Ford Motor Company Free
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The Ford Motor Company finds itself in a dynamic business environment where new technologies and practices offer the potential to alter in a significant way the landscape in which it operates. Henry Ford was in his time an innovator in offering “cars for the masses”. He introduced to the car industry methods and systems innovative in their day. Ford needs once again to forge new paths to ensure future competitive advantage.
Executives at Ford have been considering the “Direct Model” created by Dell Computer Corporation and finds that there is considerable appeal. Dell has been able to speed up inventory velocity such that there is only eleven days of inventory on hand. This has led to an inventory turnover rate of thirty times per annum. This achievement, termed by Michael Dell “Virtual Integration” has been achieved by blurring the line between supplier, Dell and client, to the extent that third party service staff are often thought, by clients, to be Dell’s own staff.
2.0 The Company and Industry Background
Ford Motor Company entered the business world on June 16, 1903, when Henry Ford and 11 business associates signed the company’s articles of incorporation. With $28,000 in cash, the pioneering industrialists gave birth to what was to become one of the world’s largest corporations. Few companies are as closely identified with the history and development of industry and society throughout the 20th century as Ford Motor Company.
Ford’s new global approach required that technology be employed to overcome the constraints usually imposed by geography on information flow. IT was placed within the process reengineering organization. In the supply chain area, there was general agreement that IT also could be deployed to dramatically enhance material flows and reduce inventories, substituting information for inventory. Ford continued to expand in the IT arena, releasing an Internet, Intranet and Extranet site. Ford teamed with Chrysler and General Motors to work on the Automotive Network Exchange, which aimed to create consistency in technology standards and processes in the supplier network so that suppliers, already pressed to lower costs, would not have to manage different means to interact with each automaker.
3.0 Identifying Ford’s key problem areas
In spite of the success in the auto industry, Ford is facing serious challenge in its supply chain and other activities.
3.1 More suppliers. Without a highly efficient computerized system for doing business with its tire suppliers, Ford would not have been able to offer consumers this option. Relying on phone and fax messages would take far too long to communicate customer preferences from the dealer to the Ford factory to the tire companies, all of which are links in the overall car production supply chain.
3.2 Flow and cost. Ford keeps the following information about the flow and cost data for all distribution centers to dealer channels: distribution center identification number, dealer identification number, product identification number, the number of miles between each distribution center and its dealers using the road network.
3.3 Purchasing system. Suppliers even farther down the chain are more behind. Ford needs to consider not only the total cost savings a supplier provides. At Dell, purchasing activities reported in to the product development organization. At Ford, purchasing was organizationally independent of product development and had been-historically and up to the present-a powerful force within Ford. Because of the sheer volume of materials and services that Ford purchased, a very slim reduction in purchasing cost could result in very significant savings.
3.4 Ford Production System. The mass-producer uses narrowly skilled professionals to design Ford’s products made by unskilled or semiskilled workers tending expensive, single-purpose machines. These churn out standardized products in very high volume. Because the machinery costs so much and is so intolerant of disruption, the mass-producer keeps standard designs in production for as long as possible. The customer gets lower costs but at the expense of variety and by means of work methods that most employees find boring and dispiriting (Austin, Robert D. 1999, P4).
3.5 Orders to Delivery (OTD). Consumers unwilling to compromise their preferences in order to buy from a dealer’s inventory will certainly appreciate an accurate delivery date and a reduction in the amount of time it takes to get a specially ordered vehicle. Dealers have an interest in that they maintain huge vehicle inventories including vehicles they have ordered for stock but that consumers seem reluctant to buy. Ford, of course want to find ways to reduce costs in a system that absorbs billions of dollars relating to purchase materials and transportation costs, as well as inventory costs. Suppliers will have to respond to the timing, cost, and quality challenges that inevitably arise when changes are made in their customers’ purchasing and manufacturing processes and requirements.
4.0 Change as following Dell’s
In order to see how congruent the Dell model is to Ford’s business we need to examine the similarities and differences between the two companies. (Refer to Appendix 1) This will allow us to gain some insight as to whether virtual integration could work at Ford.
Analysis of Appendix 1:
Key to Dell’s strategy is their policy of outsourcing all manufacture. Dell acts merely as the assembler and packager. The company is able to pick and choose from the range of industry leading components, allowing other manufacturers to make the investments in leading edge technology. The suppliers manufacture their, essentially generic, products for many customers and therefore are economically independent of them and also have little difficulty in meeting the JIT (just in time) requirements of Dell.
Ford has at one time, both notable similarities and striking differences in terms of their relationship with suppliers. Many Ford components such as tyres, windscreen wipers, and electrical components are sourced from large suppliers who supply the same components to other companies. These products are well suited to a closer integration of supply – virtual integration.
On the other hand, a very large proportion of Ford components are custom made for Ford. Tier one suppliers of custom components such as body panels, seats and engine components are heavily dependent on Ford and other large carmakers. These suppliers second tier suppliers, who in turn also have suppliers. If virtual integration is to succeed with these components every company along the value chain right back to the raw materials would need to be involved. This would be a very difficult and complex network to coordinate.
Ford’s history is a factor to be considered, their longevity and size in the industry gives them a tremendous degree of influence when compared with Dell, a relative newcomer to business and whilst a large buyer of components, not so influential on trends and technology. The disadvantage may be that this stature may make it hard to bring their very large organization and supplier network along the road to virtual integration.
The dealer network must be considered. The dealers carry a very limited range of products, which they hold in stock. If Ford decides to carry the Direct Model towards to the end consumer, they need to ask whether they need a dealer network and in what form. The possibility of disintermediation needs to be examined. Alternative forms, that use the existing network ay be viable, for example, the dealer might be used to postpone the final form until the point of customer order. This might be the fitting of audio equipment, air conditioning or interior trim customization. This would enable more consumers to benefit from the vast possible range of options, as well as, at the same time reducing the factory lead-time for manufacture.
Ford needs to establish a better relation to Dell by doing the following. First, Ford needs to continue to offer detailed information on their products including how their products stack up against competitors. Furthermore, Ford needs to allow the online ability for potential customers to schedule test-drives at local dealerships. The customer needs to be able to order the automobile they want online, which includes selecting options and online financing. The online ordering options should be easy to use.
Ford had a number of initiatives underway that were aimed at positioning the company favorably for success in integrating with the extended enterprise.
5.1 Relationship to each provider. Tier suppliers were relatively technologically advanced but lagged behind Ford. Suppliers even farther down the chain are more behind. Ford needs to consider not only the total cost savings a supplier provides, but also the technological infrastructure being brought to the table. If a supplier lacks the technology, Ford should consider any advantage presented by investing in the company to help build the needed infrastructure. In return, the supplier would agree to a long-term commitment and partnership with Ford. Significant investment on all sides will be needed to integrate systems across business boundaries. However, the cost and time reductions will benefit both suppliers and Ford.
5.2 Create a faster response to the customer. The system should tie the automobile ordering, planning, raw material procurement, manufacturing and delivery systems all into the same system for ease of use by the company and partners. The tying of these systems further increases system-to-system transactions and automation, which in turn lead to greater efficiencies, including cost and time reduction. A product tracking system should also be considered which would allow employees and customer’s knowledge of where orders currently reside in the process flow.
5.3 Deconstruction. Producing and delivering this product entailed research and development activities, engineering activities, manufacturing processes, generation of information about the car, and development of the logistics process of delivering the car to the dealer. The deconstruction of methodology breaks it into discrete components and considers each of these components on its own merits. For example, Ford may decide that it is better at design and marketing and decide on the outsourcing of manufacturing, financing, and logistics. Alliances can serve to share in the proceeds of any part of the process, such as financing, without having to dedicate any substantive resources to this process.
5.4 Virtual organization. The Ford’s aim of the virtual organization should be to achieve market differentiation by performing better. Ford obtains all non-critical competencies from outside, i.e. from other corporations with which it forms a virtual organization furthermore it aims to improve competitiveness and productivity, to enhance efficiency and responsiveness and decrease overheads.
5.5 Push & Pull. Ford is moving from ‘push’ manufacturing processes to very lean, very dynamic ‘pull’ business models. They’re creating virtual worlds where their engineers and our suppliers can collaborate. And Ford are web enabling them day-to-day employee activities not only to realize productivity gains but also to bring about a far-reaching Internet culture shift (Austin, Robert D. 1999, P9).
5.6 Marketing. Firms rarely work alone in bringing value to customers. Instead, most are only a single link in a larger supply chain or distribution channel. Ford can make the world’s best cars but still not do well if its dealers perform poorly in sales and service against the dealers of Toyota, GM, Chrysler, or Honda. Ford must choose its channel partners carefully and practice sound partner relationship management.
5.7 Financing. The consolidated financial statements include all majority-owned subsidiaries and reflect the operating results, assets, net income, revenue and cash flow for the Ford and Dell. Dell have more returns than Ford on sales. Therefore, Ford’s management should be preparation of the company financial statement, which includes maintaining the integrity and objectivity of financial records, and the presentation of the company financial statements in conformity with generally accepted accounting principles.
6.0 Justifying My Recommendations
Next, Let’s going to look to present some recommendations to Ford Company to sustain its competencies and competitive advantages in the auto industry.
6.1 Sustaining its competitive advantage. These days content is only valued in the enterprise in terms of the revenue it can generate, the paying customers it can attract, or the employees it can effectively serve. Enterprises such as Ford Motor Co. look for content management tools that will help them rapidly update their Web sites with the fewest number of technical people. In the process, Ford found it was able to rebuild its heavily trafficked consumer Web site with enough efficiency to reduce its server and network hardware requirements by 60 percent. Or, in the case, its business managers were looking for a way to economically digitize thousands of broadcast videos into a format that could be retrieved more readily and licensed to other video producers to create new revenue streams.
6.2 Virtual integration-customer oriented.
To address this problem Ford must think about its relationships not only with suppliers but also with dealers and customers. 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 question is in fact explosive in its implications, because it inevitably leads to fundamental questions about the way Ford has historically operated internally and how it has interacted with important partner constituencies (including dealers).
The relationship with customers is more difficult. The dealer network will probably be averse to Ford moving towards direct sales, as it will threaten their livelihood. They can reap some of the benefits by introducing a web based ordering service for cars, allowing clients to specify the car that they want and then matching the requirement to the cars already in stock through out the network. If a client prefers they could order a vehicle built to order and supplied to a local dealer. This will enable Ford to become closer to the needs of clients, seeing accurately what they want rather than what they buy because it is available.
This compromise will give the company some benefits:
1) Information about customer wishes.
2) Opportunity to reduce both dealer stocks and Fords’ stocks by avoiding duplication.
3) Delaying the final form of the product by increasing the range of dealer fitted items will enable Ford to simplify manufacture, whilst offering a greater degree of “real customization” to clients.
4) Delay of final form will increase dealer revenues, buying their enthusiasm and consent for the next stages of coordination
Moreover, if Ford is to successfully emulate Dell then they are best able to do this in areas where they have similarities. The most notable congruency is in the area of supply of generic components. Here Ford should continue its process of building strategic relationships.
Where components are of a more specialized nature then Ford should examine the relationships to ascertain whether bringing suppliers closer to the company will offer benefits to both parties.
Ford should work on its’ internal culture. Integration of supply chains on the scale practiced by Dell can only occur in an environment where information flows freely to all points of the supply network. As outlined in the case documents, Ford maintains a high degree of separation of the purchasing departments from marketing and production. Ford will not be able to provide focus up and downstream unless they themselves are committed to an open culture where logistics information is a part of the lifeblood of the company.
Finally, the success of electronic commerce depends on the assurance businesses and customers place on its underlying systems. Security is often cited as the number one impediment to the growth of electronic commerce. E-commerce has exerted a huge influence on the modern organization. The successful experiences of Dell computer tell us that virtual integration would require changes in fundamental operations, framed as a shift form push to pull processed. The emphasis on shareholder value and customer responsiveness is becoming the leading factors for Ford to sustain its competencies and competitive advantages to survive in the fast-changing business environment. Electronic commerce is already proving to be a very powerful business channel.
Companies Ford Motor Company Dell Computer Corporation
Similarities Cars are consumer items. Computers are a consumer item.
Ford maintains close locational links with suppliers. Suppliers are often located close to manufacturing facilities.
Ford is working to build relationships with a limited number of strategic suppliers. Number of suppliers is small.
Ford’s customers range from large corporations, to government institutions, to the consumer. Dell’s clients range from large corporations, to government institutions, to the consumer.
Differences Cars are personal in nature and many clients want to have close contact. A showroom is usually preferred. Computers are generic in nature and do not need showrooms.
Safety and reliability are major concerns. Computers are not expected to be entirely reliable.
A car is made up of generic (tyres, petrol caps) and custom (dashboards, body panels) parts. Computers are made almost entirely of generic parts.
Suppliers are often completely dependent on Ford. Suppliers are not entirely dependent upon Dell.
Ford is large and may have limited maneuverability. Dell is flexible and can rapidly respond to market or supplier pressure.
Ford has a large dealer network, both independent and company owned. Dell has no retail network, all sales are Direct.
Ford has a vast range of products. Dell has a limited range of products with a narrow palette of variations.
Austin, R. D. (1999). Ford Motor Company: Supply Chain Strategy. Harvard Business School.
Greenstein, M. and M.V. (2000). Electronic Commerce: Security, Risk Management, and Control (2nd Edition). New York: McGraw-Hill.