This is a case study analysis that was done by a group of Management Information Students (from UIC). The case on Ford discussed how it could adopt the business model of Dell to achieve economies of scale.
Henry Ford, founder of Ford Motor Company, was in his time an innovator in offering 'cars for the masses'. He introduced to the car industry methods and systems innovative in theirday. After then, Ford Motor Company finds itself in a dynamic business environment wherenew technologies and practices offer the potential to alter in a significant way the landscapein which it operates. Ford needs once again to forge new paths to ensure future competitive advantage.Executives at Ford have been considering the 'Direct Model' created by Dell Computer Corporation and finds that there is considerable appeal. Dell has been able to speed up inventory velocity such that there is only eleven days of inventory on hand. This has led to an inventory turnover rate of thirty times per annum. This achievement, termed by MichaelDell 'Virtual Integration' has been achieved by blurring the line between supplier, Dell andclient, to the extent that third party service staff are often thought, by clients, to be Dell's own staff.In order to see how congruent the Dell model is to Fords' business the similarities and differences between the two companies should be examined. But, before that, the company history will be explained in the following section. Then the similarities and differencesbetween Dell & Ford will be examined. After elaborating the possible roadblocks that Ford will probably confront with while trying to implement Dell Model, alternative courses of action will be discussed shortly. And lastly current decisions and situation of the company will be explained.
Employees370,000Revenue144 billionOperations spread across200 countries MTS.Made to Stock (MTS) is the dominant approach used today across many manufacturers. It refers to products that are built before a final purchaser has been identified, with production volume driven by historical demand information.
Design (High Value Added) - After researching consumer wants and needs, automakers begin designing models which are tailored to the public demand. In the past, this design process has taken up to five years. Today, however, through the extensive use of computers, it is possible to develop prototypes, or "concept cars," from sketches in less than a year. Raw Materials (Low Value Added) - These include rubber, glass, steel, plastic, and aluminum. Over the past few years, the cost of raw materials has increased significantly, mostly due to the price increase of oil and natural rubber. Also, companies are now using aluminum and plastic in place of steel whenever possible in order to lessen the weight of the automobiles, which in turn improves fuel efficiency. Parts (Medium Value Added) - Tires, windshields, and air bags are examples of parts. While the automobile industry as a whole has become more consolidated, the U.S. auto parts sector remains highly fragmented. It includes four primary sub-categories: original equipment manufacturers (Delphi and General Electric), replacement parts manufacturing (Cooper Tire and Rubber and Federal-Mogul), replacement parts distribution (NAPA), and rubber fabricating (Goodyear and Cooper). Assembly (Medium Value Added)- Due to the combination of rising raw materials' costs and consumers' eternal search for the lowest price, companies are looking for ways to cut costs out of the manufacturing process. Recent trends to reduce costs include using fewer parts in each vehicle component, minimizing industrial waste and pollution, and having parts delivered to assembly plants on a just-in-time basis. Marketing (High Value Added) - Marketing is an integral part of the value chain, since it is the primary basis for consumers' perceived values. Automakers and individual dealers work together to create national, regional, and local marketing strategies. These may include television and radio advertising or special incentives offered to customers. In addition, firms have started advertising more online. GM, for example, spent 67% more on online advertising in 2005 than it did in the previous year. Distribution and Sales (High Value Added) - After production is complete, automobiles are shipped to dealerships around the world to be sold. As mentioned previously, dealers may offer incentives to increase sales. DTD demand to Delivery: Ford Retail NetworkFPDS: Ford Product Development SystemCFOP:
Ford 2000 had many initiatives, we are talking a few in this and next few slides.intended to eliminate organizational and process redundancies and realize huge economies of scale in manufacturing and purchasingmerging North American, European, and international automotive operations into a single global operation. Just like with consolidation, this allowed for economies of scale and scope, allowing Ford to save huge amounts of money by reengineering and globalizing corporate organizations and processes. Next, product development activities were consolidated into 5 Vehicle Centers (VCs), each responsible for the development of vehicles in a particular market segment.3. ANXeBusiness Corp. (ANX) is the company that owns and operates the Automotive Network Exchange (ANX), a large private extranet that connects automotive suppliers to automotive manufacturers. which aimed to create consistency in technology standards and processes in the suppliernetwork,4. Instead of fostering strong price competition among suppliers forindividual components, there was shift toward longer-term relationships with a subset of verycapable suppliers who would provide entire vehicle sub-systems.Ford made its expertise available to assist suppliers in improving their operationsTier 1 fairly well developed IT capabilities (many interacted with Ford via Electronic Data Interchange links)5. Ford launched a public Internet site in mid-1995; by mid-1997 the number of visits to the site had reached more than 1 million per dayA company-wide intranet was launched in mid-1996, and by January of 1997 Ford had in place aBusiness-To-Business (B2B) capability through which the intranet could be extended in a securemanner beyond company boundaries into an extranet, potentially connecting Ford with its suppliers.An extranet is a private network that uses Internet technology and the public telecommunication system to securely share part of a business's information or operations with suppliers, vendors, partners, customers, or other businesses.
Lean Manufacturing- the reduction to zero of all waste - resources, time and processes in production - in order to maximise productivity.Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation ofvalue for the end customer to be wasteful, and thus a target for elimination. Working from the perspective of the customer who consumes a product or service, "value" is defined as any action or process that a customer would be willing to pay for.ILVS – One key to SMF was “In-Line Vehicle Sequencing” (ILVS), a system thatused vehicle in-process storage devices (such as banks and ASRSs2) and computer software to assurethat vehicles were assembled in order sequence. By assuring assembly in order sequence, Ford couldtell suppliers exactly when and where certain components would be needed days in advance, andbuffer stocks could be dramatically reduced.A “bank” is a storage area into which partially assembled vehicles can be directed, for the purpose of removing them in adifferent order than the order in which they entered (i.e., resequencing). An “ASRS” or “Automated Storage and RetrievalSystem” is essentially a multi-level bank (vehicles are literally stored on top of each other); whereas an ordinary bank providessome resequencing flexibility, an ASRS provides the ability to access any vehicle in the bank at any time. As might beimagined, to hold a large number of vehicles and allow them to be accessed randomly, an ASRS must be very large (roughlythe size of a several-story building).
FIECo had two primary goals:to be a test bed for best practices in retail distribution and drive those practices throughout the dealer network; and 2) to create an alternate distribution channel to compete with new, publicly-owned retail chains such as AutoNation.The overriding goal was for the consumer to receive the highest level of treatment and to create an experience they would want tocome back to again and again.The number of showrooms would be consolidated to focus resources on creating a superior selling experience,while the number of service outlets would increase to be closer to customer population centers. Fordexpected personnel and advertising cost savings, as well as inventory efficiencies due to economies ofscale and greater use of the Internet.
MTS – OTD Compared.Information complexity: associated with automation aids is a bottleneck that limits their use. While automation systems are designed to bring new functions to users and increase their capacities, automation also creates new tasks associated with acquiring and integrating information from displays. For example, a complex display increases information load to human operators and reduces usability. Thus, the efficiency of an automation system largely depends on the complexity of displayed information. To evaluate the costs and benefits of an automation aid, it is important to understand how much information is shown on the display, how users look at multiple information sources to build and maintain situation awareness, and whether the information is displayed in a compatible way so it can be integrated and understood easily without the user having to make internal conversions or calculations. In this paper, we present a set of measures to assess information complexity. The metrics count information complexity as the combination of three basic factors: numeric size, variety, and relation; each factor is evaluated by the functions at three stages of brain information processing: perception, cognition, and action. Ideally, these measures provide an objective method to evaluate automation systems for acquisition and design prototypes.
Ford has never interacted with the customer directly. It has not been able to gauge customer responsiveness.Ford has no control over its end users. It has primarily sold its product through its large Dealer base who interacted with the customers.Therefore in order to obtain information from and about the customer it has to go through its dealers. Ford did not have feedback forms or widespread customer service options.It couldn’t get immediate feedback such as problems or what the people actually liked.Forecasting :Dealers own most of the customer demand information.Forecasting has to be extremely precise for Ford.SupplierFord a has a network of suppliers numbering in the thousands.They are further divided into sub-suppliers.Due to the sheer volume of suppliers, dealing with them is extremely complicated.The process of order placement and such other processes had to be manually done. Dealing with thousands complicated the entire proces and made it cumbersome.Suppliers have to be constantly communicate with other suppliers( namely level 2 and level 3 suppliers)ManufacturingA car is made up of over 30000 parts.The complexity in handling these parts is huge ( just because of the volume of the components.)It is highly complicated to manage the entire manufacturing process: right from procurement of the parts to their final assembly.Every step was dependent on the previous step.Flexibility:Ford Manufacturing Systems are not flexible in response to market requirements.Forecasting has to be extremely precise for Ford.It does not deal directly with the end users and is unable to react to changes quickly.It has to go through its dealer network to get information regarding these changes and only then can it act.Information Technology:Ford has complex network of suppliers and not everyone has embraced IT.Dell has been a company that deals in Computers and is heavily dependent on IT.It has gauged the importance of IT and has made full use of it.Ford has not been able to make the full use of IT.In Ford, the lower level suppliers have not embraced IT.By means of IT, it is possible to eliminate a few SCM problems, namely miscommunication, lack of coordination amongst the suppliers, dealers etcThe current OTD is 60 days, It aims to reduce by 45 days to approximately 15 days
VI in the SCM context refer to the ability the for the company to apply IT to escalate information flow between supplier, manufacture, distribution and customer in the SC system, it highly decrease the time and cost sharing between suppliers, manufacturer and distribution while escalate faster processing time from customer orderToday the vision for many manufacturers is to become virtual companies, owning only the brand and the customer. The design, system development, product sourcing, logistics, and even final assembly can all be outsourced to supply chain partners. Increasingly the goal is to replace physical assets with information in such a way that every member of this extended supply chain benefits. This forces the move from an environment of ‘hard wired integration’, where relationships are arms-length and adversarial, even across functional boundaries within the organization, to an environment based on ‘negotiated sourcing’, where non-core activities are outsourced and collaborative partnerships are the norm.Because we viewed the Internet as a central part of our IT strategy, we started to view the ownership of information differently, too. Rather than closely guarding our information databases, which took us years to develop, we used Internet browsers to essentially give that same information to our customers and suppliers – bringing them literally inside our business. This became the key to what I call a virtually integrated organization – an organization linked not by physical assets, but by information. By using the Internet to speed information from between companies, essentially eliminating inter-company boundaries, it would be possible to achieve precision and speed-to-market for products and services in ways not dreamed possible before. It would be the ultimate business system for a digital economyVertical integration is history, the future will be about virtual organizations operating within virtual supply chains. Virtual integration, as opposed to traditional vertical "contractor-subcontractor" integration, represents the decomposition of the traditional company. Virtual integration is characterized by culturally different value-added relationships between manufacturers and suppliers. In the new world of virtual integration, no matter who signs the check, all the people are working together for a common cause. Vertical integration performs, virtual integration innovates
Outsourcing IT support and service Don’t manufacture anything, less management and any cost associate with maintaining themSupplier:A handful of suppliers, sharing design to speed time to marketShorten distance between supply and demandInventory:Reducing inventory on-hand, but order them at the larger amount and remove them more quickly. 2-3 months to a11-20 daysUsing sophisticate logistic, partnership with UPS and Airborne.Build to order and reduce the number of inventory finish goods and storageCustomer:Having sale ppl help with forecasting demand.Reduce customer work by installing require software and asset tag.Intranet website for better support and self helpOnsite serviceValue Added Organizing them
How should Ford use Internet technologies to interact with suppliersTo 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)
Ford motor final presentation
Ford Motor Company:Supply Chain Strategy Adithya Sridhar Praveen Venkatraman Melroy Rodrigues Thanyalat Chaleunsouk Sivasankari Santhanakrishnan
Agenda Ford Motor Company’s Goals Company Background and its Supply Chain Management System Current Problems Direct Model and Virtual Integration Comparison of Ford’s Business v/s Dell’s Business Recommendations
Prime Goals of Ford Motors Increase shareholder Improve customer values responsivenessIncrease revenue/decrease Using IT to improve operating cost customer satisfactionIdentify bottlenecks in the SCM and solve it
Ford Motors Background Ford Motor Company - Headquartered in Dearborn, MI - Second largest industrial corporation in the world Core Business: Design and Manufacture of Automobiles Until 1995, Ford SCM was a Push System - Made To Stock (MTS)
FORD 2000 Ford 2000: A restructuring plan started in 1995- aimed at dramatic cost reduction and increasing overall efficiency Merged international automotive operations into a single global organization Reduced Vehicle Centers (VCs) to only five Teamed up with Chrysler and GM to work on the Automotive Network Exchange (ANX) Reduce the number of suppliers Place IT within the process reengineering organization
FORD 2000 Ford Production System Aimed at making Ford manufacturing operations leaner, more responsive and efficient Synchronous Material Flow (SMF): Produced continuous flow of materials and products In-Line Vehicle Sequencing (ILVS): Used ASRS and computer software in assembling
FORD 2000 Ford Retail Network Ford Investment Enterprise Company (FIECo): Aimed at an alternate distribution channel to compete with publicly owned retail chains. Better face-off with real competition (i.e. GM, Toyota, etc.). Increase service outlets and business not just in new and used vehicles but also in parts and service, body shop operations.
Current Problems No Direct feedback from the customers Managing vast supplier network Not using IT to its full capability Issues in forecasting High OTD time
Ford v/s Dell Dell FordProduct complexity High: 30,000+ parts Low: 300+Product cost and life span High / long term Low / shorter termNo of suppliers / sub- Large (1000+) Multi tiers Small (50) singlesuppliers tierDistributors/ Dealers many None - direct to customers
Dell’s direct business model and virtual integration
How Dell applied VI to theirbusiness In four main areas: Organization Simplification Reduce the working capital by outsourcing Inventory Management JIT via information management and flow Build to order, reducing the cost of storing finished goods Customer service and support Finer customer segmentation, more tailored solutions Faster response time Supplier Collaboration Information and feed back sharing Product development, R&D
How VI could work in Ford Dells VI Ford Possibility Organization Simplifying ✗ Inventory Management ✓ Customer Service and Support ✓ Suppliers management ✓
Recommendation 1:Inventory Management Shift the ownership of raw materials to suppliers: By using EDI with suppliers and the existing advantage of nearby ship points.
Recommendation 2: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 Implement a support network where parts can be exchanged and delivered in a short time.
Recommendation 3:Supplier Management Invest in IT for supplier, in order to bring the same level of IT knowledge among suppliers and Ford Sharing design with supplier in order to speed time to market Involve supplier in R&D