Ford Motor Company Supply Chain Strategy Case Report

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Ford Motor Company Supply Chain Strategy Case Report
EXECUTIVE SUMMARY
As director of Supply Chain Systems, I have decided to implement portions of the new supply chain strategy of Virtual Integration and strategies from companies like Dell. Although there are several key differences between the companies, Dell’s virtual integration strategy can be applied to Ford’s supply chain operation. A modification of the virtual integration system currently used by Dell could be applied to Ford’s dependent supplier base, distribution system, dealerships and divisions. Special care will need to be taken to address the unique dependency of our custom Tier 1 supplier. The management of lower tier suppliers of general or generic components would be more effectively suited by the standard procedures used by Dell. If we at Ford could find a solution to the obstacles of virtual integration, it could make our supply chain run smoothly with less bottlenecking, inventory, and better overall performance. Managers could overcome the complex and error-prone manual process of forecasting and procuring parts which would result in reduced OTD lessen costs and enhance customer satisfaction. ISSUE IDENTIFICATION

Senior Executives have asked how Ford should use the emerging information technologies and ideas from new high-tech industries to change the way we interact with Suppliers. We must find ways to improve the Supply Chain management and to increase shareholder value and Supply Chain responsiveness. Specifically we are looking at how Dell manages their Supply Chain and incorporates the virtual integration strategy. A decision is required before the next meeting with the VP of Quality and Process Leadership. ENVIRONMENTAL AND ROOT CAUSE ANALYSIS

Ford’s Supply Chain is based on Vertical Integration and Outsourcing strategy, this has created a complex supply chain, increasing inventory and OTD (Order to Delivery Times). The reorganizational efforts to date; JIT, TQM, SMF; have not reduced the OTD – Order to Delivery time. This has resulted in excess inventory and error prone procurement procedures. SYSTEMIC ISSUES:

Inaccurate Forecasting
NATURE: Strategic
• Delayed feedback from customers
• Lack of Supply Chain information & communication
• Direct communication link to the customers do not exist. Independent dealerships interact with the consumer. • Overproduction – Industry overcapacity estimated to be 20 million vehicles Supplier Management Complexity

NATURE: Strategic
• Supply Chain based on Outsourcing (Not vertical or virtual integration)  Large supplier network
 Requires the management of a large number of component inventories  The purchasing division acts independently, basing decisions on cost considerations without an understanding of the overall supply chain costs.  3 Tiers of Suppliers – Tier 1 suppliers manage relationships with a larger base of sub-system component suppliers (Tier 2 and below)  Tier-one suppliers - wholly-dependent - for components such as dashboards and drive trains, that are tailored to meet our specifications - flexibility of supply chain is compromised  Tier 2 – 3 Suppliers - generic items, such as spark plugs and windshield wipers • History of poor supplier relations

• Product complexity and rigid supplier networks
• Production capacity for components is set in advance and cannot be changed quickly • Ineffective Communication
 Communication channels and procurement procedures are bound within the limits of traditional phone and fax methods. This results in delayed purchasing functions, increased inventories and is error prone.  Ford’s manual ordering and accounting procedures waste manpower, collect stock and in the end, prolong OTD.  Tier 1 Suppliers have well developed IT systems – some interact with Ford with EDI (Electronic Data Interchange) – They are unable to invest in new technology at the Rate Ford does.  Limited capabilities to develop IT enabled...
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