FordMotorCo

Report
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:
– 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
 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
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 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
Dell
Operating Principles
Customer
Intimacy
Demand
Pull
Velocity
Virtual
Integration
Ford
Breakthrough Objectives/Key Initiatives
Demand to Delivery
Ford Retail Network
Ford Production System
Order to Delivery
Supply Chain Mgmt. Leadership
Order to Delivery
Ford Product Development System
Fixed to Variable Cost Shift
Modular Assemble
“Extended Enterprise”
Dell had delivered on these
dimensions, do you think the
same methods would deliver
results for Ford?
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
(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
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
 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 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
How would making processes
and products globally
common help to improve
Ford’s production, and what is
economy of scale?
Economies of Scale
An 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
 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
What major company
processes could major
reengineering projects be
initiated around?
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
 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
 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).
Ford’s Existing Supply Chain
and Customer Responsiveness
Initiatives
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.
How could Ford improve its
existing supply base?
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 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 System
 Aspired to level production and move to a
more pull-based system, with:
– synchronized production
– continuous flow
– Stability
 throughout the process
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
Process
Push
Pull
Design
Design strategy
Vehicle
combinations
Please everyone
More is better
Mainstream customer
wants minimal
Marketing
Pricing strategy
Vehicle purchase
Incentives
Budget-driven
Higher
Market-driven
Lower
Manufacturing
and supply
Capacity planning
Multiple material/
capacity constraints,
Driven by program
Budget
Market-driven and
(no constraints FPV/
CPV* + 10% for
vehicle, +15 for
components
Schedule and build
Maximize production
make whatever you
can build
Schedule from
customer-driven order
bank, build to
schedule
Exhibit 2
Moving from Push to Pull
Process
Dealer network
Push
Pull
Dealer ordering
Orders based on
Allocations and
Capacity constraints
Orders based on
customer demand
Order to delivery
times
Longer (60 + days)
Shorter (15 days or
less)
Inventory
High with low
turnover
Low with rapid
turnover
Dealership model
Independent
dealerships,
negotiations with
company
Company-controlled
dealerships (Ford
Retail Network)
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
 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
 (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
 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)
Ford
Automotive
Employees
Assets ($millions)
Revenue ($millions)
Net income ($millions)
Return on sales
Cash ($millions)
Manufacturing facilities
Market capitalization ($millions)
Price-earnings ratio
5yr average revenue growth
5yr average stock price growth
Dell
16,100
4,300
85,100
12,300
122,900
944
4,7000
7.7%
3.8%
320
14,500
3 (Texas, Ireland, Malaysia)
58,469
60
55% per yr
133% per yr
Financial Services
363,892
194,00
30,700
2,200
7.2%
2,200
180(in North and South
America, Europe,
Asia, Australia)
66,886
10*
6% per yr
33.4% per yr
Dell and Ford Compared
Dell Processes
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
Ford




Enterprise Model Comparison
Ford
Breakthrough Objectives/Key Initiatives
Dell
Operating Principles
Customers
Customers
order
Dealers
delivery
Sales
OT
D
Order
Mgmt
FPDS
Bill of
Material
R&D
Assembly
DTD
Outbound
Logistics
Commodity
Suppliers
Component
Suppliers
Ford Retail
Network
FP
S
FP
S
CFOP
Plan/Site
Operations
Inbound
Logistics
Suppliers
Supply
chain
Leadership
The End
Any questions?

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