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

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Presentation on theme: "Ford Motor Company: Supply Chain strategy Marcus Eatmon MIS 689."— Presentation transcript:

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 Fords 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 Exhibit Dell and Ford Compared order delivery order delivery SuppliersManufacturerDistribution Channel Customers Suppliers Dell Direct Model Traditional Model

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 Dells

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

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. automakersGeneral 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 Fords 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 Fords 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 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 Fords 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 Fords intentions when reengineering its production system, and how were they going to do this?

27 Exhibit 2 Moving from Push to Pull ProcessPushPull DesignDesign strategyPlease everyoneMainstream customer Vehicle More is better wants minimal combinations MarketingPricing strategyBudget-drivenMarket-driven Vehicle purchaseHigherLower Incentives ManufacturingCapacity planningMultiple material/Market-driven and and supplycapacity constraints,(no constraints FPV/ Driven by programCPV* + 10% for Budgetvehicle, +15 for components Schedule and buildMaximize production Schedule from make whatever you customer-driven order can build bank, build to schedule

28 Exhibit 2 Moving from Push to Pull ProcessPushPull Dealer networkDealer orderingOrders based onOrders based on Allocations and customer demand Capacity constraints Order to deliveryLonger (60 + days)Shorter (15 days or times less) InventoryHigh with low Low with rapidturnover Dealership modelIndependentCompany-controlled dealerships,dealerships (Ford negotiations withRetail 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 Fords supply chain: –Marketing –material planning –vehicle production –transportation processes

31 Fords 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 plants 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 DellAutomotiveFinancial Services Employees16, ,892 Assets ($millions)4,300 85,100194,00 Revenue ($millions) 12, ,90030,700 Net income ($millions) 944 4,70002,200 Return on sales 7.7% 3.8%7.2% Cash ($millions) ,5002,200 Manufacturing facilities3 (Texas, Ireland, Malaysia)180(in North and South America, Europe, Asia, Australia) Market capitalization ($millions) 58,46966,886 Price-earnings ratio 6010* 5yr average revenue growth 55% per yr6% per yr 5yr average stock price growth 133% per yr33.4% 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 criticalchanges are shared immediately within Dell And with supply base Demand pull throughout value chaininformation for inventory substitution Focused on strategic partnerships: suppliers down from 200 to 47 Complexity is low: 50 components, 8 – 10 key, 100 permutations

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

36 The End Any questions?

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