FORD MOTOR COMPANY: SUPPLY CHAIN STRATEGY A Case. By: ADMM. COMPANY HISTORY. Second largest industrial corporation of the world. Spread across 200 countries Revenue $ 200billion Since 1903 company has produced 260 million vehicles In 1999 acquired Sweden’s VOLVO
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COMPANY HISTORY • Second largest industrial corporation of the world. • Spread across 200 countries • Revenue $ 200billion • Since 1903 company has produced 260 million vehicles • In 1999 acquired Sweden’s VOLVO • In 2000 FORD came up with its reconstructing plan
Company history • Reduced OTD to less than 15 days • Did tremendous cost reduction • Encapsulated the use of modern technologies. E.g :- IT was widely used • Ford launches site in 1995 . Results noticed by mid 1997 • Worked in corporation with CHRYSLER and GM to deal with supplier in regard to various industries
Ford results after implementing technology • Ford learnt from DELL systems and capitalized profits of $ 6.9 billion • Return on sales was 7.2% in finances and 3.7% in automation • Leaded CHRYSLER in profit making
Ford existing supply chain • Thousand suppliers.. Suppliers were picked on the basis of cost factor • After 1990 company started reducing its supplier base • Divided supplier into tier 1 and tier 2 . Tier 1 were highly reliable supplier. • JIT,TQM,SPC were some of the techniques that helped to improve their supplier quality • Corporate the use of IT systems between their supplier and dealer widely • Compared to dell their purchasing department was independent of production department. Because of bulk purchasing by ford
Ford production system • Ford redesigned its production system as FPS in taking consideration to Toyota production system (TPS). • Implemented FPS in number of years to make it successful world wide
Features of FPS • Leaner ,responsive and more efficient • Synchronous material flow • ILVS a major point in synchronous material flow • This helped ford in forecasting in components to its suppliers
Order to delivery • OTD reduce to 15 days in comparison to 64 days. pilot studies in 1997 and in 1998 • Identified bottlenecks through ford supply chain and improved them • Ongoing demand from customers • Minimum of 15 days vehicle in assembly plant to increase manufacturing stability • Regional mixing centres that optimized schedule • OTD vision was to make clear lean process that harmonize the effect of all ford components to provide customers the right product
Ford retail network • On july 1 ,1998 ford launched Ford retail network in tulsa undr newly formed ford investment enterprises company(FIEco). • Took advantage of changing phase of retail vehicle distribution systems in north america
FIEco Goals • FIEco goals • 1. to act as test bed for best practiceses followed and to implenet it across its dealer network • 2.to create its alternate distribution channel to compete its new publicily owned retail chains • Ownership varied from market to market
Ford retail network • In Rochester, New york ford was partnering with republic was majority owner and ford was minority owner • Mainly to buy all ford dealers in main market so as to increase intermarket and not intra market competition • Goal was to give highest customer satisfaction
Supporting Dell’s competitive advantage through a new operational model • Focused on strategic partnerships: suppliers down from 200 to 47 • Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour • Suppliers own inventory until used in production • Demand pull throughout value chain – “information for inventory” substitution • Demand forecasting is critical – changes are shared immediately within Dell and with supply base • Customers frequently steered to “recommended configurations” with high availability to balance supply and demand • External logistics supplier used to manage inbound supply chain
Customer Customer PULL Distribution Channels PULL Dell PUSH Virtual Integration Manufacturer Suppliers PUSH Suppliers Dell’s Supply Chain Traditional Supply Chain Model SUPPLY CHAINS…Compared with Dell.
Virtual Integration… ! • Virtual integration solves production problems related to communications, coordination, and control but at a cost of the increased overheads needed to arrange production organization • “Virtual integration” therefore is the ability to achieve the advantage of vertical integration without incurring the overhead.
Advantage Dell.. • Communication and coordination • Vertical integration leads to efficient and effective coordination, through a number of mechanisms that include likelihood of physical proximity, established patterns of communications, and greater willingness to cooperate with other members of the same group. • “Stitching together a business with partners that are treated as if they’re inside the company” Michael Dell
Advantage Dell .. Control • The prospect of improved control over the actions of suppliers is another important rationale for virtual integration. • Un-integrated partners can exert power over each other as transactions unfold over time • Though Dell enjoy information sharing for now but inventory are not completely aligned • Inventory not held by Dell may need to be held by a partner who would rather not hold inventory either.
Advantage Dell…continued.. • Real time responsiveness and inventory management • Real-time updating of order status and the ability to check order status regardless of where the order is in the fulfillment process provided Dell with differentiating capabilities. • Inventory velocity
Forecasting • Dell’s direct relationship with customers are key to forecasting. • Dell has easy access to data useful for forecasting; most of the data are already in Dell’s systems • In case of Ford, the dealers own most of the direct data about customer demand.
Ford’s Bottleneck’s.. • Old channel players concerns • Costs of developing web capabilities • Implication for information sharing • Problems of connecting to suppliers and other external parties who tend to be less technologically advanced than the Ford. • Forecasting what customers will buy for Ford • Difficulties in implementing a true build-to-order model for so complex product as an automobile.
Ford’s Practical Challenges.. • Difficulties in establishing B2B linkages • Lack of technology and technological sophistication that prevail in the supply chain, especially at lower tiers.
Ford Motor Company: Supply Chain Strategy • Recommendation on moving forward • One group are enthusiastic about the technology and think that the only appropriate way to answer the question is to consider, evaluate and recommend radical changes to Ford overall business model; this group considers Dell a serious model for Ford’s business
Ford Motor Company: Supply Chain Strategy • Recommendation on moving forward • Another group is more cautious and believes that the fundamental differences between Dell’s industry and Ford’s industry necessitate significant differences in business models.
Ford Motor Company: Supply Chain Strategy…Our recommendation. • Taking the 2nd group as more logical we support that Ford should improve upon their own Model rather than following an Alien Paradigm…..