Ford’s supply chain has proven very challenging. The present system being used ha s inefficient control of a large database and a vast and complex network of suppliers. The supply chain needs to be redesigned to be more cost effective and efficient. With careful analysis we recommend that Ford implement a partial virtual integration system similar to that adopted by Dell. This system will provide advantages seen from a tightly coordinated supply chain. Virtual integration will achieve both coordination and focus for Ford. This system would allow Ford to use information technology to interact in a more streamlined fashion with their customers and suppliers.
If this virtual integration system can be implemented alongside their current system this will allow Ford to better deal with problems that may arise without having to disrupt the whole system. This would give them a competitive advantage over their competition.
The main issue faced by Ford Motor Co. is the large number of suppliers they deal with directly. Their suppliers are divided into tier one and tier two. Tier two suppliers directly supply tier one. Ford has thousands of suppliers that operate in a very complex network of business relationships. They also have a large number of dealerships located over a vast geographical area.
Compared to Dell who has roughly 50 suppliers and they sell directly to the customer (See Exhibit 1). The difficulty for Ford lies in the ability to streamline their suppliers and consumers within a single supply chain.
Second issue facing Ford is the inability of first tier suppliers to invest in new technology making it difficult for them to keep up with the demands at Ford. As a result there is gross miscommunication and inadequate coordination between suppliers which inevitably causes higher supply chain costs and longer lead times.
ENVIRONMENTAL AND ROOT CAUSE ANALYSIS
Ford Motor Company was the second largest industrial corporation in the world and a world leader in trucks earning substantial revenues and profits amassing 6.9 billion in sales and 3.9 % return on sales. At the time towards the end of 1998 this solid success was trending upward.
In order to increase their market share Ford aligned with Chrysler and General Motors to foster the Automotive Network Exchange (ANX) which aimed to create consistency in technology standards and processes in the supplier network so that suppliers would not have to manage different means of interaction with each auto manufacturer. This action would allow Ford to produce better quality cars more efficiently and reduce cycle times.
In the summer of 1998, Chrysler merged with Daimler-Benz and in early 1999 Ford acquired Sweden’s Volvo. All these actions have substantially increased Ford’s database of suppliers. It has made their supply chain more difficult to manage and increases costs of maintaining such a complex supply chain.
To help combat these supply chain issues, Ford introduced Ford 2000 which aimed to revamp Ford’s major company processes such as Order-To-Delivery (OTD) and Ford Production System (FPS). The goal of OTD was to reduce time to delivery from 60 days to less than 15 days. The ultimate goal was for Ford to transition their supply chain from a push to pull system (See Exhibit 2)
ALTERNATIVES AND OPTIONS
A few options are suggested to help Ford improve their supply chain problems. They could implement a system that is mixture of both an online system and maintaining their traditional dealerships. The online system would enable customers to order customized products over the internet. Traditional brick and mortar dealerships still need to exist. The service that dealerships provide is irreplaceable.
An advantage of this parallel model is that customers will have the best of both worlds. Customers would have more purchasing power being able to customize their own vehicles. Implementing this vertical integration business model where Ford