Ford: Case Study

Introduction

A big issue before the Ford Motor Company is to frame an integrated supply chain management strategy that is in keeping with the changing trends enabled by the emerging information technologies and other high tech industries in altering the way they interacted with its suppliers. Of the different possibilities before Ford, the most plausible choice to follow in regard to its supply chain operations appears to be in adopting similar strategies as Dell, which had considerably reduced its working capital and avoided exposure to its inventories becoming obsolete by adopting the given strategy. The supplier network of a company like Dell is very small as compared to Ford, which has several layers in its supply chain on account of the large number of companies that operate under its brand from different locations. Under the given circumstances it could be understood that the purchasing functionaries in Ford played a more independent and prominent role as compared to Dell. Such varied differences in regard to the options for supply chain transformation made it difficult to ascertain the most feasible and appropriate strategies for redesigning the process. It was however known that Dell had delivered very well on customer responsiveness and shareholder values and the big question was whether the same dimensions would deliver good results for Ford.

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Need for a Changed Supply Chain Strategy

Over the years Ford Motor Company had been performing very well in terms of revenues and profits and had grossed revenues of over $144 billion with operations in 200 countries and produced more than 260 million vehicles since its inception in 1903. However, with the rapid growth of the auto industry since the 1970s, Ford began to see its market share being eroded by foreign automakers and there were signs of overcapacity as more industrialized nations began to emphasize their respective auto sectors. The battle for supremacy in the auto industry became global and it became necessary for Ford to further improve quality and reduce costs and one such element was to move towards consolidation of the industry. It was while making efforts to realize economies of scale in purchasing and manufacturing that the company realized the potential in linking reengineering with its IT groups in the supply chain area. IT could be set up to reduce inventories and greatly increase material flows. As such, plans for Ford were put in place; the internet revolution too began to prove beneficial thus creating new options for the processes between its enterprises. Although Ford began to use management concepts such as Total Quality Management (TQM), Just-In-Time (JIT), and Statistical Process Control (SPC) to improve its supply chain operations, these arrangements were entirely different from the practices followed by Dell which had achieved exceptional growth in revenues and stock prices at 55% and 133% respectively per year for five consecutive years. It was thus in the interest of Ford to adopt policies as followed by Dell to maintain its growth and profitability in terms of reducing costs from the perspective of its supply chain management. The following table gives a comparison matrix for Dell and Ford in indicating the immense potential for Ford in adopting supply chain policies as followed by Dell.

Dell Ford
Automotive Fin. services
Employees 16,100 363,892
Assets ($mils) 4,300 85,100 194,000
Revenue ($mils) 12,300 122,900 30,700
Net Income ($mils 944 4,700 2,200
Return on Sales 7.7% 3.8% 7.2%
Cash ($mils) 320 14,500 2,200
Manufacturing Facilities 3 (Texas, Ireland,
Malaysia)
180 (in North and South America,
Europe, Asia, Australia)
Market Capitalization ($mils) 58,469 66,886
P/E 60 10
5 Year Avg. Revenue
Growth
55% per year 6% per year
5 Year Avg. Stock Price Growth 133% per year 33.4% per year

In keeping with the outstanding performance of Dell, it will be a constructive change in following the practices in regard to its supply chain management. In addition to the exceptional growth of the company from almost every angle, Dell has faired extremely well as a result of its supply chain strategy. In view of the immense competition in the automotive industry, a well-meaning option would be to reduce costs in the supply chain operations. In size and financial terms, Ford is a much larger company than Dell and hence it is strongly placed in achieving the standards of a more proactive strategy for the supply chain management.

The Challenge

In order to introduce a balanced and effective approach towards adopting an efficient supply chain management strategy, there was immense potential in adopting strategies similar to those of Dell. There was evidence of a broad-based comparison between Ford and Dell on a number of dimensions. Virtual integration could have been made which entailed some changes in the primary processes and some of such changes required a shift from making practical efforts towards defensive strategies. But whatever was to be done would have to be done as soon as possible so as to reap the benefits of new strategies at the earliest. While comparing the models of Ford and Dell in regard to their respective supply chains models, it is found that Dell lacks adequate dealer distribution channels in addition to having significant differences in its ownership of production facilities. It is noteworthy that Dell has direct control of production only of its assembly plants, and manufacturing of other components is managed by its supplier base. Its integrated sales, manufacturing operations, and R&D are also managed by the suppliers. Nevertheless, Dell’s operating principles that have contributed to its success do have parallels with Ford in regard to its key business initiatives and breakthrough objectives.

The supply side of Dell is typical in having a shorter delivery system as compared to Ford whereby the delivery time to customers ordering the automobile has to wait for longer periods as compared to Dell. After a Ford customer order a car from the dealer, the details of the order are conveyed to the order management department from where it is referred to the Bill of Materials and then on to the plant site. The plant prefers the order to the suppliers after completion which then informs the inbound logistics. The automobile is then sent through the proper channel to outbound logistics that finally send the car to dealers for delivery to the customers. This is indeed a lengthy process as compared to Dell and requires capital expenses and outlay which far exceed what may be required if better policies are followed. In comparison, the sales department in Dell receives the orders from customers and forwards the same to component suppliers who in turn send all components to the assembly and then the product is dispatched to the customer, thus taking much lesser time and resulting in better customer service. To be able to follow the supply chain strategies of Dell, Ford has to make extra efforts on just a few parameters, since most of the other practices are almost similar to Dell, which is evident from the following exhibit:

Dell Processes Whether followed by Ford

  • Suppliers own inventory until it is used in production No
  • Suppliers maintain nearby ship points, delivery time 15 minutes to 1 hour Yes
  • External logistics supplier used to manage inbound supply chain Yes
  • Customers frequently steered to PCs with high availability to balance supply and Yes

Demand

  • Demand forecasting is critical—changes are shared immediately within Dell and No with supply base
  • Demand pull throughout value chain—“information for inventory” substitution No
  • Focused on strategic partnerships: suppliers down from 200 to 47 Yes
  • Complexity is low: 50 components, 8-10 key, 100 permutations No

Additionally, Ford has to make some amendments in regard to its design strategy by moving from a policy of pleasing everybody towards concentrating on the main customer wants. Instead of believing in having a large number of models it has to keep a minimal number so as to result in economies of scale. It has to devise a pricing strategy that is market-driven instead of budget-driven and devises capacity planning which is also market-driven. Ford must tackle dealer networks so that dealer order is based on customer demand and not on allocations and capacity constraints. The delivery of orders should be reduced from the present 60 days period to about 15 days as is done by Dell. The inventory levels must be low with the rapid turnover to avoid costs entailed from idle capital expenses. Ford must transform its dealership models into being directly controlled by the company instead of having independent dealers.

Conclusion

In keeping with the changing trends and the advent of the internet revolution, it is evident that Ford must transform its supply chain management strategies in line with Dell especially in view of the similarities in their willingness to adopt techniques that incorporate innovative practices. Ford had historically been taking pioneering initiatives in adopting the latest productions techniques and marketing strategies that have contributed to its astronomical success over the decades. Dell has been a pioneer and a trendsetter in its own way in proving to be an extremely successful company has surpassed the expectations of its own people in grabbing market shares throughout the world. The production processes as adopted by Ford are in line with being adaptable to changed supply arrangements and will not suffer adversely with new procedures. Ford already has several initiatives in the pipeline that aim at positioning the company favorably in achieving success and integration that also includes the involvement of suppliers. Historically too, Ford is known to have been a proactive company that will be calculative in implementing the integration strategy after ascertaining its feasibility and worthiness.

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References

www.ford.com

www.dell.com

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