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Supply Chain Management of Ford Motors

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Supply Chain Management of Ford Motors
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Netra Shetty
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Supply Chain Management of Ford Motors - December 29th, 2010

The Ford Motor Company (NYSE: F) is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford, Lincoln, and Mercury brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK. Ford's former UK subsidiaries Jaguar and Land Rover were sold to Tata Motors of India in March 2008. In 2010 Ford sold Volvo to Geely Automobile.[5] Ford will discontinue the Mercury brand at the end of 2010.

Ford introduced methods for large-scale manufacturing of cars and large-scale management of an industrial workforce using elaborately engineered manufacturing sequences typified by moving assembly lines. Henry Ford's methods came to be known around the world as Fordism by 1914.

Ford is the second largest automaker in the U.S. and the fourth-largest in the world based on annual vehicle sales, directly behind Volkswagen Group.[6] At the end of 2009, Ford was the third largest automaker in Europe (after Volkswagen and PSA Peugeot CitroŽn).[7] Ford is the eighth-ranked overall American-based company in the 2010 Fortune 500 list, based on global revenues in 2009 of $118.3 billion.[8] In 2008, Ford produced 5.532 million automobiles[9] and employed about 213,000 employees at around 90 plants and facilities worldwide. During the automotive crisis, Ford's worldwide unit volume dropped to 4.817 million in 2009. Despite the adverse conditions, Ford ended 2009 with a net profit of $2.7 billion.[10] Starting in 2007, Ford received more initial quality survey awards from J. D. Power and Associates than any other automaker. Five of Ford's vehicles ranked at the top of their categories[11] and fourteen vehicles ranked in the top three.[12]

Ford Motor Company: Supply Chain Strategy
Online shopping experience from Dell and Ford

What is the difference between the two buying experience
Ford
What are the roadblocks that make the direct model difficult to implement at Ford
What historical “legacies” affect Ford’s ability to move to a BTO model
Ford is 100 yrs old Founded 1903, Dell on the other hand was founded 15 years ago

Product variety
Necessitates the management of large number of individual component inventories
Production capacity for individual components get set long in advance and cannot be changed quickly
Ford
What historical “legacies” affect Ford’s ability to move to a BTO model
Process Complexity
A large number of suppliers
3 tiers of suppliers
Business was usually over the phone and fax
Ford a $150billion company enjoy a tremendous leverage over its suppliers
Annual component price decrease and open book
Ford
What historical “legacies” affect Ford’s ability to move to a BTO model
Powerful independent dealer network

Unionized labor force

Incompatible systems
Ford credit – DEC
Parts and service – IBM
Suppliers and dealers – Variety of systems
Ford Motor Company: Supply Chain Strategy
What is virtual integration? What benefits does Dell gain from it
A way of capturing the advantage of vertical integration without actually vertically integrating
Vertical integration solves production problems related to communications, coordination, and control but at a cost of the increased overhead needed to arrange production organization

Virtual integration therefore is the ability to achieve the advantage of vertical integration without incurring the overhead.

Ford
What benefits does Dell gain from virtual integration
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
Ford
What benefits does Dell gain from virtual integration
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.
Ford
What benefits does Dell gain from virtual integration
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 has a very base of individual customer unlike Dell that has a relatively small number of institutional customers

Ford
Compare Ford and Dell
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 Dell and for Ford
Difficulties in implementing a true build-to-order model for so complex product as an automobile.
Ford
What practical challenges must Ford address as it tries to establish Internet linkages with its supply base
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
How should Ford use Internet technologies to interact with suppliers

To address this problem Ford must think about its relationships not only with suppliers but also with dealers and customers.

As supply chain systems staff members study the Dell model in particular, they come to appreciate that “virtual integration” must include design not only of the supply chain but also of fulfillment, forecasting, purchasing, and a variety of other functions that had long been considered separately within the Ford hierarchy.

The question is in fact explosive in its implications, because it inevitably leads to fundamental questions about the way Ford has historically operated internally and how it has interacted with important partner constituencies (including dealers)
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.
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