Ford Case Analysis

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Major Issues
Ford Motor Company is facing a major decision with regards to its supply chain strategy moving forward. The underlying question is, “how should the company use emerging information technologies and ideas from new high-tech industries to change the way it interacted with suppliers?”. Within Ford, there are 2 major, and opposing views. First, there are those that feel strongly that Ford should follow Dell’s model of “virtual integration” (reaping the benefits of vertical integration without vertically integrating) – using the model to communicate effectively with its suppliers, achieve and focus on inventory velocity, and allow its component suppliers to specialize. The other group believed that the Dell model would not work at Ford, mainly because the two industries were too different, particularly, the automobile industry was too complex. The following are the major issues which must be addressed if the Dell model were ever to be feasible for Ford. Ford’s Supply Base

The traditionalist group above was correct, Ford’s supply chain is very complex. Ford had “several thousand” suppliers, which was extremely difficult to manage. Ford tried to simplify its supply chain by reducing the number of suppliers, and create relationships with a group of capable Tier 1 suppliers. One key issue is the fact that Ford now has no actual connection to its Tier 2 suppliers and beyond (Exhibit 1). Ford deals directly with its Tier 1 components suppliers, and those Tier 1 suppliers are the ones that deal with the Tier 2 and even Tier 3 suppliers. If for some reason, something were to happen to one of Ford’s Tier 1 suppliers, Ford would in turn lose the Tier 2 suppliers that are associated. To have a structure like this can be very risky, and something Ford must attempt to address in the future. Purchasing at Ford

Purchasing at Ford is completely independent of Product Development, very different to Dell, where these two departments are very closely connected. This can make it very difficult for Purchasing to maintain low inventories if they are not fully aware of what components new vehicles will be using in the future. A key to any manufacturing company is to standardize as many components as possible without compromising customer appeal. If purchasing knows which components will be common in the future, they can use economies of scale to reduce costs – and as mentioned in the case, any cost reduction that Purchasing is able to achieve can translate into very significant savings. Ford will never reach the level of Dell in this particular area. In the computer industry, there are many common components from one workstation to the next, which makes it very easy on Purchasing to achieve its goals. In the automobile industry, Ford is dealing with thousands of components that may differ from one vehicle to the next. Ford Dealer Forecasting

Ford has taken some positive steps in its implementation of the Ford 2000 initiative, a sequence of 5 corporation-wide reengineering projects. Ford Production System (FPS) gears Ford’s manufacturing operations toward leaner, more responsive and more efficient results. This involves Synchronous Material Flow (SMF), a process focusing on continuous flow of material driven by a fixed vehicle schedule. Order to Delivery (OTD) was also an important process, as it aimed to reduce delivery of a customer’s order from 45-65 days to a mere 15 days. The implementation of OTD is where the issue lies. Ford is relying on dealers to do something they have never done, to forecast customer demand. With SMF, 15 days worth of vehicles had to be in each plant’s order bank to increase manufacturing stability. The accuracy of Ford’s forecasting is an integral step in being able to maintain the continuous flow of materials, and very important to Ford’s overall supply chain strategy. Can dealers really be trusted to do this, or might there be another alternative? Qualitative Analysis

Since...
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