The Ford Case

EXECUTIVE SUMMARY

Ford Motor Company was the second largest industrial corporation in the world with operations in over 200 countries generating revenues of over $144 billion. Over the last few decades, the auto industry has grown to be much more competitive. Ford had to look at new methods to improve operations to stay competitive in the marketplace.

The Director of Supply Chain Systems, Teri Takai, understood that Ford's future was at stake and needed to research and gain ideas from the high-tech industry to change the way they interact with suppliers and improve customer satisfaction. Ford's major issue in their present system is the inefficient control of their complex network of suppliers, the existence of independent distributors and their inability to communicate and serve their customers directly. The aim was to modify their supply chain in order to be more efficient and cost effective. Partial implementation of Dell's virtual integration model should help redefine Ford as a competitive, cost effective company. Implementing Dell's model will help Ford use new ideas from the high tech industry and apply emerging technologies in order to interact with suppliers and end users. Ford can increase sales by providing better customer service and faster communication in the supply chain. Ford can look forward to a much more efficient and profitable future as a result of partially implementing virtual integration.

ISSUES IDENTIFICATION

Ford has a supply chain system that has been inefficient due a complex network of suppliers. The vast amount of suppliers and independent distributors lead to little regard to overall supply chain costs; and due to the complexity of the network the ability to communicate to both suppliers and customers was a challenge.

Ford has several thousand suppliers, and with a large network spread across the world, the difficulty for Ford to control and manage the relationships between suppliers, sub-suppliers and partners was a huge issue. Ford's tier 1 suppliers would manage relationship with larger suppliers and sub systems of tier 2 and below suppliers; this complexity was costly and inefficient. The communication channels of tier 1 had fully developed IT capabilities; however the lower tiers lacked the funding to invest in IT infrastructure and used traditional phone and fax methods resulting in delays and was prone to errors due to the manual process. The lack of technology leads to inaccurate forecasting, long cycle times, and complexity for communications.

ENVIRONMENTAL AND ROOT CAUSE

There has been little consideration for how the Supply Chain functions. The purchasing department manages the supplier relationships and is independent of the product development teams. The lack of supply chain information and communication between departments equates to heavy costs and numerous components that are not properly managed.

Having thousands of suppliers providing parts for Ford has created issues in the communication and flow of goods. Ford has put into practice a tier system for their suppliers. Tier 1 suppliers manage relationships with a larger base of sub system component suppliers, Tier 2 and below. The multiple tiers is a complex and rigid network which has poor supplier relations with little flexibility as the production capacity for components are set and cannot be quickly changed. Furthermore, there are ineffective communication channels on the lower lever tiers as they are limited with equipment such as phone and fax; this results in delayed purchase functions, increase inventory and more likely to suffer from errors. Tier 1 suppliers have well developed IT systems which allow some to interact with Ford using electronic data interchange; however, they are unable to invest in new technology at the same rate as Ford. The lack of money for many suppliers to invest in infrastructure for the internet prevents the implementation and support of virtual integration.

The outsourcing strategy that Ford was using in their supply chain caused increases in inventory and in order to delivery ("OTD") times. Ford suffered from long cycle times of 45-65 days, the initiative for OTD was to reduce the time to 15 days. The long cycle times caused less flexibility for ordering and impacted sales, inventory and profits.

The structure for Regional Ford Dealerships was in competition with other Ford dealers; this system was not in the best interest for Ford as the focus should be competing against the other competition such as i.e. Toyota, Honda, etc. Dealerships are important as they were able to connect with consumers at their facility; however, their communication at the supply chain level did not exist. Information from the dealerships are important as the customer demand would be required for accurate forecasting.

ALTERNATIVES

Alternative 1 - Maintain Current Operations

Maintaining the current operations have is the most cost effective in the short term; however, Ford runs the risk of falling behind in the industry.

PROS:

* No Resistance to change - There will be little to no change in the structure of the workplace, hence no resistance.

* Lowest cost - No change is required , business will run as usual

* Least investment risk - No investments in capital or technology is required

CONS:

* Risk of falling behind other manufacturers - technological change is taking place in the industry to improve efficiencies and cut costs, Ford will fall behind in the long term

* Communication systems remain disjointed and not fully utilized

* Continued delays in OTD

* Excess inventory issues not solved

Alternative 2 - Fully adopting a Virtual Integrated Supply Chain based on Dell's model

Dell utilizes virtual integration, an efficient and effective business model by use of electronic business providing Build-To-Order (BTO) products directly to customers. Ford will need to restructure the company and operations to fully implement and replicate virtual integration of a supply chain like Dell. By making the change, Ford will be able to share information between their suppliers by using their systems to coordinate production and the flow of goods.

PROS: