and it would be possible to virtually integrate certain aspects of the Supply Chain. Areas to be considered for virtual integration that are more standardized. Also, if they expand the use of E-Business, this would provide an alternate channel to reach customers.
E-Business will be the key to implementing virtual integration. PROS Increased control – partnerships enable Ford to have more control over suppliers actions Lower Overhead Greater flexibility – real time responsiveness and inventory management Project Costs moderate CONS Initial costs involved in implementing information technologies.
A new system will require extensive set up, training and monitoring Lack of technology at Tier 2 & 3 suppliers Option 3 Fully Implement Virtual Integration by modeling the Supply Chain around Dell. For this alternative, there would need to be an almost complete restructuring of the company to mimic the Dell model. PROS Increased control – partnerships enable Ford to have more control over suppliers Lower Overhead Greater flexibility – real time responsiveness and inventory management Improved Communication & coordination a) Increased efficiency and effective coordination b) Ability to expand and incorporate the existing IT initiatives already underway.
Better forecasting & Inventory management with new communication method Reduced exposure to inventory Obsolescence Reduction in Working Capital CONS: High Cost Dealership structure & sales strategy a) Consumers are not ready to make purchases online so dealerships are still needed. b) Dealerships have legal franchise agreements RECOMMENDATIONS
We know that there are several key differences between companies, Dell’s direct business approach can be applied to every facet of Ford’s operation. Special care should be taken to address the unique dependency of Ford’s custom “tier one” suppliers. By the very nature of Ford’s tier network, “tier one” partners have fixed relationships with Ford and cannot be chosen by cost, alone. Therefore, a variation of virtual integration could be applied to Ford’s dependent supplier base, while the management of lower tier suppliers of generic components would be better suited by the standard procedures used by Dell.
Where Ford Should Focus 1) Partnerships with suppliers – Long term commitment with suppliers and sharing of production schedule, daily sales forecast and new model introduction information with suppliers 2) Just-in-time components inventories – the business to business (B2B) transactions are accomplished with relative ease and minimal cost 3) Extensive data and information sharing with both supply partners and customers.
End of 1st QtrAprilMay W1W2W3W4W5W6W7W8W9W10 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, assuring quality, and reducing 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 competences. Virtual integration will redefine corporations and entire industries as supply chains evolve into a new business model of cooperation and sharing.