Ford Motor Company: Supply Chain Strategy

1
Ford Motor Company Supply Chain Strategy

• Online shopping experience from Dell and Ford
• What is the difference between the two buying
  experience

2
Ford

• What are the roadblocks that make the direct
  model difficult to implement at Ford
• What historical legacies affect Fords ability
  to move to a BTO model
• Ford is 100 yrs old Founded 1903, Dell on the
  other hand was founded 15 years ago
• Product variety
• Necessitates the management of large number of
  individual component inventories
• Production capacity for individual components get
  set long in advance and cannot be changed quickly

3
Ford

• What historical legacies affect Fords ability
  to move to a BTO model
• Process Complexity
• A large number of suppliers
• 3 tiers of suppliers
• Business was usually over the phone and fax
• Ford a 150billion company enjoy a tremendous
  leverage over its suppliers
• Annual component price decrease and open book

4
Ford

• What historical legacies affect Fords ability
  to move to a BTO model
• Powerful independent dealer network
• Unionized labor force
• Incompatible systems
• Ford credit DEC
• Parts and service IBM
• Suppliers and dealers Variety of systems

5
Ford Motor Company Supply Chain Strategy

• What is virtual integration? What benefits does
  Dell gain from it
• A way of capturing the advantage of vertical
  integration without actually vertically
  integrating
• Vertical integration solves production problems
  related to communications, coordination, and
  control but at a cost of the increased overhead
  needed to arrange production organization
• Virtual integration therefore is the ability to
  achieve the advantage of vertical integration
  without incurring the overhead.

6
Ford

• What benefits does Dell gain from virtual
  integration
• Communication and coordination
• Vertical integration leads to efficient and
  effective coordination, through a number of
  mechanisms that include likelihood of physical
  proximity, established patterns of
  communications, and greater willingness to
  cooperate with other members of the same group.
• Stitching together a business with partners that
  are treated as if theyre inside the company
  Michael Dell

7
Ford

• What benefits does Dell gain from virtual
  integration
• Control
• The prospect of improved control over the actions
  of suppliers is another important rationale for
  virtual integration.
• Un-integrated partners can exert power over each
  other as transactions unfold over time
• Though Dell enjoy information sharing for now but
  inventory are not completely aligned
• Inventory not held by Dell may need to be held by
  a partner who would rather not hold inventory
  either.

8
Ford

• What benefits does Dell gain from virtual
  integration
• Real time responsiveness and inventory management
• Real-time updating of order status and the
  ability to check order status regardless of where
  the order is in the fulfillment process provided
  Dell with differentiating capabilities.
• Inventory velocity
• Forecasting
• Dells direct relationship with customers are key
  to forecasting.
• Dell has easy access to data useful for
  forecasting most of the data are already in
  Dells systems
• In case of Ford, the dealers own most of the
  direct data about customer demand.
• Ford has a very base of individual customer
  unlike Dell that has a relatively small number of
  institutional customers

9
Ford

• Compare Ford and Dell
• Old channel players concerns
• Costs of developing web capabilities
• Implication for information sharing
• Problems of connecting to suppliers and other
  external parties who tend to be less
  technologically advanced than the Ford
• Forecasting what customers will buy for Dell and
  for Ford
• Difficulties in implementing a true
  build-to-order model for so complex product as an
  automobile.

10
Ford

• What practical challenges must Ford address as it
  tries to establish Internet linkages with its
  supply base
• Difficulties in establishing B2B linkages
• Lack of technology and technological
  sophistication that prevail in the supply chain,
  especially at lower tiers.

11
Ford Motor Company Supply Chain Strategy

• How should Ford use Internet technologies to
  interact with suppliers
• To address this problem Ford must think about its
  relationships not only with suppliers but also
  with dealers and customers.
• As supply chain systems staff members study the
  Dell model in particular, they come to appreciate
  that virtual integration must include design
  not only of the supply chain but also of
  fulfillment, forecasting, purchasing, and a
  variety of other functions that had long been
  considered separately within the Ford hierarchy.
• The question is in fact explosive in its
  implications, because it inevitably leads to
  fundamental questions about the way Ford has
  historically operated internally and how it has
  interacted with important partner constituencies
  (including dealers)

12
Ford Motor Company Supply Chain Strategy

• Recommendation on moving forward
• One group are enthusiastic about the technology
  and think that the only appropriate way to answer
  the question is to consider, evaluate and
  recommend radical changes to Ford overall
  business model this group considers Dell a
  serious model for Fords business

13
Ford Motor Company Supply Chain Strategy

• Recommendation on moving forward
• Another group is more cautious and believes that
  the fundamental differences between Dells
  industry and Fords industry necessitate
  significant differences in business models.

14
Ford Motor Company Supply Chain Strategy

• Recommendation on moving forward
• What is your own recommendation?