Ford motor company: supply chain strategy

History

Since the Ford Motor Company’s incorporation by Henry Ford in 1903, its strategic focus has remained on automobile design and manufacturing. Up until 1970, competition was from the two other manufacturers making up the Big Three Automakers; General Motors and Chrysler. However, starting in the 1970’s, foreign competition, mostly from Toyota and Honda, eventually lead to overcapacity within the industry. As more and more developing and industrial nations encouraged development into the automobile industry, overcapacity in the automobile markets reached an estimated 20 million vehicles.

In 1995, in an effort to reduce cost and increase efficiency, Ford developed a restructuring plan called Ford 2000 that was to focus on globalizing corporate organizations and taking advantage of the economies of scale in purchasing and manufacturing by consolidating the North America, European, and international automobile operations. Ford 2000 also called for a complete reengineering of several key company processes including Order to Delivery (OTD) and Ford Production System (FPS). One of the primary strategic goals of Ford 2000 was to decrease OTD from 60+ days to less than 15.

To help overcome information constraints in Ford’s new global approach, they launched a company-wide Intranet in mid-1996. In addition, Ford further expanded upon that system to include business-to-business (B2B) capacity by January 1997 which also comprised the Automotive Network Exchange (ANX).

Ford’s public Internet site went live in 1995. Internet usage exploded, and by mid-1997, Ford’s website was getting more than 1 million hits per day. During this revolutionary time, Ford was honored as the most improved automaker in the 1997 JD Power Initial Quality Study; listed as number 4 overall behind Honda, Toyota, and Nissan.

With an eye on the global market, each automobile manufacturer was looking to expand their global reach. By mid-1998, Chrysler merged with Daimler-Benz. Several months later, Ford announced that it would acquire Sweden’s Volvo. Rumors of other mergers began to surface. By the end of 1998, Ford surpassed Chrysler in profit per vehicle ($1770) while total profit hit $6.9 billion.

In 1999, Jack Nasser, who was second in charge since Ford 2000 was initiated, took over as CEO. Mr. Nasser had a reputation of being a cost cutter, a capable leader, and a senior manager focused on increasing shareholder value.

Today, the Ford Motor Company is the second largest industrial corporation in the world operating in 200 countries around the globe. Ford employs more than 350,000 and revenues exceed $144 billion annually. Since incorporation, Ford has produced over 260 million vehicles.

Issues

Ford needs to address a couple of issues in trying to determine which information technology strategy will work best for supplier interaction as well as with their current engineering projects.

1) Ford’s current supplier base:

a. Ford recently decreased their supplier base to have a closer and more long-term relationship with fewer suppliers called ‘Tier 1’ suppliers. These suppliers provide Ford with complete vehicle subsystems. The Tier 1 suppliers work with multiple Tier 2 suppliers who provide the components that make up the vehicle subsystems.

b. b. The Tier 1 suppliers do not have the capital to invest in the new technologies that Ford seeks to get into. However, the Tier 1 suppliers do have fairly solid IT capabilities, but these capabilities severely drop when dealing with the Tier 2 suppliers.

2) 2) Purchasing organization:

a. a. Ford’s purchasing department is independent of the product development area. However, purchasing has a strong dominance over the product designprice negotiations because “a very slim reduction in purchasing cost could result in very significant savings” for the company.

b. b. Dell’s vertical integration has these areas working very closely together. Could Ford also successfully merge these two areas?

3) 3) Forecasting within the Ford 2000 projects:

a. a. Two key initiatives under the Ford 2000 project are the Ford Production System (FPS) and Order to Delivery (OTD). The FPS project was geared at making Ford manufacturing operations leaner, more responsive, and more efficient by focusing on continuously flowing material through using vehicle in-process storage units and proper assembly order sequence. The OTD project was started to reduce the order time from 60+ days down to only 15.

b. b. The accuracy of Ford’s forecasting is an integral step in being able to maintain the continuous flow of materials from suppliers as well as being able to turn the vehicles around within 15 days. This is the first time that Ford had ever involved the dealers with forecasting the customer demand.