Ford Motor Company Supply Chain StrategyEssay Preview: Ford Motor Company Supply Chain StrategyReport this essayFord Motor Company Supply Chain StrategyBackgroundIn 1913, Henry Ford revolutionized product manufacturing by introducing the first assembly line to the automotive industry. Fords hallmark of achievement proved to be a key competence for the motor company as the low cost of the Model T attracted a broader, new range of prospective car-owners. However, after many decades of success, customers have become harder to find. Due to relatively new threats to the industry, increasing numbers of cars and trucks are parked in dealer lots and showrooms creating an alarming trend of stagnation and profit erosion. Foreign-based automakers, such as Toyota and Honda, have expanded operations onto domestic shores and, in turn, have wrestled market share from American automakers. As a direct result, unit over-capacity has steadily risen, while heightened competition and diverse product lines have led to increasing customer demands.
To answer these threats, Ford has made recent attempts to transform its dated vertical integration production model into a maneuverable, efficient supply chain. Emphasizing methods such as Just-In-Time (JIT) inventory, Total Quality Management (TQM), and Synchronous Material Flow (SMF), Ford has derived a multi-tiered system of supply. The tier system consists of numerous generic suppliers, “tier two” and below, who are managed by “tier one” vehicle sub-system suppliers. The “tier one” suppliers, by nature, are completely dependent upon Fords survival since the provided sub-system component is specific solely to Ford.
Dell and Virtual IntegrationDespite the revamping effort, Ford remains plagued with prolonged Order-To-Delivery (OTD) time periods, congested inventories and error-ridden procurement processes. Upon investigation, these troublesome issues appear to be well addressed by the radically new direct business model of the Dell Computer Corporation. Dell differentiates itself through the utilization of virtual integration, an efficient and effective direct business model facilitated by electronic business providing Build-To-Order (BTO) products directly to customers. The process begins with the customer specifying exactly which features are to be included in the desired computer. Dell, then, buys components from several different suppliers via Internet-based JIT ordering. By using Dells process of JIT ordering , misallocation of company resources is avoided and unnecessary inventory is limited resulting in a core competency of considerable cost reduction. By substituting information for inventory, Dells lean business structure offers mass-customized machines that are ordered, assembled and delivered with reduced lead times without sacrificing margins or maintaining inventory.
Fords ChallengeAlthough the direct business model of Dell is most attractive, there are several key differences between the computer and auto industries which serve as barriers to Fords implementation of uniform, supply chain virtual integration. Ford must tackle many diverse obstacles that were, simply, not a factor with Dells implementation. These obstacles range down the delivery chain from the supplier to the manufacturer to the dealer and, ultimately, to the customer. Overall, the intricate and historic process of manufacturing and selling automobiles contradicts the technological innovation necessary for a true virtually integrated system to exist.
First, product complexity and supply channel constraints are key limiting factors of lean manufacturing that must be addressed. Due to the generic nature of computer parts, Dell possesses the ability to negotiate and procure necessary items for plant assembly from several independent purveyors. Therefore, Business-To-Business (B2B) transactions are accomplished with relative ease and minimal cost. Although generic items, such as spark plugs and windshield wipers, are provided to Ford by lower tier suppliers, wholly-dependent, “tier one” partners supply components, such as dashboards and drive trains, that are tailored specifically for Ford, alone. Thus, the flexibility of Fords chain of supply is vastly compromised. The combination of product complexity and a rigid supplier network adds complexity to the task of introducing virtual integration to Fords dated process.
Secondly, the communication channels and procurement procedures of Ford and its tier network are bound within the limits of traditional phone and fax methods resulting in delaying procurements, clogging inventories and affording errors typical of a manual process. Unlike the fully automated online system of Dell, Fords manual ordering and accounting procedures waste manpower, amass stock and, in the end, prolong OTD. Furthermore, many of Fords lower tier partners lack the capital to invest into an Internet Technology (IT) infrastructure that would be necessary to fully support virtual integration. Not only do these suppliers lack the technology and funding for IT initiatives, the incentive to upgrade is, also, non-existent.
Lastly, historical dealer retailing and traditional consumer buying habits, both, inhibit the full-scale implementation of virtual integration. The dealer segment of Fords supply chain has been completely omitted in Dells business model. Dell takes orders directly from the customer and delivers the product, again, directly to the customer. In the case of Ford, dealer showrooms and car lots have been the only ways of retailing a new car since the inception of the automobile. Eradication of all dealerships for the sake of advancement is, simply, impossible. First, Ford is obliged to the dealerships through legal franchise agreements, and, more importantly, consumers are accustomed to shopping for cars in first person. Car shopping appeals to the senses of the
e.g., the sense that they will only buy the new one, and that they are ‘in the shop’ at the carousel. In return for this loyalty, dealers are the ones that allow the purchaser to get out of the carousel in their own way. The Fords, by contrast, now store-share with dealerships a third of Fords sales. This makes much more sense in some contexts, particularly because the Fords are able to do this when they are at the top of their price range, with customers paying an attractive value for a car. There are three reasons why a system like virtual integration of Fords, so important to Fords, is of no benefit to other brands.
One is, if an app can be installed that allows for integration in all Fords stores, the price of a new car will be automatically adjusted. As we saw with the previous model, a system like this only works when a user has his/her own personal information. If, on top of that, a customer’s personal information and bank account was transferred to an account of someone else, this would occur within the system’s scope and could have a negative effect on performance. If the information of the customer is transferred using an on-going transfer process whereby a new system can only transfer credit into an existing account, this could result in overbilling of accounts. The further the transaction is processed, the higher the cost of transaction becomes, at least at low prices. As we have pointed out in Chapter 1, if the transfer rate exceeds the transfer rate in that situation, then by definition transaction fees are due – as long as the transaction’s amount exceeds the transfer rate. The fact is, this does not mean that the customers will pay anything for the car they get from a dealer, or that they will earn their money by doing so. Rather, we are talking about a business strategy that allows a business to offer discounts and discounts, but at a higher rate. This is because those who wish to use the service have little idea of what the discounts and discounts actually are, and this increases the price for that service; the lower the price, the better the product. If this is not the case, the value of the new car drops by the same proportion that the new cost of purchasing it diminishes. Finally, this is how dealerships should be designed. The same goes for car showrooms. It only matters how many customers they provide to the manufacturers at an offer and if they pay well, not whether they have at least a minimum quota of customers. When the retailer does not sell the new car, or when the price is too high or too low, the system will make sales with low-volume, but lower-volume customers, in an attempt to keep up demand. Because such a system is already in place, and due to a combination of factors, it still cannot be ignored, it is quite possible that the high price point of the new car could be the result of a combination of factors. As we have argued before, the customer has