After carefully analyzing Ford's existing supply chain, I realized the main issues that Ford have are Its large base of suppliers, suppliers does not have enough IT capability to support the requirements of Ford and It appears that Ford and their dealers have not too much communication In obtaining the accurate forecast. Meanwhile I am also aware of its highly complex nature of auto manufacturing comparing with computer industry.
It would be applicable for the customers to place order online as all their concerns are the price and specification. However with overall 10 thousand dollars' car, the customers would prefer to go to dealership to do test drive. Thirdly, I also realized it is an urgent need to modify their supply chain to make it more cost effective and more profitable. Therefore my decision is the partial implementation and execution of the virtual integration direct business model that has been used by Dell.
Through this model, Ford will use the emerging information technologies and internet as well as new ideas from high tech industries In order to provide forecast and replenishment plan to their suppliers and allow end users to place order directly and make modification. Furthermore, Ford can boost Its sales by providing better customer service and by having faster communication between suppliers, manufacturers, and customers In the value chain. This proposed system will have to run concurrently with the existing supply chain so that Ford will cover both market segments at the same time.
Ford should set up a special department in order to handle this new business process. Investment in new high tech IT equipments is required as well as training should be provided before the new project's kick off date. Suppliers' computers should be linked to Ford's master imputer network and customers should be made aware of this new shopping experience for buying an automobile. To measure the performance of this model, Ford should schedule periodical review and evaluation meetings. Recommendations for improvements should be noted along the way In order to be evaluated.
The Improvement of customer service and shareholder value should be the mall alma of the whole project. Issue of Identification: Large data base of their suppliers, no too much partnership relationship with suppliers, no design involvement from suppliers Ford has several thousand suppliers Meanwhile Ford needs several thousands of parts to produce a product while Dell needs less than hundred parts. Suppliers were picked primarily based on cost and little regard was given to overall supply chain cost.
There are already lots of good component manufacturers out there. Ford should focus the field where it could create value such as introducing the best product in the market and set up partnership via key suppliers instead of developing the components or managing the component suppliers. With the partner relationship and involvement of suppliers in design phases, the key suppliers will feel more secure and will bring new design to Fords, will take initiative to manage KIT inventory, trouble shoot the quality issues on site and etc to ensure Win-win.
This will benefit Ford to reduce inventory, increase return on the asset and reduce the cycle time. Meanwhile Ford could put on more focus to the consumer to be able to forecast the demand accurately. Supplier lack of up to date IT infrastructure: 1st Tier suppliers had well developed IT capabilities but not able to invest in new technologies at the Rate Ford itself could. And IT maturity decreased rapidly in lower tiers of the supply chain. While Ford need up to date IT infrastructure from suppliers o stay up to speed in managing their production operations.
The lack of proper IT technology could result in miscommunication and lack of coordination between the supply partners and the outcome could be a higher order lead time, higher cost and operational hassle. No Direct feedback from the customers Dell sell direct to customers, therefore Dell was able to obtain accurate forecast via discussion of customers' future PC needs or real-time information via direct telephone salespeople. Due to the use of independent dealership networks to sell their products, Ford lacked control on their product end users.
Such lack of control had negatively impacted their ability to directly control their customer service experience and accurately forecast the demands. The inability in the forecasting the demands accurately will result overstock or stock out situation, which will create unnecessary stress on the whole supply chain and eventually will affect the cycle time, return on profit and Ford may loss the share of market. Environmental and Root Cause Analysis: With over 370,000 employees worldwide and revenue of more than $144 billions, the Ford Motor Company was the second largest industrial corporation in the world.
Ford's core business is the production and distribution of cars and trucks. In addition that operated mainly in North America with limited operations in Europe and everywhere else. In its 1997 financial statement, Ford reported close to $ 7 billion in net income and a 5 year average revenue growth rate of These positive financial statement figures were an indication of Ford's strong market and financial positions. Its main competition till sass's was with General Motors and Chrysler.
However the auto industry had grown much more competitive because of expansion of foreign- eased auto manufacturer, such as Toyota and Honda and increasing over-capacity from developing and industrialized nations. In order to take advantage of their global presence and deal with the increasing global competition, Ford saw an urgent need to consolidate their industry and started merging with other automakers around the globe. Such swift action had enabled these giant firms to achieve better quality products at a reduced cycle time and lower costs due to the economies of scale.
After merging with Daimler-Benz, Ford's data base of suppliers has increased substantially in both home and abroad. Having this huge number of suppliers has made their supply chain more complex, expensive to run and difficult to manage. In order to deal with the supply chain issues and better manage their suppliers and improve their production processes and ultimately lowering their cost, Ford in 1995 initiated the Ford 2000 plan which aimed at restructuring many of their key processes like Order to Delivery (ODD) and Ford Production System (FPS). They wanted to reduce the ODD from 60 or more to 15 or less days.
FPS was created to convert the supply chain from a push type to a pull type. Ford aimed at reducing the number of suppliers which had grown to several thousands of different suppliers over the years as the company grew. Rather than focusing on selecting suppliers based on costs they wanted to develop close long-term relations with the Tier 1 suppliers who in turn managed and handled Tier 2 and Tier suppliers. The aim was to create a more cost effective supply chain. Ford provided its suppliers with its expertise and techniques to help them better manage their operations.
Another important initiative taken by ford was the Ford Retail Network (FRR) to reduce competition among its allergies in the same locality by having only one unified dealer who provides the best possible level of customer experience. The director of supply chain system, Take' has to take an informed and well thought decision if they should implement the Dell's integrated supply chain or not. Alternatives: Alternative 1: Create a virtually integrated supply chain based on Dell model. All customer orders would be taken either via Ford's website or phone.
Ford and its suppliers would share demand supply information and IT will coordinate the ordering from customer, material purchasing and product scheduling. Advantages: Better to understand customer requirement, better to satisfy their requirement and better to forecast their future demand meanwhile reduce stock-out or over-stock reduce risk of too many inventory as suppliers take the responsibilities of inventory, while supplier get commitment of long term business With the pressure of inventory, suppliers would have to streamline their production as Dell to gain more net profit.
Disadvantages: Not applicable to abandon current Distribution channel via Dealerships, which will mean a loss of business to competition, meanwhile since car are quite expensive, the nonuser would like to test drive the car before purchase big scale of change will be very costly and time consuming, it would be very risky given the differences between the two industries Alternative 2: Accept ordering via Ford website and maintain physical dealerships. Meanwhile have more involvement of dealers in participating with providing accurate forecast via sales reps regularly visit the dealers to understand the consumer demands.
Advantages: start a vertical integration business model, better to understand customer requirement, better to satisfy their requirement and better to forecast their future emend reduce stock-out or over-stock situation while increase return on asset via reducing inventory or increase sales attract clients who like online shopping too costly to maintain 2 systems and will cause confusion Independent deader will complain due to internal competition big scale of change will be very costly and time consuming, it would be very risky given the differences between the two industries Recommendations: After careful examination and review of the alternatives, I came to conclude that the long term implication of the 1st alternative is the company going out of business, which eliminates option 1 .
This option seems illogical when we take into account the fact that Ford is an automobile manufacturing company and Dell assembles customized computers for its customers via the internet, eliminating dealerships all across and relying only on their website for its sales will put it at a great disadvantage with competitors. So I would recommend Ford to extend its Virtual- business strategy by partially implementing the Dell's model of supply chain (Alternative 2). The part of the Dell's model which does not fit with Ford need to be discarded. The dealers would still play a role in the distribution since the buying experience of a car from a dealer cannot be substituted by something virtual like a ad model on a computer or images and description online.
Implementations Inventory Management Shift the ownership of raw materials to suppliers by using EDI with suppliers Customer Service and Support Allow product customization both online and offline Collect customer data from dealers to Segment customers Accurately forecast demand by individually work with local dealers Supplier Management suppliers does not have IT capabilities, in order to bring the same level of IT knowledge among suppliers and Ford Sharing design with supplier in order to speed mime to market Involve suppler in R Monitor and Control Monitor raw inventory by Days Inventory Report, target 1 days inventory Measure customer satisfaction via online survey form Measure forecast accuracy via forecast and actually demand, target to achieve 95% accuracy Appoint IT team to coordinate all the IT activities with all suppliers in order to insure a smooth flow of information among the supply chain partners and immediately resolve issues as they arise Provide training to buyers so that buyer could provide necessary guidance to suppliers to resolve the issue Annual executive tenting should be held to review the progress of the business model. Conclusion: By making such major decision to combine virtual integration business model to their existing supply chain, Ford can look forward to a much more efficient and profitable future as a result of implementing the recommendations concerning the online business model: their overhead and inventory carrying costs will decrease, and Ford will be in a better position to have a direct interaction with their customers. Furthermore, the overall success of this business model will depend mainly on the performance of their shareholder value.