Supply Chain Management of Ford Motor Company

As the second-largest automobile company in the world, Ford Motor Company represents a $164 billion multinational business empire. Known primarily as a manufacturer of automobiles, Ford also operates Ford Credit, which generates more than $3 billion in income, and owns The Hertz Corporation, the largest automobile rental company in the world. The company manufactures vehicles under the names Ford, Lincoln, Mercury, Jaguar, Volvo, Land Rover, and Aston Martin. Ford also maintains controlling interest in Mazda Motor Corporation.

Ford’s financial stability was shaken in early years of the new millennium as a result of slowing sales, quality issues, and a debacle involving Firestone tires. Origins of an American Legend Henry Ford, the founder of the Ford Motor Company, was born on a farm near Dearborn, Michigan, in 1863. He had a talent for engineering, which he pursued as a hobby from boyhood, but it was not until 1890 that he commenced his engineering career as an employee of the Detroit Edison Company. In his spare time, Ford constructed experimental gasoline engines and in 1892 completed his first gasoline buggy.

Dissatisfied with the buggy’s weight, he sold it in 1896 to help fund the construction of a new car. Ford’s superiors at the electric company felt his hobby distracted him from his regular occupation and, despite his promotion to chief engineer, he was forced to quit in 1899. Shortly afterwards, with financial backing from private investors, Ford established the Detroit Automobile Company. He later withdrew from the venture after a disagreement with business associates over the numbers and prices of cars to be produced. Ford advocated a business strategy which combined a lower profit margin on each car with greater production volumes.

In this way, he hoped to gain a larger market share and maintain profitability. Independently in a small shed in Detroit, Henry Ford developed two four-cylinder, 80-horsepower race cars, called the 999 and the Arrow. These cars won several races and helped to create a new market for Ford automobiles. With $28,000 of capital raised from friends and neighbors, Henry Ford established a new shop on June 16, 1903. In this facility, a converted wagon factory on Mack Avenue in Detroit, the Ford Motor Company began production of a two-cylinder, eight-horsepower design called the Model A.

The company produced 1,708 of these models in the first year of operation. The Ford Motor Company was sued by the Licensed Association of Automobile Manufacturers, an industrial syndicate which held patent rights for road locomotives with internal combustion engines. Ford responded by taking the matter to the courts, arguing that the patent, granted to George B. Selden in 1895, was invalid. During the long process of adjudication, Ford continued to manufacture cars and relocated to a larger plant on Piquette and Beaubien Streets.

A Canadian plant was established in Walkerville, Ontario, on August 17, 1904. Henry Ford and his engineers designed several automobiles, each one designated by a letter of the alphabet; these included the small, four-cylinder Model N (which sold for $500), and the more luxurious six-cylinder Model K (which sold poorly for $2,500). The failure of the Model K, coupled with Henry Ford’s persistence in developing inexpensive cars for mass production, caused a dispute between Ford and his associate Alexander Malcolmson.

The latter, who helped to establish the company in 1903, resigned and his share of the company was acquired by Henry Ford. Ford’s holdings then amounted to 58. 5 percent. In a further consolidation of his control, Ford replaced John S. Gray, a Detroit banker, as president of the company in 1906. In October 1908, despite the continuing litigation with the Selden syndicate, Ford introduced the durable and practical Model T. Demand for this car was so great that Ford was forced to enlarge its production facilities. Over 10,000 Model Ts were produced in 1909.

Able to vote down business associates who favored more conventional methods of production, Henry Ford applied his assembly line concept of manufacturing to the Model T. In developing the assembly line, Ford noted that the average worker performed several tasks in the production of each component, and used a variety of tools in the process. He improved efficiency by having each worker specialize in one task with one tool. The component on which the employee worked was conveyed to him on a moving belt, and after allowing a set time for the task to be performed, the component was moved on to the next operation.

Slower workers thus needed to increase their work rate in order to maintain production at the rate determined by the speed of the belts. Ford’s battle with the Selden group led to a decision by the Supreme Court in 1911, eight years after the initial suit. The Court ruled that the Selden patent was invalid. The decision freed many automobile manufacturers from costly licensing obligations; it also enabled others to enter the business. When the United States became involved in World War I (April 1917), the Ford Motor Company placed its resources at the disposal of the government.

For the duration of the war, Ford Motor produced large quantities of automobiles, trucks, and ambulances, as well as Liberty airplane motors, Whippet tanks, Eagle submarine chasers, and munitions. In 1918, Henry Ford officially retired from the company, naming his son Edsel president and ceding to him a controlling interest. But, in fact, Henry continued to direct company strategy and spent much of his time developing a farm tractor called the Fordson. He also published a conservative weekly journal, the Dearborn Independent. Edsel, who was more reserved and pragmatic than his father, concerned himself with routine operations.

At the end of the war Henry and Edsel Ford disagreed with fellow stockholders over the planned expenditure of several million dollars for a large new manufacturing complex at River Rouge, near Detroit. The Fords eventually resolved the conflict by buying out all the other shareholders. Their company was re-registered as a Delaware corporation in July 1919. The River Rouge facility, built shortly afterward, was a large integrated manufacturing and assembly complex which included a steel mill of substantial capacity. Cash-Strapped in the 1920s

Between January 1 and April 19, 1921, the Ford Motor Company had $58 million in financial obligations due, and only $20 million available to meet them. Convinced that Ford Motor would be forced into bankruptcy, representatives of several large financial houses offered to extend loans to the company, on the condition that the Fords yield financial control. When the offer was refused, the bankers retreated, certain that they would soon be called upon to repossess the company. With little time available, Henry Ford transferred as many automobiles as possible to his dealerships, who were instructed to pay in cash.

Almost immediately, this generated $25 million. Next, Ford purchased the Detroit, Toledo & Ironton railroad, the primary medium of transportation for his company’s supplies. By rearranging the railroad’s schedules, Ford was able to reduce by one-third the time that automotive components spent in transit. This allowed him to reduce inventories by one-third, thereby releasing $28 million. With additional income from other sources, and reduction in production costs, Ford had $87 million in cash by April 1, $27 million more than he needed to pay off the company debts.

The Ford Motor Company’s only relationship with banks after this crisis was as a depositor. Moreover, despite poor financial management, Ford maintained such strong profitability that it offered to lend money on the New York markets, in competition with banks. With large quantities of cash still available, Ford acquired the financially troubled Lincoln Motor Company in 1922. Edsel Ford was more enthusiastic about the development of the aircraft industry than his father, and in 1925 persuaded his fellow shareholders (all family members) to purchase the Stout Metal Airplane Company.

His close friend William Stout, who was retained as vice-president and general manager of the company, developed a popular three-engine passenger aircraft known as the Ford Trimotor. Nearly 200 of these aircraft were built during its production run. After 18 years producing the Model T, the Ford Motor Company faced its first serious threat from a competitor. In 1926, General Motors Corporation introduced its Chevrolet automobile, a more stylish and powerful car. Sales of the Model T dropped sharply. After months of experimenting with a six-cylinder model, Ford decided to discontinue the Model T in favor of the new Model A.

On May 31, 1926, Ford plants across the country were closed for six months while assembly lines were retooled. That year Ford voluntarily reduced its work week to five days, declaring that workers should also benefit from the success of the company. Ford was also one of the first companies to limit the work day to eight hours, and to establish a minimum wage of $5 per day. At Henry Ford’s own admission, these policies were instituted more to improve productivity than to appease dissatisfied (and unrepresented) workers.

The British Ford Company was formed in 1928 and shortly thereafter the German Ford Company was founded. Henry Ford recognized the Soviet Union as a market with great potential, and like a number of other American industrialists, he fostered a relationship with officials in the Soviet government. Later, Ford participated in the construction of an automobile factory at Nishni-Novgogrod. The economic crisis of October 1929, which led to the Great Depression, forced many companies to close. Ford Motor managed to remain in business, despite losses of as much as $68 million per year.

By 1932, economic conditions became so difficult that the Ford minimum wage was reduced to $4 per day. But for its Model A, which sold 4. 5 million units between 1927 and 1931, Ford’s situation would have been much worse. The economy of Detroit was heavily dependent on large, locally based industrial manufacturers and when companies less successful than Ford were forced to suspend operations, a banking crisis developed. The Ford Motor Company, and Edsel Ford personally, extended about $12 million in loans to these banks in an effort to maintain their solvency.

But these efforts failed and the banks were forced to close in February 1933. Ford lost over $32 million in deposits and several million more in bank securities. The principal Ford bank, Guardian National, was subsequently reorganized by Ford interests as the Manufacturers National Bank of Detroit. Ford’s largest business rival, General Motors, having suffered a similar crisis, emerged with control over the National Bank of Detroit. The implementation of President Roosevelt’s New Deal made conditions more favorable to the organization of labor unions.

But Henry Ford, who had supported President Hoover in the election, advised his workers to resist union organization, and in 1935 raised the company’s minimum wage to $6 per day. In 1937, the United Automobile Workers (UAW) union began a campaign to organize Ford workers by sponsoring the employee occupation of a Ford plant in Kansas City. The conflict was resolved when Ford officials agreed to meet with union representatives. That same year, there was trouble at the River Rouge complex.

Several men distributing UAW pamphlets at the gates were severely beaten by unidentified assailants, believed to have been agents of the Ford security office. Following an investigation by the National Labor Relations Board, Ford was cited for numerous unfair labor practices. The finding was contested, but eventually upheld when the Supreme Court refused to hear the case. The War Years In 1940, Henry Ford, who opposed American involvement in World War II, canceled a contract (arranged by Edsel) to build 6,000 Rolls-Royce Merlin aircraft engines for the British Royal Air Force, and 3,000 more for the U.

S. Army. In time, however, public opinion led Ford to change his mind. Plans were made for the construction of a large new government-sponsored facility to manufacture aircraft at Willow Run, west of Dearborn. Unionization activities climaxed in April 1941 when Ford employees went on strike. The NLRB called an employee election, under the terms of the Wagner Act, to establish a union representation for Ford workers. When the ballots were tabulated in June, the UAW drew 70 percent of the votes. Henry Ford, an avowed opponent of labor unions, suddenly altered his stand.

He agreed to a contract with union representatives which met all worker demands. The company devoted its resources to the construction of the Willow Run Aircraft plant. Eight months later, in December 1941, the Japanese bombing of Pearl Harbor resulted in a declaration of war by the United States against Japan, Germany, and Italy. Willow Run was completed the following May. It was the largest manufacturing facility in the world, occupying 2. 5 million square feet of floor space, with an assembly line three miles long.

Adjacent to the plant were hangars, covering 1. 2 million square feet, and a large airfield. The airplanes produced at this facility were four-engine B-24E Liberator bombers, the Consolidated Aircraft version of the Boeing B-24. Production of aircraft got off to a slow start, but after adjustments the rate of production was raised to one plane per hour, 24 hours a day. During the war, other Ford Motor plants produced a variety of engines, as well as trucks, jeeps,–4 tanks,–10 tank destroyers, and transport gliders.

The company also manufactured large quantities of tires, despite the removal of its tire plant to the Soviet Union. Edsel Ford died unexpectedly in May 1943 at the age of 49. At the time of his death, Edsel was recognized as a far better manager than his father. Indeed, Henry Ford was often criticized for repeatedly undermining his son’s efforts to improve the company, and the managerial crisis which occurred after Edsel’s death is directly attributable to Henry Ford’s persistent failure to prepare capable managers for future leadership of the company.