Ford Motors Company is one of the largest industrial corporations in the world. Contemporary business environment continues placing a lot of pressure on the cost-side of the business and the company went through the process of restructuring of its supply chain, called Ford 2000, which brought into the picture such elements as outsources distribution network, Ford Production System, and Order to Delivery approach, allowing significant saving. Today, the company considers two options: continue with its current supply chain setting and try to improve operations to gain further competitive advantage or adapt Dell´s business model.
An analysis of the situation illustrates that the differences between the companies and the scale of Ford´s operations can undermine the efficiency of the model, especially given the variety of sub-processes, involved in Ford´s operations, comparing to Dell business. It is recommended that the company maintains its current business model and continues looking for innovative ways to reduce the costs and bring its product to the market. The benefit of this approach includes low costs and continuous operations with existing model. The major risk, however, is related to the outdating of the technology.
Established back in 1903 by Henry Ford, Ford Motor Company was one of the largest industrial corporations in the world. The company produces a wide range of cars, including four-wheel models and trucks. Distribution channels of Ford company include won and outsourced re-sellers, which allows the corporation establish wide operations in North, South America, Europe and Asia.
Over the last two decades, automotive industry has experienced significant growth in competition and pressure on the costs of the operations, due to increasingly complex business and economic environment. Under these external influences Ford Motor Company is forced like many of its competitors, look for more effective supply chain solutions. Up-to-date, the company went through significant re-structuring of its operations, Ford 2000, which includes the system of production postponement through Order-to-Delivery (OTD), changes in retail network to create a Ford Retail Network (FRN) and Ford Production System (FPS), which involved significant investments in development of the system background interface for vehicle in-order production. These changes allowed Ford enter to the competitive market with more strengths and achieve fifteen days lead times for their products as opposed to sixty days.
Ford Motors Company is operating in extremely competitive environment, where the pressure on costs of operations is extreme. The company has to continuously look for the innovative and effective solutions to reduce their total supply chain costs and reduce waste, which generates from an inefficient system and human operations. One of the latest changes, which outline the need for further improvement of the integrated supply chain, is the switch of the company from numerous first-tier suppliers to a multi-level supplier’s network, where key partners take care of the sub-contractors on the upstream of the supply chain. This model requires more integration and accuracy in all processes and the company stands in front of the dilemma of how to use the emerging opportunities of the technological advancement. The company has two options: a) continue using the technology on the background of its operations and focus on the human factor in purchasing operations and maintain current supply chain strategy, and b) adapt the technological model of Dell with extremely high level of automation in the purchasing processes and full integration of the system with the supplier´s network. The strategic problem is the alignment of the Ford business model, which is based upon two elements: misalignment of the pace of technological development between ford and its suppliers and b) structure of the purchasing process (Monczka, Handfield, Giunipero, and Patterson, 2011). Currently, the organization experiences significant challenges in aligning its technology with the level of supplier´s interface due to limited investment opportunities available to its partners. Secondly, purchasing operations are very independent and utilize the advantage of a one-time purchase, where the company can save on smallest price difference due to economies of scale and its purchase volume.
Current structure at Ford illustrate strong focus on the lean operations. The company has implemented numerous processes changes and restructured its operations to centralize the production process and further benefit from the scale of its operations. The costs and operational efficiency are highly dependent on the relationships, which the company built with its suppliers´ network. The reality shows that the company´s cost structure on the upstream side is mostly influenced by forecasting accuracy, safety stock minimization and purchase of the random parts for beneficial price. On the downstream, the success of the operations is based on the distribution network and the process of communication and demand forecasting from the dealers. Recently the company started to place a lot of emphasis on the demand forecasting model, and this allowed the company reducing the waste in the operations. At the same time, it is not able to eliminate the middle link between the supplier and distribution channel due to extremely complex operation, which cannot be directly compared with Dell. The fact is that such scale of operations requires more robust system of control as the amount of auto parts, sub-processes and employees significantly more than at Dell (Senge and Prokesh, 2010). With that in mind, the current setting, which enables integrated forecasting system and links supplier to manufacturer and manufacturer to the distribution separately is the most adequate for the company. The advantages of the Dell´s model include customization and convenience, offered to the clients through the internet purchases and further integration of the OTD system, which reduces the safety stock and waste. At the same time, this model requires significant financial and time investment to implement, and the scope of Ford´s operations is large enough to undermine the efficiency of this model. Maintaining current supply chain layout will eliminate the pressure of high investments in new technology, but, on the other hand, can make the Ford technology obsolete.
Recommendations and Conclusion
Ford Motors Company is one of the largest industrial corporations and the industry trend places a lot of emphasis on the total cost of its supply chain operations. The company works with reasonably lean suppliers´ structure and the forecasting on both, upstream and downstream are critical for the company´s efficiency. While system integration and direct communication channel are important for the company it is not possible to eliminate all the internal control over the purchasing and manufacturing processes..
It is recommended that the company continues working on Kaizen approach, improving its quality and waste management in manufacturing processes. This should be done along with further investment in more effective technological solutions to link the suppliers´ and Ford´s interfaces. The company should maintain its purchasing process authenticity as the cost-saving on a “good deal” purchase can give significantly higher advantage to the company than direct integration. With that in mind, the shift to the Dell model would provide an effective solution to Ford as it can significantly increase the risk of forecasting fallacies and waste, generated along the supply chain, due to the lack of integrated control system. That said; it is recommended that Ford keeps an existing supply chain model, but “keeps an open mind” for new sales and distribution solutions, which involve internet technology, for its secondary products, such as auto parts sales and financial services.
Senge P. and Prokesh S. (2010). The Sustainable Supply Chain. Harvard Business Review, October 2010, viewed 20 May 2014, http://hbr.org/2010/10/the-sustainable-supply-chain/ar/1
Monczka R., Handfield R., Giunipero L., and Patterson J. (2011). Purchasing and Supply Chain Management. London: South-Western Cangage Learning. Print.