Ford Motor Company ~ Case Study
Despite the revamping effort, Ford remains plagued with prolonged Order-To-Delivery (OTD) time periods, congested inventories and issues with the procurement processes. After some research, these issues appear to be well addressed by the new direct business model of the Dell Computer Corporation. Dell differentiates itself through the utilization of virtual integration, an efficient and effective direct business model facilitated by electronic business providing Build-To-Order (BTO) products directly to customers. Although the direct business model of Dell is most attractive, there are several differences between the computer and auto industries which serve as barriers to Ford’s implementation of uniform, supply chain virtual integration. Ford must find a way to address obstacles that were not a factor with Dell’s implementation. These obstacles range down the delivery chain from the supplier to the manufacturer to the dealer and, ultimately, to the customer.
Henry Ford revolutionized product manufacturing by introducing the first assembly line to the automotive industry. Ford's achievement proved to be a key competence for the motor company as the low cost of the Model T attracted a broader, new range of prospective car-owners. However, after many decades of success, customers have become harder to find. Due to relatively new threats to the industry, increasing numbers of cars and trucks are parked in dealer lots and showrooms creating an alarming trend of lower profits. Foreign-based automakers have expanded operations onto domestic shores and have taken market share from American automakers. As a direct result, unit over-capacity has steadily risen, while heightened competition and diverse product lines have led to increasing customer demands.
Senior Executives asked how the company should use the emerging information technologies and ideas from new high-tech industries to change the way we interact with Suppliers. Ford went on an exploration to find ways to improve the Supply Chain management and to increase shareholder value and Supply Chain responsiveness. Specifically they are looking at how Dell manages their Supply Chain and incorporates the virtual integration strategy. Below are some of the issues that surfaced.
First, product complexity and supply channel constraints are key limiting factors of lean manufacturing that must be addressed. Due to the generic nature of computer parts, Dell possesses the ability to negotiate and procure necessary items for plant assembly from several independent purveyors. Therefore, Business-To-Business (B2B) transactions are accomplished with relative ease and minimal cost. This is not the case for Ford.
Additionally, the communication channels and procurement procedures of Ford and its tier network are bound within the limits of traditional phone and fax methods resulting in delaying procurements, clogging inventories and affording errors typical of a manual process. Unlike the fully automated online system of Dell, Ford's manual ordering and accounting procedures waste manpower, amass stock and, in the end, prolong OTD.
Finally, retail distribution and traditional consumer buying habits inhibit the full-scale implementation of virtual integration. The dealer segment of Ford's supply chain has been completely omitted in Dell's business model. Dell takes orders directly from the customer and delivers the product, again, directly to the customer. In the case of Ford, dealer showrooms and car lots have been the only ways of retailing a new car since the inception of the automobile. Closing all dealerships for the sake of advancement is impossible.
The key if for Ford to find a solution to the obstacles of virtual integration, it could turn a new supply chain efficiency into a core competency. Managers could overcome the burdensome and error-prone manual process of...
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