Ford & Dell Case Study

Executive Summary

Ford Motor Co. has to be more competitive in the expanding global market that is now facing over-capacity. Although Ford has continued to be profitable and are experiencing growth, it is important to increase shareholder value and customer responsiveness in order to be successful. Ford’s current processes have identified process redundancies, bottlenecks, excess inventories and long cycle times which effect costs and profitability as well as customer satisfaction. It is apparent that these issues can be addressed by improving the amount collaboration and sharing of information throughout all levels of the supply chain. Modern information technology companies like Dell have created a Virtual Integration business model that would help Ford improve by creating integrated partnerships with suppliers, dealers and customers and would allow for information sharing and collaboration across the supply chain. Implementation of this model would include development of close partnerships with key suppliers and dealers by holding Type III partnership meetings with key players, as well as the development of an Interorganizational Information System and provide the necessary information technology solutions down to all levels of the supply chain. Once the virtual integration model is in place, Ford and it’s supply chain members will have the information in place to be able collaborate with together to reach shared goals. The result will be increased customer responsiveness, more efficient processes, reduced inventories, customer satisfaction and record profits and growth.

Issue Identification

The immediate issue faced by Ford is to determine the best way to use modern information technologies to better interact with their supply chain and improve their shareholder value and customer responsiveness. The specific issue is whether they should redesign their supply chain model towards a “virtual integration” model that is used by Dell. The automotive industry is growing to be very competitive as increased competition from foreign automakers is contributing to overcapacity in the market, so they must continue to improve quality and lower costs in order to have a competitive advantage.

Another issue that they currently have organizational and process redundancies. They have a long Order-to-Delivery process of 45-65 days and have identified bottlenecks in Marketing, material planner, production and transportation. There is a need to create a better OTD process in order to improve quality and customer satisfaction and lower costs.

Other issues are the very large supply base and the lack of technological interaction and information flows between their lower tier suppliers and customers in the supply chain.

Environmental

Ford Motor Company is the second largest industrial corporation in the world with revenues of more than $144 billion and about 370,000 employees, with operations in 200 countries worldwide. Their core business is the production of vehicles but also operate a financial division that is also very profitable. With profits of 6.9 billion and return on sales of 3.9% Ford is the world leader in trucks and US leader in profit per vehicle. Ford competes in the automotive industry with US manufacturers like Chrysler and GM, and foreign manufacturers like Honda, Toyota, and Nissan. The industry is facing over capacity due to imports from developing countries, which is quickly making competition global.

In order to remain competitive, Ford embraced a global approach with a move towards vertical integration and customer responsiveness initiatives that they called the Ford 2000 initiative. This began with merging North American, European and International operations and had a strong focus on reengineering processes to make production leaner, more responsive and more efficient. The initiative included making improvements to the supply base and Ford Production System (FPS), reducing the OTD time including reducing inventories and enhancing material flows and improving the Ford Retail Network.

Root Cause

Fords merger with Daimler-Benz in 1998 and Volvo acquisition in 1999 resulted in increased supplier base. They have a very large multi-tier supplier network that is complicated to manage and includes thousands of suppliers and thousands of parts. With the Ford 2000 initiative, they decreased the number of suppliers and began building better relationships with Tier 1 suppliers. Ford worked directly with to help them improve operations. They also relied on them to manage the lower tier supply base and demanded yearly price reductions in exchange for the long-term commitments.

Ford connected with the tier 1 suppliers using some modern information technology like EDI, but their ability to invest in technology at the same rate as Ford was limited. Ford realized the importance of IT in the reengineering of process has a huge impact on enhancing the material flows and reducing inventory, but the Tier 2 and lower suppliers did not have direct relationships with Ford, and also had limited abilities to invest in technology. These two factors did not allow for an open flow of information through the supply chain and buffer inventories were required at various points in the supply chain, affecting cash flow and inventory turnover rates.

Ford historically operated on a “push” based system, but the Ford 2000 initiative, the FPS was a move towards a pull-based system. Ford developed the ability to tell suppliers days in advance on what is required which was an effort to reduce buffer stock, but this information was not delivered down to the lower tiers. Also, the ability to feel the benefits of reduced safety stock was based on an accurate forecast and the ability to keep a level production sequence. Ford is lacking in the ability to accurately forecast demand. The reason for this is that do not have direct communication with their customers. Dealers have direct contact and control over customer relationships and do not pass on demand forecast information to Ford.

High OTD time of 45-65 days caused by bottlenecks throughout the supply chain and were found in marketing, material planner, production and transportation. The lack of information sharing throughout the supply chain caused redundancies. The new OTD initiative is reliant on the ability to forecast demand from dealers, and also by creating a minimum of 15 days inventory in each plant’s order bank, with quantity based on historical demand. The success of OTD decreased time is heavily dependent on demand forecasts and since they are using historical data (push system) instead