Ford Motor Company:

Supply Chain strategy

Marcus Eatmon
MIS 689
 Introduction

@ Teri Takai, Director of supply chain

systems contemplate recommendations to
senior executives. The questions asked
extremely important to Ford¶s future:
@ How should the company use:
± emerging information technologies (i.e. Internet
technologies)?
± ideas from new high-tech industries to change
the way it interacted with suppliers?
 Members of The Team had
Different Views on the Subject
@ Some argued that the new technology made
it inevitable that entirely new business
models would prevail
@ Ford needed to radically redesign its supply
chain and other activities or risk being left
behind
± favored ³virtual integration´
‡ modeling the Ford supply chain on that of
companies, such as Dell
 Exhibit:
Dell and Ford Compared
Ô

 
  
 
 
6

Suppliers Manufacturer Distribution Customers
Channel

 

 
6

Suppliers Dell Customers

 
 Members of The Team had
Different Views on the Subject
@ Another group was more cautious, believing that
the difference between the auto business and
relatively newer businesses
± (i.e., computer manufacturing) were important and
substantive
@ Ford supplier network had many more layers and
companies
@ Purchasing organization played a more prominent
and independent role than had Dell¶s
Enterprise Model Comparison
Dell Ford
Operating Principles Breakthrough Objectives/Key Initiatives

Customer Demand to Delivery

Intimacy Ford Retail Network

Ford Production System

Demand
Order to Delivery
Pull
Supply Chain Mgmt. Leadership

Velocity Order to Delivery

Ford Product Development System

Fixed to Variable Cost Shift

Virtual Modular Assemble
Integration ³Extended Enterprise´
Dell had delivered on these
dimensions, do you think the
same methods would deliver
results for Ford?
  



  

@ Based in Dearborn, Michigan,
@ Second largest industrial corporation in the world
@ Revenues of more than 144 billion
@ About 370,000 employees
@ Operations spanned 200 countries.
± obtained significant revenues and profits from its
financial services subsidiaries, core business had
remained the design and manufacture of automobiles
for sale on the consumer market
@ Since Henry Ford had incorporated in 1903, the
company had produced over 260 million vehicles.
 Last Two Decades
(Industry Grew more Competitive )
@ Big Three U.S. automakers²General
motors (GM), Ford, and Chrysler
@ Foreign-based auto manufactures
± (i.e.,Toyota and Honda)
@ Facing increasing overcapacity
@ Advantage in the industry was fast
becoming global
How could Ford and other
large automakers improve
quality and reduce cycle times
while dramatically lowering
the costs of developing and
building cars?
 Ford 2000

@ An ambitious restructuring, began 1995

± Included merging its North American,
European, and international automotive
operations into a single global organization
@ Called for dramatic cost reductions to
corporate organizations and processes by:
± reengineering
± globalizing
 Ford 2000

@ Product development consolidated into five

Vehicle Centers (VCs)
± each responsible for the development of vehicles in a
particular consumer market segment
@ Making processes and products globally common
± Eliminate redundancies
± Realize economy of scales
How would making processes
and products globally
common help to improve
Ford¶s production, and what is
economy of scale?
Ô
  
An economic theory stating that a plant's
marginal cost of production decreases as
the plant's operation increases.

The more of a good you produce, the less

it costs for each additional unit. For
example, a plant that produces 1,000 cars
would be more efficient than a plant
producing five cars.
 Ford¶s New Global Approach

@ Technology was employed to overcome

constraints usually imposed by geography
@ Teams on different continents needed to be
able to work together as if they were in the
same building
@ In every reengineering project, information
technology (IT) was critical
± deployed to enhance material flows and reduce
inventories
‡ substituting information for inventory
ÿhat major company
processes could major
reengineering projects be
initiated around?
 Ford 2000

@ Internet Revolution:
± created new possibilities for reengineering
processes within and between enterprises
@ Ford launched a public Internet site in mid-
1995
@ mid-1997 visits more than 1 million per day
@ A companywide Int nt mid-1996
@ *anuary 1997 business-to-business (B2B)
@ Extension potential of an Ô t nt
 Creating Consistency

@ Ford teamed with Chrysler and General

Motors to work on the Automotive Network
Exchange (ANX)
@ ÿhy important?
± Network aimed to create consistency in
technology standards and processes in the
supplier network
± Suppliers:
‡ Pressed to lower costs
‡ Interaction would be the same
 End of 1998
@ Profits of 6.9 billion
@ Employees enjoyed record profit sharing
@ Return on sales (3.9 percent in 1997)
± trending solidly upward
@ ÿorld leader in trucks
@ Taken over the U.S. industry lead
± profit per vehicle ($1,770) from Chrysler
@ Most improved automaker on the 1997 *.D. Power
Initial Quality Study
± (in fourth place overall behind Honda, Toyota and
Nissan).
 Ô 




 
 


  
 Ô 
 

@ As the company had grown over the years, so had

the 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.
How could Ford improve its
existing supply base?
 Ô 
 

@ Beginning in the early 1990s:

@ Shifted toward longer-term relationships with a
subset:
± tier 1
± tier 2
± below suppliers.
@ Ford made its expertise available:
± just-in-time (*IT) inventory
± total quality management (TQM)
± statistical process control (SPC)
  ! 


@ Ford 2000 initiative produced five major,

corporationwide reengineering projects
@ One was Ford Production System (FPS)
@ Aimed at making Ford manufacturing
operations:
± Leaner
± more responsive
± more efficient
  ! 


@ Aspired to level production and move to a

more pull-based system, with:
± synchronized production
± continuous flow
± Stability
@ throughout the process
ÿhat was Ford¶s intentions
when reengineering its
production system, and how
were they going to do this?
 Ô
"
 
 !
 !
!  !
!

Design Design strategy Please everyone Mainstream customer

Vehicle More is better wants minimal
combinations

Marketing Pricing strategy Budget-driven Market-driven

Vehicle purchase Higher Lower
Incentives

Manufacturing Capacity planning Multiple material/ Market-driven and

and supply capacity constraints, (no constraints FPV/
Driven by program CPV* + 10% for
Budget vehicle, +15 for
components
Schedule and build Maximize production Schedule from
make whatever you customer-driven order
can build bank, build to
schedule
 Ô
"
 
 !
 !
!  !
!

Dealer network Dealer ordering Orders based on Orders based on

Allocations and customer demand
Capacity constraints

Order to delivery Longer (60 + days) Shorter (15 days or

times less)

Inventory High with low Low with rapid

turnover turnover

Dealership model Independent Company-controlled

dealerships, dealerships (Ford
negotiations with Retail Network)
company
 One Important Part of FPS
was Synchronous Material
Flow (SMF)
@ Ford defined as ³a process or system that produces
a continuous flow of material and products driven
by a fixed, sequenced, and leveled vehicle
schedule, utilizing flexibility and lean
manufacturing concepts.´
@ One key to SMF was In-Line Vehicle Sequencing
(ILVS):
± used vehicle in-process storage devices (such as banks
and ASRSs) and computer software to assure that
vehicles were assembled in order sequence
 þ  

@ The purpose of OTD:

± reduce to 15 days from 45 to 65 days
@ Pilot studies in 1997 and 1998 identified
bottlenecks throughout Ford¶s supply chain:
± Marketing
± material planning
± vehicle production
± transportation processes
 Ford¶s Approach to
Implementing an Improved
OTD Process
@ (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 ³mixing centers´ that optimize
schedules and deliveries of finished vehicles via
rail transportation
@ (4) a robust order amendment process
± to allow vehicles to be amended for minor color and
trim variations without the need to submit new orders
   #$ 

@ *uly 1, 1998, launched first Ford Retail Network

(FRN) in Tulsa, Oklahoma
± under the newly formed Ford Investment Enterprises
Company (FIECo).
@ Two primary goals:
± (1) to be a test bed for best practices in retail
distribution and drive those practices throughout the
dealer network
± (2) to create an alternative distribution channel to
compete with new, publicly owned retail chains such as
AutoNation.
     
%   &
 
 '    

  
Employees 16,100 363,892
Assets ($millions) 4,300 85,100 194,00
Revenue ($millions) 12,300 122,900 30,700
Net income ($millions) 944 4,7000 2,200
Return on sales 7.7% 3.8% 7.2%
Cash ($millions) 320 14,500 2,200
Manufacturing facilities 3 (Texas, Ireland, Malaysia) 180(in North and South
America, Europe,
Asia, Australia)

Market capitalization ($millions) 58,469 66,886

Price-earnings ratio 60 10*
5yr average revenue growth 55% per yr 6% per yr
5yr average stock price growth 133% per yr 33.4% per yr
 
   
!   

Suppliers own inventory until it is used in production

Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour â
External logistics supplier used to manage inbound supply chain â
Customers frequently steered to PCs with high availability to balance
supply and demand â

Demand forecasting is critical²changes are shared immediately within Dell

And with supply base
Demand pull throughout value chain²³information for inventory´ substitution
Focused on strategic partnerships: suppliers down from 200 to 47 â
Complexity is low: 50 components, 8 ± 10 key, 100 permutations
 Enterprise Model Comparison
Dell Ford
Operating Principles Breakthrough Objectives/Key Initiatives

Customers

Customers Ford Retail

Dealers
Network
6

 
OT
D Order
Mgmt
Sales
FPDS
R&D Bill of
Material
Assembly
DTD
Outbound
Logistics Supply
chain
Commodity Leadership
Suppliers Plan/Site
Component FP Operations
Suppliers S

Inbound
FP Logistics
S
CFOP
Suppliers
 The End

Any questions?