1. Ford Motor Company: Supply Chain strategy
Marcus Eatmon
MIS 689

2. 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?

3. 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 “virtual integration”
modeling the Ford supply chain on that of companies, such as Dell

4. Exhibit: Dell and Ford Compared
Traditional Model
order
Suppliers
Manufacturer
Distribution
Channel
Customers
delivery
Direct Model
order
Suppliers
Dell
Customers
delivery

5. 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

6. Enterprise Model Comparison
Dell
Operating Principles
Ford
Breakthrough Objectives/Key Initiatives
Customer
Intimacy
Demand to Delivery
Ford Retail Network
Ford Production System
Order to Delivery
Supply Chain Mgmt. Leadership
Demand
Pull
Velocity
Order to Delivery
Ford Product Development System
Fixed to Variable Cost Shift
Modular Assemble
“Extended Enterprise”
Virtual
Integration

7. Dell had delivered on these dimensions, do you think the same methods would deliver results for Ford?

8. Company and Industry Background
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.

9. Last Two Decades (Industry Grew more Competitive )
Big Three U.S. automakers—General 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

10. How could Ford and other large automakers improve quality and reduce cycle times while dramatically lowering the costs of developing and building cars?

11. 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

12. 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

13. How would making processes and products globally common help to improve Ford’s production, and what is economy of scale?

14. Economies of Scale 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.

15. 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

16. What major company processes could major reengineering projects be initiated around?

17. 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 Intranet mid-1996
January 1997 business-to-business (B2B)
Extension potential of an Extranet

18. Creating Consistency
Ford teamed with Chrysler and General Motors to work on the Automotive Network Exchange (ANX)
Why 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

19. End of 1998 Profits of 6.9 billion
Employees enjoyed record profit sharing
Return on sales (3.9 percent in 1997)
trending solidly upward
World leader in trucks
Taken over the U.S. industry lead
profit per vehicle ($1,770) from Chrysler
Most improved automaker on the 1997 J.D. Power Initial Quality Study
(in fourth place overall behind Honda, Toyota and Nissan).

20. Ford’s Existing Supply Chain and Customer Responsiveness Initiatives

21. Existing Supply Base
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.

22. How could Ford improve its existing supply base?

23. Existing Supply Base 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 (JIT) inventory
total quality management (TQM)
statistical process control (SPC)

24. Ford Production System
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

25. Ford Production System
Aspired to level production and move to a more pull-based system, with:
synchronized production
continuous flow
Stability
throughout the process

26. What was Ford’s intentions when reengineering its production system, and how were they going to do this?

27. Exhibit 2 Moving from Push to Pull
Process Push Pull
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

28. Exhibit 2 Moving from Push to Pull
Process Push Pull
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

29. One Important Part of FPS was Synchronous Material Flow (SMF)
Ford defined as “a 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

30. Order to Delivery 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

31. 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 “mixing 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

32. Ford Retail Network
July 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.

33. Comparative Metrics (latest fiscal year)
Ford
Dell Automotive Financial Services
Employees 16, ,892
Assets ($millions) 4, , ,00
Revenue ($millions) 12, , ,700
Net income ($millions) , ,200
Return on sales % 3.8% 7.2%
Cash ($millions) ,500 2,200
Manufacturing facilities 3 (Texas, Ireland, Malaysia) 180(in North and South
America, Europe,
Asia, Australia)
Market capitalization ($millions) 58, ,886
Price-earnings ratio *
5yr average revenue growth 55% per yr 6% per yr
5yr average stock price growth 133% per yr % per yr

34. Dell and Ford Compared Dell Processes Ford
Suppliers own inventory until it is used in production
Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour 
External logistics supplier used to manage inbound supply chain 
Customers frequently steered to PCs with high availability to balance
supply and demand 
Demand forecasting is critical—changes are shared immediately within Dell
And with supply base
Demand pull throughout value chain—“information for inventory” substitution
Focused on strategic partnerships: suppliers down from 200 to 
Complexity is low: 50 components, 8 – 10 key, 100 permutations

35. Enterprise Model Comparison
Ford
Breakthrough Objectives/Key Initiatives
Dell
Operating Principles
Customers
Customers
Ford Retail Network
Dealers
order
delivery
OTD
Order
Mgmt
Sales
FPDS
R & D
Bill of Material
Assembly
DTD
Outbound
Logistics
Supply chain
Leadership
Commodity
Suppliers
Component
Plan/Site
Operations
FPS
Inbound
Logistics
FPS
CFOP
Suppliers

36. The End
Any questions?