Presentation on theme: "Ford Motor Company: Supply Chain strategy"— Presentation transcript:
1 Ford Motor Company: Supply Chain strategy Marcus EatmonMIS 689
2 IntroductionTeri 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 prevailFord needed to radically redesign its supply chain and other activities or risk being left behindfavored “virtual integration”modeling the Ford supply chain on that of companies, such as Dell
4 Exhibit: Dell and Ford Compared Traditional ModelorderSuppliersManufacturerDistributionChannelCustomersdeliveryDirect ModelorderSuppliersDellCustomersdelivery
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 substantiveFord supplier network had many more layers and companiesPurchasing organization played a more prominent and independent role than had Dell’s
6 Enterprise Model Comparison DellOperating PrinciplesFordBreakthrough Objectives/Key InitiativesCustomerIntimacyDemand to DeliveryFord Retail NetworkFord Production SystemOrder to DeliverySupply Chain Mgmt. LeadershipDemandPullVelocityOrder to DeliveryFord Product Development SystemFixed to Variable Cost ShiftModular Assemble“Extended Enterprise”VirtualIntegration
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 worldRevenues of more than 144 billionAbout 370,000 employeesOperations 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 marketSince 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 ChryslerForeign-based auto manufactures(i.e.,Toyota and Honda)Facing increasing overcapacityAdvantage 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 organizationCalled for dramatic cost reductions to corporate organizations and processes by:reengineeringglobalizing
12 Ford 2000Product development consolidated into five Vehicle Centers (VCs)each responsible for the development of vehicles in a particular consumer market segmentMaking processes and products globally commonEliminate redundanciesRealize 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 geographyTeams on different continents needed to be able to work together as if they were in the same buildingIn every reengineering project, information technology (IT) was criticaldeployed to enhance material flows and reduce inventoriessubstituting 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 enterprisesFord launched a public Internet site in mid-1995mid-1997 visits more than 1 million per dayA companywide Intranet mid-1996January 1997 business-to-business (B2B)Extension potential of an Extranet
18 Creating ConsistencyFord 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 networkSuppliers:Pressed to lower costsInteraction would be the same
19 End of 1998 Profits of 6.9 billion Employees enjoyed record profit sharingReturn on sales (3.9 percent in 1997)trending solidly upwardWorld leader in trucksTaken over the U.S. industry leadprofit per vehicle ($1,770) from ChryslerMost 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 BaseAs the company had grown over the years, so had the supply baseIn the late 1980s: there were several thousand suppliers of production materials in a complex network of business relationshipsSuppliers were picked primarily on the basis of cost, little regard was given to:overall supply chain costscomplexity 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 1tier 2below suppliers.Ford made its expertise available:just-in-time (JIT) inventorytotal quality management (TQM)statistical process control (SPC)
24 Ford Production System Ford 2000 initiative produced five major, corporationwide reengineering projectsOne was Ford Production System (FPS)Aimed at making Ford manufacturing operations:Leanermore responsivemore efficient
25 Ford Production System Aspired to level production and move to a more pull-based system, with:synchronized productioncontinuous flowStabilitythroughout 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 PullDesign Design strategy Please everyone Mainstream customerVehicle More is better wants minimalcombinationsMarketing Pricing strategy Budget-driven Market-drivenVehicle purchase Higher LowerIncentivesManufacturing Capacity planning Multiple material/ Market-driven andand supply capacity constraints, (no constraints FPV/Driven by program CPV* + 10% forBudget vehicle, +15 forcomponentsSchedule and build Maximize production Schedule frommake whatever you customer-driven ordercan build bank, build toschedule
28 Exhibit 2 Moving from Push to Pull Process Push PullDealer network Dealer ordering Orders based on Orders based onAllocations and customer demandCapacity constraintsOrder to delivery Longer (60 + days) Shorter (15 days or times less)Inventory High with low Low with rapidturnover turnoverDealership model Independent Company-controlleddealerships, dealerships (Fordnegotiations 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 daysPilot studies in 1997 and 1998 identified bottlenecks throughout Ford’s supply chain:Marketingmaterial planningvehicle productiontransportation 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 bankto increase manufacturing stability(3) regional “mixing centers” that optimize schedules and deliveries of finished vehicles via rail transportation(4) a robust order amendment processto allow vehicles to be amended for minor color and trim variations without the need to submit new orders
32 Ford Retail NetworkJuly 1, 1998, launched first Ford Retail Network (FRN) in Tulsa, Oklahomaunder 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) FordDell Automotive Financial ServicesEmployees 16, ,892Assets ($millions) 4, , ,00Revenue ($millions) 12, , ,700Net income ($millions) , ,200Return on sales % 3.8% 7.2%Cash ($millions) ,500 2,200Manufacturing facilities 3 (Texas, Ireland, Malaysia) 180(in North and SouthAmerica, Europe,Asia, Australia)Market capitalization ($millions) 58, ,886Price-earnings ratio *5yr average revenue growth 55% per yr 6% per yr5yr 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 productionSuppliers 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 balancesupply and demand Demand forecasting is critical—changes are shared immediately within DellAnd with supply baseDemand pull throughout value chain—“information for inventory” substitutionFocused on strategic partnerships: suppliers down from 200 to Complexity is low: 50 components, 8 – 10 key, 100 permutations
35 Enterprise Model Comparison FordBreakthrough Objectives/Key InitiativesDellOperating PrinciplesCustomersCustomersFord Retail NetworkDealersorderdeliveryOTDOrderMgmtSalesFPDSR & DBill of MaterialAssemblyDTDOutboundLogisticsSupply chainLeadershipCommoditySuppliersComponentPlan/SiteOperationsFPSInboundLogisticsFPSCFOPSuppliers