Executive Summary

Upon studying Fords existing supply chain it is not hard to see the high level of complexity
within. This level of complexity blended with other internal and external factors have made Ford
realize they need to explore solutions to deal with the supply chain challenges leading to cost and
the reality they are facing and may continue to face in the future. The majority of issues in
Fords present chain result from inefficient control of their large supplier base and the
complexity of their supplier network in addition to inability to communicate to server their end
customers. Ford has realized the urgent need to change their supply chain in order to be more
cost effective and more profitable for its shareholders. Since Dell and Ford are two different
types of markets, one is in the computer manufacturing/distribution business and the other is in
the automobile business, it does not seem right for Ford to implement the exact virtual
integration model deployed by Dell. The fact the car buyer usually wants to touch and feel the
car before they make a purchase of a car would put Ford at risk of losing their customers to the
competitors. On the other hand when customers buy computers on-line they dont have to worry
about touching and testing the computers and they require a better price than the other retail
avenues to buy computers. Some other considerations in this case are the consideration of the
buying frequency of cars versus computers and financing requirements for a car versus a
computer. Another consideration would be the number of suppliers to support Ford
manufacturing versus Dells computer manufacturing. Although the model deployed by Dell
seems to be a stretch there are certain aspects of the model Ford can fully adopt or partial
implement to place them in a better position to grow and realize more profit for the shareholders.

Ford Motor Company: Supply Chain Strategy Case Analysis

Issue Identification
Ford has a need come up with a solution to the below issues to try to determine which
information technology strategy will work best for their supplier interaction as well as with their
current engineering designs and projects.

1)

Fords current supplier base:

a.

Ford has recently decreased their supplier base to have a better long-term

relationship and closer relationship with fewer suppliers called Tier 1 suppliers. The
Tier 1 suppliers provide Ford with complete vehicle sub-systems. The Tier 1 suppliers
work with multiple Tier 2 suppliers who provide the components that make up the
vehicle sub-systems.
b.

The Tier 1 suppliers do not have the capital to invest in the new technologies that

Ford seeks to get into. However, the Tier 1 suppliers do have fairly solid IT capabilities,
but these capabilities severely drop when dealing with the Tier 2 suppliers. Ford has also
made it expertise available to support the Tier 1 suppliers through tools like Just-in-Time
inventory, Total Quality Management and Statistical Process Control.

2)

Purchasing organization:
a.

Fords purchasing department is independent of the product development area.

However, purchasing has a strong dominance over the product design price negotiations
because a very slim reduction in purchasing cost could result in very significant
savings for the company.

Ford Motor Company: Supply Chain Strategy Case Analysis

b.

Dells vertical integration has these areas working very closely together. Could

Ford also successfully merge these two areas to get reach a common goal?

3)

Forecasting within the Ford 2000 projects:

a.

Two key initiatives under the Ford 2000 project are the Ford Production System

(FPS) and Order to Delivery (OTD). The FPS project was geared at steering Ford
manufacturing operations to be leaner, more responsive, and more efficient. This would
be promoted by focusing on continuously flowing material through using vehicle inprocess storage units and proper assembly order sequence. The OTD project was started
to reduce the order time from the present of 45-65 days down to only 15.
b.

The accuracy of Fords forecasting is an integral step in being able to maintain the

continuous flow of materials from suppliers as well as being able to turn the vehicles
around within 15 days. This is the first time that Ford had ever involved the dealers with
forecasting the customer demand.
c.

In 1998 Ford launched the Ford Retail Network (FRN), which was put in place to

address the changing face of retail vehicle distribution systems in North America. One of
the principles was to buy the local dealers so the dealers competed with the competition
instead of each other. This may provide Ford with another level of detail to the customer
requirements.

Ford Motor Company: Supply Chain Strategy Case Analysis

Environmental and Root Cause Analysis
In the 70s Fords main competition was General Motors and Chrysler. With the entrance of
Japanese companies like Honda, and Toyota the Ford Motor Company faced stiffer competition
in the market. Ford along with General Motors and Chrysler were forced to react to the foreignbased auto manufacturers. They also had to face the reality of an industry issue of an overcapacity due to economic reasons. This drove Ford to develop and expand their export-oriented
auto industry reach. The focus in the auto industry changed to becoming a global force and Ford
and other North American automakers looked at acquiring such companies as Swedens Volvo.
The addition of further automakers abroad for Ford only added more complexity to the supply
chain and the need to manage more supplier relations. To deal with the complexities added by
the vast number of suppliers Ford in the 1990s implemented a tiered approached. The focus
was long term relationships with Tier 1 suppliers who in turn would manage and handle Tier 2
and Tier 3 suppliers. In order to deal with the further complexities Ford initiated the Ford 2000
plan which aimed at restructuring many of their key processes. The systems and processes
identified were Order to Delivery (OTD), Ford Production System (FPS) and Ford Retail
Network (FRN). The goal was to minimize the complexity in the supply chain and manage costs
to the business. Takai has been tasked with a task of deciding quickly which approach or
decision to put forth and whether to adopt Dells model. Dells model of virtual integration is a
full swing the other way from Fords current vertical integration model. There is a great deal to
implementing a full virtual integration model successfully. The best approach may not be a full
commitment to virtual integration due to the over complexity of Ford suppliers compared to
Dell. The approach to adopt the parts of Dells model which will be seen as feasible may be
optimum decision. The overall cost to implement a virtual integrated system may not be feasible

Ford Motor Company: Supply Chain Strategy Case Analysis

or successful. There are certain aspects of buying a car and buying a computer that have
similarities although they do drive different behaviors.

Alternatives and Options

1) Keep its existing supply chain
a) Advantages: No major changes and additional costs involved.
b) Disadvantages: Fords IT will eventually become obsolete and Ford will slip away
from not embracing technology across its organization.

2) Create mix of online and offline operations and put processes & procedures in place to enable
customization and ordering by customers over the internet but maintain physical dealerships and
FRNs.
a) Advantages: Customization to clients, start of vertical integration,
b) Disadvantages: Could be costly, time consuming, requires internal and external
changes which are not easy to handle and integrate with other operations.

3) Create a virtually integrated supply chain based on Dell's model. Ford and all its suppliers
would share information between their systems and the Internet to coordinate the flow of
materials and production. All customer orders would be taken either via Ford's web site or at the
dealership via Fords intranet and then built. A pull system would be implemented completely.
a) Advantages: Customization to clients, start of vertical integration in the supply chain.

Ford Motor Company: Supply Chain Strategy Case Analysis

b) Disadvantages: Ford's traditional processes and production methods would have to be changed
to make full of this new form of supply-chain management. It is a very costly and time
consuming activity, the difference in the two industries makes it a risky option.

Recommendations
In order for Ford to keep embracing technologically they will need to keep their Tier 1
suppliers on track with them and develop direct links to Tier 2 suppliers. Ford facilitate setting
up a web-based supply chain system that would allow the Tier 1 suppliers to use their advanced
IT capabilities without having to invest a lot of capital in emerging technology. This would
allow Tier 2 suppliers to access the system to input progress of production as well as to take part
in future designs. There are numerous reasons why this web-based supply chain would be
beneficial to Ford and its suppliers. First, suppliers would be able to work off of a central design
database in which Ford could control their level of access. Due to Fords aggressive purchasing
strategy a discrete access to supplier costs the lower tier suppliers would not disclose costs and
contract terms between suppliers. Second, Ford would be able to control the technological level
that it would like to operate at. Each supplier would have their access limited depending on the
functions needed. Ford would be able to update and modify the program with little or no
program changes needed on any of the suppliers systems. The system would be secured and
segmented to individual suppliers and the risk of proprietary information or software getting out
would be minimalized. Third, the initial investment for levels of suppliers would be minimized.
This could drive lower material prices and decrease the risk of losing valuable Tier 2 or even
Tier 3 suppliers. Currently the relationship with Tier 2 suppliers does not exist. If something
5

Ford Motor Company: Supply Chain Strategy Case Analysis

happened with the Tier 1 supplier, Ford would lose the relationship with all of the Tier 2
suppliers working under that one supplier possibly. With a direct relationship with the Tier 2
suppliers it would create a more secure environment for that supplier because they would not
only have a relationship with the Tier 1 supplier but also directly with Ford.

Ford could change focus within the purchasing department by realigning them with the product
development area leading to cost reduction and increased efficiencies. The purchasing team
could provide proposals to standardize components the engineers should use so that purchasing
can decrease the batch cost of a component by ordering more without running the risk of
building large amounts of inventory. In addition to standardizing, purchasing could source
suppliers and analyze which one can provide certain components at the most reasonable price
based on batch run size. Purchasing would then work directly with product development and
design to use that component in a new or existing designs.

One of the challenges faced by most manufacturers, including Ford is forecasting. Fords current
model does support the Pull system and automobiles are just a Push into the end dealerships.
Ford has internet sites in place today which would be not too far from the Dell Model. You
essential chose your model and add options. A V6 engine or a V8 engine is comparative to an
Intel I5 processor to an Intel I7 processor. The internet site would need to have the ability for a
customer to essential build their automobile the same as a computer and request a quote or price.
The different base level models would be available at the dealerships for a test drive. The order
would be placed by the dealership or from the online quote provided by the customer. The
financing and arrangements would take place in the traditional sense at the dealer. This would

Ford Motor Company: Supply Chain Strategy Case Analysis

drive the dealerships to understand and possibly forecast for base model requirements. The
vehicles would be then manufactured and suppliers would provide the parts required to meet the
specific customer orders.

Implementation
The recommendation is for Ford to extend its IT investment by going partially to the Dells
model of supply chain. There are parts of the virtual integration model used by Dell that do not
fit Fords model and they need to be discarded. The dealerships would still play a role in the
distribution since we understand the need for customers to still test drive and sit in the vehicles
as virtual tours does not do it for them. The IT systems should be centralized since its Tier 2 and
Tier 3 suppliers might not be able to update their IT infrastructure as frequently as Ford or have
the money to invest. Suppliers can have access to Fords design database while Ford controls the
access and functionality as required. The whole coordinated system would ensure a smooth flow
of materials and reduced bottlenecks and enhance the efficiency of the supply chain giving a
competitive edge to Ford. The dealers should play a more important role in forecasting customer
demand and Ford should explore the option of outsourcing it to a company who is specialized in
forecasting systems.

Ford Motor Company: Supply Chain Strategy Case Analysis

Monitor and Control
Metrics will be an important part of determining the success of the changes and investments put
forth by Ford Motor Company. Some key measurement will be manufacturing efficiencies, cost
control, supplier performance and Order to Delivery times. Manufacturing efficiencies will be
measured by the number manufacturing line changeovers and/or model changeovers. Supplier
performance will be measured on the basis of their ability to supply the right parts required and
on time. Another important measurement of a successful automobile manufacturer is the recall
figures. This would also allow Ford to recognize a low quality or off spec supplier. And the last
area to monitor and provide metrics on would be the overall order to delivery time. The bar has
been set at 15 days. With the new supply chain in place it may be reasonable to put in a target of
less than 15 days based on performance.