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Supply Chain Management

FORD: OFFSHORING
STRATEGIES & RISK
MANAGEMENT
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FORD'S VISION
—To provide sustainable transportation that is
affordable in every sense of the word: socially,
environmentally & economically

SUMMARY
HISTORY
Ford Motor Company,
American automotive corporation
founded in 1903 by Henry Ford. The
company manufactures
passenger cars, trucks,
and tractors as well as automotive
parts and accessories. Headquarters
are in Dearborn, Michigan.
PROFILE
It is the second largest industrial
corporation in the world, holding
revenues of more than $114, about
370,000 employees and operations in
more than 200 countries. Ford's core
business is the design and manufacture
of automobiles for sale on the consumer
market.
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KEY ACHIEVEMENTS
Ford is one of the most successful
companies in the world. It is considered
a world leader in quality management
and supply chain management. Ford is
best known as the first auto
manufacturer to automate production
with an assembly line, pay workers a so-
called fair daily wage, and produce a
vehicle for the mass-market everyday
consumer.
FORD'S SC MODEL
— Ford's model is highly inspired from
Dell's Supply Chain Model
WHY?
In order to be competitive
To high reach of productivity and low cost
For the improvement and simplification of supply chain

WHERE?
Complexity of Ford's Supply Chain Integration requires:
Changes in fundamental operations
Push and Pull models in Ford’s business functions such as
design, marketing, supply and dealer network.

WHEN?
After determination of short, mid and long term supply chain
implementation improvements.
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SUPPLY BASE
—As the company has grown over the
years, so has its supply base.
1. EXISTING 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.
ORDER TO DELIVERY
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Another key process in Ford re-engineering initiative was
Order to Delivery.
• The purpose of the OTD project was to reduce to 15 days the
time from a customer’s order to delivery of the finished
project.
• A significant reduction versus the present performance of
45-65 days.
• Pilot studies in 1997 & 1998 identified bottlenecks
throughout Ford’s supply chain, including its marketing,
material planning, vehicle production.
• Ford’s approach to implement an improved OTD process
relied on several elements:
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 ccnters” that optimize schedules and
deliveries of finished vehicles.
4. A robust order amendment process to allow vehicles to be
amended for minor colour and trim variations.
• The OTD vision was to create a lean, flexible and predictable
process.
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FORD'S ISSUES
Wide spread supplier network
Lower tier suppliers : No access to IT infrastructure
Heavy competition
Cost of manufacturing
Indirect control on end users
Forecasting Issues
OFFSHORING STRATEGIES 07

— Globalization, Offshoring Are Key To Ford's

Turnaround

MAJOR COMPETION INSOURCING

Ford Motor Co.'s plan to cut 34,000 jobs to help restore
Ford's turnaround must also include pushing more
profitability is just the beginning of the automaker's
of its IT, manufacturing, and support operations
campaign to ensure its competitiveness in the 21st
into other markets that promise big growth. Beyond
century.
India, there is Eastern Europe and China-where
Ford, with its high-cost infrastructure, burdensome
Ford's sales increased 46% last year
union contracts, and short-sighted focus on pushing
That wouldn't just make economic sense, it would
gas-guzzling SUVs, is on the verge of becoming a global
be a smart marketing move. Consumers are more
also-ran. More nimble competitors from China, Japan-
likely to buy a car if they themselves, or someone
even South Korea-are eating Ford's lunch in emerging
they know, works for the company that built it.
markets and in the United States.
Ford's extensive operations in Canada are part of
The bottom line is that car buyers, wherever they live,
the reason it has great brand loyalty there and why
now want a reliable, low-cost, fuel-efficient vehicle and
Canadians don't see Ford as a "foreign" automaker,
they don't care where it's made. That's why Hyundai
even though it is.
sales in the United States rose 9% last year while Ford-
the home team-saw U.S. sales decline 4%.
FORD'S OFFSHORING 08
Based on core competence concept, the firm tried to keep
strategically important tasks and production in-house where they
excelled, while noncore tasks were outsourced to external suppliers
with superior skills and knowledge. As time has passed, increasing
number of parts and services has come to be considered non-core,
and Ford has outsourced production to number of external
suppliers, outside the United States.
Today, about 70% of typical Ford vehicle comes from parts,
components and services purchased from external suppliers. Even
white-collar jobs and design of future vehicles are also outsourced.
IT sector has also been outsourced.
Ford is digitalising key aspects of its global logistics and supply
chain management, including the recent insourcing of its fourth
party logistics (4PL) logistics management in Asia Pacific, Africa
and South America.
The carmaker’s decision to insource its fourth party logistics (4PL)
services in India in 2018 marked a significant change for the
company. Instead of relying on a provider to optimise and manage
its logistics services, it built up internal resources and rolled out a
new transport management system (TMS) and integrated planning
structure.
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RISK MANAGEMENT
—Many companies face considerable operational and supply
chain risks that can materially impact company performance.
Given the complexity and scope of Ford Motor Company’s
operations, this is certainly its situation
 FACTORS
DEPENDENCY ON
FEEWER SUPPLIERS
The rest factor is the proliferation of
global programs and the related
need to maximize the operational
scale of these programs. This
results in less redundancy and
more dependence on fewer
suppliers, increasing the supply
chain's exposure if one of these
suppliers is disrupted.
LESS SLACK CAPACITY
The second is the ongoing
consolidation in the supply base
and the scale incentives to
maximize the use of supplier
resources. This also results in
greater supplier concentration and
less slack capacity for the most
critical subtier manufacturing
components, including electrical
components, raw materials, and
chemical precursors.
PRIORITY TO LOWER COSTS
Third, manufacturers' efforts to
push their Tier 1 suppliers toward
lower costs ultimately drive those
suppliers to pursue sub-tier
sourcing in emerging markets. This
further extends the manufacturers'
supply chains, adding more
dependencies and potential points
of failure.
ABSENCE OF
STANDARDISATION
Finally, unlike the situation in the
PC industry, in the automotive
industry, no common standards are
applied across OEMs for electronic
components; hence, very few
suppliers are available for these
components. Any supplier
disruption can shut down Ford's
ability to match supply with
demand.
RISK MANAGEMENT IN FORD
Ford maintains over 50 plants
worldwide, which annually utilize 35
billion parts to produce six million
cars and trucks. It has up to 10 tiers
of suppliers between itself and its raw
materials. Its Tier 1 suppliers number
1,400 companies across 4,400
manufacturing sites. A lengthy
disruption anywhere in this extended
supply chain can have significant
financial repercussions for Ford.
RISK EXPOSURE INDEX
Ford implements a 'Risk Exposure Index' model where in recognizing
that managers have limited ability to predict low-probability, high-
impact risks or collect detailed data on lower levels of their supply
chain was the motive, that is advocates integrating a vulnerability-
based analysis into supply chain risk assessments.
In such an analysis, the focus is on understandingthe impact of a
disruption, regardless of its source. This defers the need to estimate
the probability associated with any specic risk and collect detailed
information from subtiersuppliers until after Ford has determined the
impact a disruption will have on its operations. At that point, Ford can
make a more informed decision about where to focus its limited risk-
assessment resources.
This approach suits the goal of analyzing supply chain disruptions
because the impact of a disruption often does not depend on the cause
of the disruption but rather on its duration. In addition, the potential
mitigation actions that a company can practically employ in response
to a supply chain disruption are often the same regardless of the
specific causes of the disruption. Finally, our approach implicitly
recognizes that supply chains are in a continuous state of flux.
IMPLEMENTATION IN FORD
The adopted approach for supply chain risk management,
reduces the need to estimate the likelihood of low-
probability, high-impact events. The method focuses on
evaluating a rm's vulnerability, given that a disruption could
occur anywhere across its supply chain.
This approach helps Ford streamline and better target its
operational-disruption risk-assessment process, deepen its
understanding of its disruption risks across both its internal
operations and extended supply chain, and rapidly and
consistently assess its supply chain risk-mitigation initiatives.
Ford incorporates the results of the model with other
indicators that measure each supplier's financial risk,
including metrics for financial health, and steady state
operational risk, including metrics for service level
performance and quality control compliance. Suppliers that
trigger one or more risk areas (i.e., disruption, financial, or
operational) are identified for follow-up with Ford's supplier
risk-management team.
 BENEFITS FOR FORD
— Two points make clear why Ford must deploy its risk-management

1. The risk-exposure model produces important and tangible benets for Ford to help it effectively
identify and manage its risks. First, Ford has identified supplier sites that have a material impact
if disrupted, but that it did not recognize as high-exposure sites. Ford now classifies these
exposures as as high-priority issues that require a formal remediation analysis. Identifying these
suppliers is particularly compelling because they represent 1,500 additional supplier sites that
will now receive a larger share of Ford's risk-management resources. Identifying and addressing
such risk exposures directly supports Ford's corporate strategy.
2. A second benefit is identifying low-exposure supplier sites that are currently receiving an
excessive allocation of Ford's risk-management resources. The model has identified over 400
supplier sites that Ford includes in its risk-monitoring program, but which pose insignificant
exposure to the company if disrupted. This information has allowed Ford to more effciently
allocate its supplier risk-management resources. Byreallocating these resources, Ford is better
able to protect itself from the highest impact exposures in its operations and supply chain.

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THANK YOU
Sampurna Das
BFT/17/195