PowerPoint Presentation

Ford Motor Company-Supply Chain StrategyDiensh JainBhavesh ShuklaVishwanbar PohenerkarKumar Vikas

IntroductionTeri 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?

Team had Different Views on the SubjectOne group favor utilizing modern technology and redesigning its supply chainfavored virtual integration modeling the Ford supply chain on that of Dell

Another group believer difference between automobile & Computer industry are substantive as fordHas more layer of supplier network Prominent and independent role purchasing organization

difficult to decide the appropriate and feasible scope for redesigning Company and Industry Background2nd largest industrial corporation in the worldRevenues $144 billion + & 370,000 + employeesOperations spanned 200 countries. financial services subsidiaries is significant revenues and profits generator.designing and manufacture of automobiles for sale is core business Incorporated in 1903 by Sir Henry Ford, Produced over 260 million vehicles since inception.Growing CompetitionU.S. automakersGeneral motors (GM) and Chrysler Foreign-based auto manufactures (i.e. Toyota and Honda)Facing increasing overcapacity Advantage in the industry was fast becoming global Need to improved quality and reduce cycle timeLooking for the ways to take advantage of global presence and networkFord 2000Internet Revolution:created new possibilities for reengineering processes within and between enterprisesLaunched 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 ExtranetFord 2000 An ambitious restructuring, began 1995Included merging its North American, European, and international automotive operations into a single global organizationCalled for dramatic cost reductions to corporate organizations and processes by:reengineering Globalizing corporate organizationProcessesFord 2000Product 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 redundanciesRealize economy of scalesCreating 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 networkSuppliers:Pressed to lower costsInteraction would be the same End of 1998 Profits of 6.9 billion Return on sales (3.9 percent in 1997) trending solidly upwardWorld leader in trucksTaken over the U.S. industry lead profit per vehicle ($1,770) from ChryslerMost improved automaker on the 1997 J.D. Power Initial Quality Study (overall fourth place behind Honda, Toyota and Nissan).Existing Supply BaseHuge supply baselate 1980s: several thousand suppliers 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.Supply Base in early 1990s:Shifted toward longer-term relationships with a subset:tier 1tier 2 below suppliers. Ford made its expertise available: just-in-time (JIT) inventorytotal quality management (TQM)statistical process control (SPC) Expected price reduction.. This supply base was different and complex than DELL. 2. purchase organization12Ford Production System (FPS)One of 5 corporate wide reengineered projectIntegrated system aimed at making Ford manufacturing operations:Leanermore responsivemore efficient Aspired to level production and move to a more pull-based system, with:synchronized productioncontinuous flowStability throughout the process

Synchronous Material Flow (SMF)Important aspect of FPSa 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. In-Line Vehicle Sequencing (ILVS) on key:used vehicle in-process storage devices (such as banks and ASRSs) and computer software to assure that vehicles were assembled in order sequence

Benefit:- Helped accurate forecasting of components requirements.Order to DeliveryThe purpose of OTD: reduce to 15 days from 45 to 65 daysIdentified bottlenecks in Fords supply chain:Marketingmaterial planningvehicle productiontransportation processes Implementing Improved OTD ProcessApproach relied on :-ongoing forecasting of customer demand from dealers a minimum of 15 days of vehicles in each assembly plants order bank to increase manufacturing stability regional mixing centers that optimize schedules and deliveries of finished vehicles via rail transportation a robust order amendment process to allow vehicles to be amended for minor color and trim variations without the need to submit new orders 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: to be a test bed for best practices in retail distribution and drive those practices throughout the dealer networkto create an alternative distribution channel to compete with new, publicly owned retail chains such as AutoNation. difference in buying a car to the of buying a computer online ?

What do you think explains the differences?Q 1Buying carDealer personal attention importantOrder to delivery time/ availability of modelAvailability of color optionsPhysical feel Ride experienceOn site decision of accessoriesMore capital is involvedReplacement is issue!

Buying Computer onlineEasy to use portalMore variety is availableEase of customizationDelivery time 5 -7 daysPhysical feel may not be important factor as products are standardizeReplacement not issue!Decision is less capital intensive

What advantages does Dell derive from virtual integration? How important are these advantages in the auto business?Q 2Virtual Integrationuse of the Internet to replace physical components of a company with informationway of getting advantage of vertical integration without actually integrating vertically.

DELL Virtual IntegrationAdvantagesSuperior demand forecastingBetter communication and coordination with supplier. Real time responsiveness and inventory management.Consistency in technology and processesReduction in working capitalLow risk of inventory obsolescenceVirtual integration :- AdvantagesHow important are these in the auto business?Superior demand forecasting from dealersForecasting of customer demand from dealer main basis of Order to Delivery time from 60 to 15 days.Real time responsiveness and inventory management.Developed extranet for Just in time deliveryDevised FPS with Synchronous material flowConsistency in technology and processesAchieved through information sharing via ANXConclusion:- Equally important, integration more challengingEnterprise Model Comparison delivery

R & D

OrderMgmt

Dealers

Customers

Bill of Material

OutboundLogistics

Plan/SiteOperations

InboundLogistics

Suppliers

Sales

Assembly

CommoditySuppliersComponentSuppliers

Ford Retail Network

Supply chainLeadership

OTD

FPDS

FPS

FPS

CFOP

DTD

order

Customers

DellOperating Principles

FordBreakthrough Objectives/Key Initiatives

Enterprise Model ComparisonDellOperating Principles

CustomerIntimacy

DemandPull

Ford Production SystemOrder to DeliverySupply Chain Mgmt. Leadership

Demand to DeliveryFord Retail Network

FordBreakthrough Objectives/Key Initiatives

VirtualIntegration

Order to DeliveryFord Product Development System

Velocity

Fixed to Variable Cost ShiftModular AssembleExtended Enterprise

What challenges does Ford face that are not also faced by Dell? How should Ford deal with these challenges?Q 3Dell 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 balance supply and demand Demand forecasting is criticalchanges are shared immediately within Dell And with supply baseDemand pull throughout value chaininformation for inventory substitutionFocused on strategic partnerships: suppliers down from 200 to 47 Complexity is low: 50 components, 8 10 key, 100 permutations

supplier baseChallengesHow Ford DealtSeveral Thousands of suppliersShift towards reduced capable long-term suppliersComplex network of business relationshipDivided suppliers in based on sub-systemTier I, II, below supplierLittle regard to overall supply chain costsFocus on overall supply chain costLittle regard to overall supply chain costsBuild extranet to manage information with suppliers

Demand ForecastingChallengesHow Ford DealtFord was not in direct touch with customersProduct sold through dealersStart taking ongoing forecast of customer demand from dealersOrganizational structureChallengesHow Ford DealtPurchase was independent of product developmentInitiatives to improve communication and coordination between purchase and production

Moving from Push to PullProcessPushPull

DesignDesign strategyPlease everyoneMainstream customer wantsVehicle More is better minimalcombinations

MarketingPricing strategyBudget-drivenMarket-drivenVehicle purchaseHigherLowerIncentives

ManufacturingCapacity planningMultiple material/Market-driven and and supplycapacity constraints,(no constraints FPV/Driven by programCPV* + 10% for Budgetvehicle, +15 forcomponentsSchedule and buildMaximize production Schedule from make whatever you customer-driven ordercan build bank, build toschedule

Moving from Push to Pull Process Pull PushDealer networkDealer orderingOrders based onOrders based on Allocations and customer demandCapacity constraintsOrder to delivery Longer (60 + days)Shorter (15 days timesor less) InventoryHigh with low Low with rapid turnoverturnover

Dealership modelIndependentCompany-dealerships, controllednegotiations with dealerships (Ford company Retail Network)

Global ApproachTechnology 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 inventoriessubstituting information for inventory If you were Teri Takai, what would you recommend to senior executives? To what degree should Ford emulate Dells business model?Q 4RecommendationsFord 2000 program must be strengthenDevelop strong Demand Chain to meet & exceed customer satisfactions in term of:Exclusivity: flexible for customizationPerformance, reliability Service: intervals, cost and convenienceCompetitive price

Better Relationship Management through out the value chain by:Better segmentation strategies: to drive the value chain and to utilize the strength of brand. Procurement & R&D Integration focus on consumer surplus rather than cost only.Develop multi-skills between procurement & product development.Better utilize the Internet to facilitate sharing information/ fast response to customersSimplify IT (Electronic Data Interchange links) so that more suppliers can joint the value chain

Drive the organization for more efficiency:For more effective operation & coming over the exceed capacity issue: the outsourcing production/ co-production are good alternatives.In applying direct selling approach (from B2B to B2C)Reducing the complexity by applying standardizing criteria for part supplier network-More availability, more flexibility & faster in OTD.Recruit, Training & Develop high skills work forces that can sense & response to rapid shift.

The EndAny questions?