Ford Motor Company is based in Dearborn, Michigan; it is the second largest industrial corporation in the world, with revenues of more than 144 billion and about 370,000 employees. Operations span 200 countries. Although ford obtains significant revenues and profits from its financial services subsidiaries, the company’s core business remains the design and manufacture of automobiles for sale on the consumer market. Since Henry Ford, founder of Ford, incorporated in 1903, the company has produced over 260 million vehicles.
For this case study I have decided to implement Virtual Integration at Ford. However the supply chain strategy of Virtual Integration that is used successfully by several companies such as Dell and is a revolutionary business strategy would not suit the needs of Ford Motor Company. I will focus on other aspects that I feel are most suitable for Ford and tailor it to meet their needs. I predict that by using virtual integration, Ford can expect to minimize its suppliers, eliminate middlemen, and have more flexibility in its supply chain by using virtual integration.
In addition to that, like Dell, Ford can boost its sales by providing better customer service and provide faster communication between suppliers, manufacturers, and customers in the value chain. Obviously Dell and Ford are part of two different types of industry, one being a computer manufacturing company and the other part of the auto industry, it does not seem to right to implement exactly the same form of “virtual integration” that Dell is currently using. In fact, there would be several challenges and risks that Ford would face by implementing the same type of virtual integration Dell used.
Key Assumptions -The existing supply base was in many respects a product of history. -In 1980s there were several thousand suppliers of production materials in a complex network of business relationships. -Suppliers were picked primarily on the basis of cost -Shift toward longer-term relationships with a subset of very capable suppliers who would provide entire vehicle subsystems. -“Tier 1” suppliers would manage relationships with a larger base of suppliers of components of subsystems-tier 2 and below suppliers. -Use of techniques like just-in-time (JIT) inventory, total quality management (TQM). First tier suppliers had fairly well developed IT capabilities (many interacted with Ford via electronic data interchange links). Statement of Issues There are many issues that are faced by Ford’s current supply chain strategies. Many things had to be improved in order for this company to become a much more competitive organization within the automotive industry. One of these issues is Ford’s process complexity as for the large number of suppliers that Ford deals with (3 tiers of suppliers). Business at Ford is usually conducted over the phone and or fax.
Ford seemed to be lacking a more advanced and user friendly IT system that could allow operations to run smoothly and more efficient. Ford, a $150 billion company enjoys tremendous leverage over its supplier’s annual component price decrease and open book. Another problem is that there is also a powerful independent dealer network that has a lot of control over the market. Ford dealers sometimes compete with each other over clients and sales instead of helping each other to improve their capabilities. Unionized labor force is also a very important aspect due to Ford’s huge employee base (370,000 employees).
Dealing with such a massive work force and try to make them all copacetic can be extremely challenging and costly for any given organization. After many decades of success, customers have increasingly become harder to find due to new threats in the industry, an increasing number of cars and trucks are parked in dealer lots and showrooms, creating an alarming trend of stagnation and profit loss. Foreign based automakers such as Toyota and Honda have expanded into domestic shores and in turn have wrestled away market share from American and Canadian automakers.
Criteria In this case, a good decision would be not to implement the supply chain strategy of Virtual Integration at Ford. However, a modification of the virtual integration system currently used by Dell could be applied to Ford in order to improve internal and external communication and coordination, better control of all processes, inventory management and forecasting. Furthermore, many processes can be reviewed and looked after when implementing a new strategy in any organization and will ultimately only benefit the whole company.
Ford should be able to review and strengthen its current marketing strategies, design of their vehicles, manufacturing processes and dealer network. Analysis Ford has a lot of complexity in its processes due to the large number of suppliers they do business with. Dealing with so many suppliers leads to overall higher costs and complexity that is difficult to control due to the many steps that are required to purchase any type of equipment. Product variety in Ford needs the management of large number of individual component inventories. Production capacity for individual components gets set long in advance and cannot be changed quickly.
Ford was also operating with incompatible computer systems across regions which lead to errors and inaccuracies in many processes. Suppliers and dealers were pretty independent in respect to what systems they used for their organization, which Ford had no control over. Ford dealers were sometimes competing with each other over clients and sales instead of helping each other to improve on their capabilities. Orders based on allocations and capacity constraints. Unionized labor force also plays a very important role at Ford. The Union is always consulted when it was time to make decisions or apply changes to new or current strategies.
Having a good relationship with the labor union needs to be a priority and it has to work both ways, the employer and the employees. As previously stated Dell and Ford belong to two different types of industries, therefore there are some challenges that Ford would face by implementing Dell’s virtual integration. As an example, the cost of automobile is much more expensive than that of a computer, it is doubtful that customers will ever purchase their cars online. Buying a car usually involves test-driving it, which allows customers to touch and feel the car that they are potentially going to spend several tens of thousands of dollars on.
Also, an automobile is much more complex and needs to have much more components (approximately 20,000 parts) in order to be produced, while a computer needs much less. Due to the mass amounts of components needed to run daily operation and the different line of business, it will be a challenge to adopt Dell’s virtual integration solely without having any additional business system that supports Ford to operate appropriately. In conclusion, it is no doubt that Ford needs to make some changes to its supply chain due to the changing business environment due to the development of information technology.
However, as I already mentioned above, since Ford has a much more complex supply chain than Dell and is a different type of industry from Dell, Ford should change Dell’s virtual integration or add some other supplements in order to implement the most appropriate changes for Ford. It is a crucial decision for Ford to make in order for it to continue to be competitive in the auto industry again by defeating its competitors such as the Japanese and Korean auto industries by implementing the most effective virtual integration that works best for Ford.
Plan of Action 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 plan of action that I would suggest would be to first have a very well defined design strategy for their vehicles. The goal should be aimed towards targeting predetermined groups that are considered target markets.
This will ensure consumer loyalty and repeat business and appeal towards Ford’s vehicles. I would also focus on the marketing strategies in order to attract more customers to our products. This would be done by having a well defined pricing strategy driven from the market needs and wants. Also Ford could offer special discounts, low interest rates, free add ons, rebates, etc. Furthermore, I would also focus on the manufacturing and supply capacity planning and Schedule of production. Manufacturing will be market driven depending on what is ordered by customers instead of the idea of maximizing production.
Lastly I would also focus on the dealer network. I would base orders depending on what dealers require based on customer demand. Also I would implement the idea of “order to delivery” in order to provide the customers with the exact features that they want at a short delivery time. Finally I would re design the trading concept model by controlling all dealerships in order to have full control of what goes in or out in order to avoid the independent dealerships to negotiate prices with the company.