Ford Motor Company: Supply Chain Strategy
Essay Preview: Ford Motor Company: Supply Chain Strategy
Report this essay
Ford Motor CompanyReport on Supply Chain StrategyTable of ContentsExecutive Summary 3Introduction 4Issue identification 4Environment and Root Cause Analysis 5 Alternatives and Options 7Recommendations 9Implementation 10Monitor and Control 11Exhibit 1: Dell Computer Corporation and Ford Motor Company comparison 12Exhibit 2: Ford 2000 Initiative Projects 13Exhibit 3: Ford Motor SWOT Analysis 14Executive SummaryFord Motor’s new global approach requires that technology to be employed to overcome the constraints imposed by geography on communication process. Lead time reduction and, consequently, cost efficiency are hard to achieve without smooth information flow. Recommended partial implementation of Dell direct model, i. e. virtual integration of suppliers into one lean and efficient supply chain, would increase both operations control efficiency and shareholder value. IntroductionIn the era of rapidly changing information technologies Ford Motor faces the challenge of changing its supply chain network. Supply chain team has split down the middle on the issue. Some insist on virtual integration following Dell model in order to reduce working capital and exposure to inventory obsolescence without risking being left behind. The others consider virtual integration being inappropriate for auto industry due to the business complexity and existing wide array of Ford’s suppliers, manufacturing facilities and customers.
Issue IdentificationFord Motor strategy puts emphasis on shareholder value and customer responsiveness. Virtual integration introduced by Dell has delivered on those dimensions. Implementation of emerging information technologies, including the Internet, and ideas from new high-tech industries into supply chain management is inevitable and vital for the future business development. Degree of virtual integration is evaluated by addressing the following issues:Supplier management;Lack of up to date IT infrastructure;Direct contact with end users.Environment and Root Cause AnalysisFord Motor is a global organization with operations spanning 200 countries with over 180 manufacturing facilities. In these conditions efficient data exchange, both internal and external is crucial for success. Direct model introduced by Dell Computer Corporation proved to be the best contemporary solution of the matter. In order to see how congruous the Dell model is to Ford’s business both companies’ business environment should be compared. Please refer to Exhibit 1. Main strategic issue for Ford is control and management of the numerous links of the supply chain. To produce a single unit Dell needs under a hundred parts, whereas Ford requires over a thousand. Unlike Dell which has less than 50 suppliers, Ford has several hundreds of tier-one suppliers. The shift toward long-term relationships with very capable suppliers who would provide entire vehicle sub-systems has significantly reduced the number of tier-one suppliers. They were provided with a range of techniques, e.g. Just-In-Time Inventory, Time Quality Management, and Statistical Process Control. Tier-one suppliers are in charge of managing lower tier suppliers who usually do not have developed IT capabilities, which slows down the process. Extension of the intranet to Automotive Network Exchange (ANEX)[1] would create consistency and promote industry standards, but lack of up to date IT infrastructure both of Ford and its suppliers could result in miscommunication and lack of coordination. In order to improve activity coordination both with suppliers and end users the FPS, OTD and FIECo projects were introduced to support Ford 2000 Initiative. Please refer to Exhibit 2. All of them are aimed at cost reduction and improving customer service. In order to evaluate current business environment and identify the best opportunities for development and growth, SWOT analysis was performed. Please refer to exhibit 3. AlternativesA number of alternatives were analyzed regarding implementation of vertical integration. AlternativePROsCONs1. No change – Low cost in short-term;- No new personnel and /or no training required- Risk of not being able to compete with other car manufactures in long term;- Communication gap with suppliers- Inability to reduce lead time to 15 days do to outdated IT infrastructure2. Complete virtual integration- Order lead time reduction;- Improved responsiveness to the customer orders;- Synchronisation of materials supply with actual demand;- Low inventory cost;- High order customization- Direct shipment of vehicles to end users from Ford manufacturing facilities[2];- Competitive advantage;- Production based on actual demand – High cost of IT infrastructure development both for Ford Motor and tier-one suppliers; – High vehicle transportation cost;- Large-scale dismissal of FIECo (dealerships) employees and sales representatives;- Difficulty of carrying out proper quality and HSE control;- Personnel and suppliers education;- Increase of customer service department;- Possible C2C time increase;- Customer education3. Partial virtual integration: virtual integration toward suppliers, but not distribution channels / end users- Resolving communication gap with suppliers;- Stabilization of material flow;- Lead time reduction;- Competitive advantage at the market;- Providing customers with superior vehicle buying experience;- Relatively low short term costs – High ROI;- Distribution channels control;- Quality and safety control – IT infrastructure development cost;- Creation / development of IT department;- Personnel and suppliers training;- Potential loss of some suppliers;- Efficient transportation network development with possible transportation costs increase