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Ford Motor Company: Supply Chain strategy. Marcus Eatmon MIS 689. Introduction. Teri Takai, Director of supply chain systems contemplate recommendations to senior executives. The questions asked extremely important to Ford’s future: How should the company use:

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introduction
Introduction
  • Teri Takai, Director of supply chain systems contemplate recommendations to senior executives. The questions asked extremely important to Ford’s future:
  • How should the company use:
    • emerging information technologies (i.e. Internet technologies)?
    • ideas from new high-tech industries to change the way it interacted with suppliers?
members of the team had different views on the subject
Members of The Team had Different Views on the Subject
  • Some argued that the new technology made it inevitable that entirely new business models would prevail
  • Ford needed to radically redesign its supply chain and other activities or risk being left behind
    • favored “virtual integration”
      • modeling the Ford supply chain on that of companies, such as Dell
exhibit dell and ford compared
Exhibit: Dell and Ford Compared

Exhibit Dell and Ford Compared

Traditional Model

order

Suppliers

Manufacturer

Distribution

Channel

Customers

delivery

Direct Model

order

Suppliers

Dell

Customers

delivery

members of the team had different views on the subject5
Members of The Team had Different Views on the Subject
  • Another group was more cautious, believing that the difference between the auto business and relatively newer businesses
    • (i.e., computer manufacturing) were important and substantive
  • Ford supplier network had many more layers and companies
  • Purchasing organization played a more prominent and independent role than had Dell’s
enterprise model comparison
Enterprise Model Comparison

Dell

Operating Principles

Ford

Breakthrough Objectives/Key Initiatives

Customer

Intimacy

Demand to Delivery

Ford Retail Network

Ford Production System

Order to Delivery

Supply Chain Mgmt. Leadership

Demand

Pull

Velocity

Order to Delivery

Ford Product Development System

Fixed to Variable Cost Shift

Modular Assemble

“Extended Enterprise”

Virtual

Integration

dell had delivered on these dimensions do you think the same methods would deliver results for ford
Dell had delivered on these dimensions, do you think the same methods would deliver results for Ford?
company and industry background
Company and Industry Background
  • Based in Dearborn, Michigan,
  • Second largest industrial corporation in the world
  • Revenues of more than 144 billion
  • About 370,000 employees
  • Operations spanned 200 countries.
    • obtained significant revenues and profits from its financial services subsidiaries, core business had remained the design and manufacture of automobiles for sale on the consumer market
  • Since Henry Ford had incorporated in 1903, the company had produced over 260 million vehicles.
last two decades i ndustry grew more competitive
Last Two Decades(Industry Grew more Competitive )
  • Big Three U.S. automakers—General motors (GM), Ford, and Chrysler
  • Foreign-based auto manufactures
    • (i.e.,Toyota and Honda)
  • Facing increasing overcapacity
  • Advantage in the industry was fast becoming global
slide10

How could Ford and other large automakers improve quality and reduce cycle times while dramatically lowering the costs of developing and building cars?

ford 2000
Ford 2000
  • An ambitious restructuring, began 1995
    • Included merging its North American, European, and international automotive operations into a single global organization
  • Called for dramatic cost reductions to corporate organizations and processes by:
    • reengineering
    • globalizing
ford 200012
Ford 2000
  • Product development consolidated into five Vehicle Centers (VCs)
    • each responsible for the development of vehicles in a particular consumer market segment
  • Making processes and products globally common
    • Eliminate redundancies
    • Realize economy of scales
slide13
How would making processes and products globally common help to improve Ford’s production, and what is economy of scale?
slide14

Economies of ScaleAn economic theory stating that a plant's marginal cost of production decreases as the plant's operation increases. The more of a good you produce, the less it costs for each additional unit. For example, a plant that produces 1,000 cars would be more efficient than a plant producing five cars.

ford s new global approach
Ford’s New Global Approach
  • Technology was employed to overcome constraints usually imposed by geography
  • Teams on different continents needed to be able to work together as if they were in the same building
  • In every reengineering project, information technology (IT) was critical
    • deployed to enhance material flows and reduce inventories
      • substituting information for inventory
ford 200017
Ford 2000
  • Internet Revolution:
    • created new possibilities for reengineering processes within and between enterprises
  • Ford launched a public Internet site in mid-1995
  • mid-1997 visits more than 1 million per day
  • A companywide Intranet mid-1996
  • January 1997 business-to-business (B2B)
  • Extension potential of an Extranet
creating consistency
Creating Consistency
  • Ford teamed with Chrysler and General Motors to work on the Automotive Network Exchange (ANX)
  • Why important?
    • Network aimed to create consistency in technology standards and processes in the supplier network
    • Suppliers:
      • Pressed to lower costs
      • Interaction would be the same
end of 1998
End of 1998
  • Profits of 6.9 billion
  • Employees enjoyed record profit sharing
  • Return on sales (3.9 percent in 1997)
    • trending solidly upward
  • World leader in trucks
  • Taken over the U.S. industry lead
    • profit per vehicle ($1,770) from Chrysler
  • Most improved automaker on the 1997 J.D. Power Initial Quality Study
    • (in fourth place overall behind Honda, Toyota and Nissan).
existing supply base
Existing Supply Base
  • As the company had grown over the years, so had the supply base
  • In the late 1980s: there were several thousand suppliers of production materials in a complex network of business relationships
  • Suppliers were picked primarily on the basis of cost, little regard was given to:
    • overall supply chain costs
    • complexity of dealing with such a large network of suppliers.
existing supply base23
Existing Supply Base
  • Beginning in the early 1990s:
  • Shifted toward longer-term relationships with a subset:
    • tier 1
    • tier 2
    • below suppliers.
  • Ford made its expertise available:
    • just-in-time (JIT) inventory
    • total quality management (TQM)
    • statistical process control (SPC)
ford production system
Ford Production System
  • Ford 2000 initiative produced five major, corporationwide reengineering projects
  • One was Ford Production System (FPS)
  • Aimed at making Ford manufacturing operations:
    • Leaner
    • more responsive
    • more efficient
ford production system25
Ford Production System
  • Aspired to level production and move to a more pull-based system, with:
    • synchronized production
    • continuous flow
    • Stability
  • throughout the process
slide26
What was Ford’s intentions when reengineering its production system, and how were they going to do this?
exhibit 2 moving from push to pull
Exhibit 2 Moving from Push to Pull

Process Push Pull

Design Design strategy Please everyone Mainstream customer

Vehicle More is better wants minimal

combinations

Marketing Pricing strategy Budget-driven Market-driven

Vehicle purchase Higher Lower

Incentives

Manufacturing Capacity planning Multiple material/ Market-driven and

and supplycapacity constraints, (no constraints FPV/

Driven by program CPV* + 10% for

Budget vehicle, +15 for

components

Schedule and build Maximize production Schedule from

make whatever you customer-driven order

can build bank, build to

schedule

exhibit 2 moving from push to pull28
Exhibit 2 Moving from Push to Pull
      • Process Push Pull
  • Dealer network Dealer ordering Orders based on Orders based on
  • Allocations and customer demand
  • Capacity constraints
  • Order to delivery Longer (60 + days) Shorter (15 days or times less)
  • Inventory High with low Low with rapid
        • turnover turnover
  • Dealership model Independent Company-controlled
  • dealerships, dealerships (Ford
  • negotiations with Retail Network)
  • company
one important part of fps was synchronous material flow smf
One Important Part of FPS was Synchronous Material Flow (SMF)
  • Ford defined as “a process or system that produces a continuous flow of material and products driven by a fixed, sequenced, and leveled vehicle schedule, utilizing flexibility and lean manufacturing concepts.”
  • One key to SMF was In-Line Vehicle Sequencing (ILVS):
    • used vehicle in-process storage devices (such as banks and ASRSs) and computer software to assure that vehicles were assembled in order sequence
order to delivery
Order to Delivery
  • The purpose of OTD:
    • reduce to 15 days from 45 to 65 days
  • Pilot studies in 1997 and 1998 identified bottlenecks throughout Ford’s supply chain:
    • Marketing
    • material planning
    • vehicle production
    • transportation processes
ford s approach to implementing an improved otd process
Ford’s Approach to Implementing an Improved OTD Process
  • (1) ongoing forecasting of customer demand from dealers
  • (2) a minimum of 15 days of vehicles in each assembly plant’s order bank
    • to increase manufacturing stability
  • (3) regional “mixing centers” that optimize schedules and deliveries of finished vehicles via rail transportation
  • (4) a robust order amendment process
    • to allow vehicles to be amended for minor color and trim variations without the need to submit new orders
ford retail network
Ford Retail Network
  • July 1, 1998, launched first Ford Retail Network (FRN) in Tulsa, Oklahoma
    • under the newly formed Ford Investment Enterprises Company (FIECo).
  • Two primary goals:
    • (1) to be a test bed for best practices in retail distribution and drive those practices throughout the dealer network
    • (2) to create an alternative distribution channel to compete with new, publicly owned retail chains such as AutoNation.
comparative metrics latest fiscal year
Comparative Metrics (latest fiscal year)

Ford

Dell Automotive Financial Services

Employees 16,100 363,892

Assets ($millions) 4,300 85,100 194,00

Revenue ($millions) 12,300 122,900 30,700

Net income ($millions) 944 4,7000 2,200

Return on sales 7.7% 3.8% 7.2%

Cash ($millions) 320 14,500 2,200

Manufacturing facilities 3 (Texas, Ireland, Malaysia) 180(in North and South

America, Europe,

Asia, Australia)

Market capitalization ($millions) 58,469 66,886

Price-earnings ratio 60 10*

5yr average revenue growth 55% per yr 6% per yr

5yr average stock price growth 133% per yr 33.4% per yr

dell and ford compared
Dell and Ford Compared

Dell Processes Ford

Suppliers own inventory until it is used in production

Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour 

External logistics supplier used to manage inbound supply chain 

Customers frequently steered to PCs with high availability to balance

supply and demand 

Demand forecasting is critical—changes are shared immediately within Dell

And with supply base

Demand pull throughout value chain—“information for inventory” substitution

Focused on strategic partnerships: suppliers down from 200 to 47 

Complexity is low: 50 components, 8 – 10 key, 100 permutations

enterprise model comparison35
Enterprise Model Comparison

Ford

Breakthrough Objectives/Key Initiatives

Dell

Operating Principles

Customers

Ford Retail Network

Customers

Dealers

order

delivery

OTD

Order

Mgmt

Sales

FPDS

Bill of Material

R & D

Assembly

DTD

Outbound

Logistics

Supply chain

Leadership

Commodity

Suppliers

Component

Suppliers

Plan/Site

Operations

FPS

Inbound

Logistics

FPS

CFOP

Suppliers

the end

The End

Any questions?