Ford Motor Company Case

1) Describe and show the Supply Chain (before and after).

The existing supply base was a product of history. As the company had grown over
the years, so had the supply base, to the point that there were several thousand
suppliers in a complex business relationship. Suppliers were picked based on cost
and little regard was given to overall supply chain costs.
Beginning 1990, Ford had actively tried to reduce its supplier base that it interacted
with directly. The selection criterion shifted from Cost to more of longer term
Relationship with a subset of suppliers who will provide entire vehicle sub-system. It
also made its expertise available to suppliers in improving their operations via a
range of initiatives Just-In-Time (JIT), Total Quality Management (TQM),
Statistical Process Control (SPC). In exchange Ford expected yearly price reduction
from its suppliers. The supply base was complex in nature when compared with the
DELL supply base. Ford wanted to take some key elements from DELL supply
chain. They also cut down the distribution channel and started their own network
channel. They brought their partners closer while sharing key information. Also
they engaged themselves with other AUTO majors to create a standard interface for
the suppliers while dealing with the manufacturers, thereby making lives of the
suppliers easier in terms of huge capital investments.

2) Consider the experiences that you (or your friends or members of your family) have
had in buying a car. Next, compare these to the experience of buying a computer online (if
you've never done this, go to Dell's website www.dell.com and explore how online
computer buying works). What do you think explains the differences?

I had purchased a car myself in India. My experiences were not that great especially when it
comes to the
• Knowledge of sales force.
• Limited array of choices on models and colors
• Reading material on the cars

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• Inconsistency over deals from different dealers
• Number of dealers in the city is limited to 1 to 2 and hence making it difficult to
strike a good deal.
• After Sales service – there is always as a huge rush of customers due to limited
number of dealers.

I was curious to check out the DELL website after the question – PS I have never
been to the site before. What I saw there was something that I would want to have
for selecting a car too (Not sure if that’s possible)
• Highly User Friendly
• Choices are unlimited
• Very Interactive
• Educational

The primary reason is virtual integration. DELL as an organization is able to

spend more time in adding value to its customer. This has become the core
competency for the company. DELL is able to gather more intelligence by the
on-line interface which enables it forecast and understand the customer request
even better.

3) What advantages does Dell derive from virtual integration? How important
are these advantages in the auto business?

1. Suppliers own inventory until it is used in production – Effective Cost

Measures
2. They also maintain near ship points, Delivery time ranges between 15
mins to 1 hr – Enables JIT process. Zero Disruption of Manufacturing
Process due to Transportation Delays
3. External Logistics supplier used to manage internal supply chain – Better
Inventory Management
4. Focus on Strategic Partnerships – Less number of suppliers, leaner
process of Supply Chain.

The items in BOLD are some of the key benefits that Auto Industry will derive thru
Dell’s supply chain model.

4) What challenges does Ford face that are not also faced by Dell? How should Ford
deal with these challenges?

• Too large a supplier base to manage

• Not all suppliers had the financial backing to bring technology changes in
line with Ford’s technology changes.
• Lack of supporting technology
• Inconsistent processes across geographies.
• Purchase department independent of the Product Department

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 • Inconsistent Dealer Network
• Very High Complexity unlike DELL. In case of DELL there were just 50
component to assemble with about 8-10 of them being critical and a
maximum permutation of 100

Integrating the Purchase and Products team and creating an evaluation mechanism
for the suppliers will enable the team to prune the long list of suppliers. Only those
who can be long term strategic partner should make it to the final list.
With the Strategic Partners, Ford should invest in extending technology changes to
support the suppliers. (However, no free lunches)
Ford should engage IT consultants in this journey. Also it should look at centralizing
some of its key functions to make the processes standardized and leaner. Bringing
all the geographies on a single platform will enable effective 2 way communication.
Ford also started setting its own dealership. All the outlets had the same consistent
look and feel.
Most of the changes that are being recommended above are already being
implemented.

5) If you were Teri Takai, what would you recommend to senior executives? To
what degree should Ford emulate Dell's business model?

The sales can’t be completely virtual like the DELL model. The customer will need
to have the feel of the car he is going to buy. The Retail Outlets can be done away
with.
TQM is a must as the cars have to go thru stringent certification process. Unlike
DELL which had decided to test the SONY screens. One can have a return policy
for defective computers; however, one’s life will not come back from defective car.
Ford can’t completely outsource to its suppliers. There is some component that has
to be manufactured by Ford itself (Like the Ford Engine).
Also DELL was huge on customization. This was not too much of cost incurrence by
DELL. However Ford will not be in a position to afford the customization cost. It
has to roll out standard models.
DELL hardly invested in physical assets and Ford can’t afford to go lean in that
area specifically.
IN case of DELL most of its customers were corporate customers. Auto industry’s
mainstay is retail customers and it can’t afford to be taking its time to penetrate in
this market (DELL took its own time).

6) What historical "legacies" affect Ford's ability to move to a BTO model?

• Many layers of the Ford Supplier Network made things complicated

• Inherent complexity of automotive product.
• Multitude of expansion across various geographies with minimal IT infrastructure
built in place
• 2nd Level Suppliers cash trapped and can’t afford accommodate any IT changes
initiated by Ford.

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• Disintegrated purchase department
• People and Culture