Ford Motor Company

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* Incompatible systems—not using IT to its full capacity as not all suppliers have the financial backing to bring technology changes in line with Ford’s technology changes (particularly 2nd level suppliers and lower). The lack of supporting technology poses problems in connecting suppliers and other external parties. To

Ford Motor Company

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address this problem Ford must think about its relationships not only with suppliers but also with dealers and customers; as well as determine the costs of developing web capabilities to establish business to business linkages. Suppliers can have access to a central database where Ford controls the access and functionality as per the requirements, which would solve the inability of tier 2 and tier 3 suppliers to upgrade their technology as necessitated by Ford. The whole coordinated system would ensure a smooth flow of materials to reduce bottlenecks and enhance the efficiency of the supply chain.

* Facing overcapacity (estimated at 20 million vehicles) with the more players entering the automobile market as developing and industrialized nations recognize the wealth and job producing effects of automobile manufacturing. The lifespan of a laptop is comparatively shorter than that of a car and replaced more frequently especially with rapidly improving technology that renders last year’s obsolete; however, majority of customers not going to replace their car annually.

* Poor demand forecasting as a result of no direct feedback from customers or dealerships. Additionally, hhigh Order-To-Delivery (OTD) times of 45-65 days that the company is working towards reducing to 15 days. This leaves Ford with high inventory and an inflexible push system. This contrasts Dell’s core competencies of superior demand forecasting in a pull strategy that is completely built to customer orders with short lead times of five to six days. Dell’s direct relationship with customers and easy access to data useful for forecasting (in Dell’s systems) coupled with real-time updating enable inventory velocity. But, In case of Ford, the dealers own most of the direct data about customer demand.

* Powerful independent dealer network—the Ford Retail Network initiative not only creates an alternate distribution channel, but also combats inconsistent Dealer Network enabling direct contact with the customer and facilitates the

Ford Motor Company

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collection of information. Also, this aligns all the Ford dealers in a local market to focus against the “real competition” such as GM and Toyota. Whereas, Dell eliminates the time and cost of third party distribution by selling direct to the customer.

| FORD | DELL |

Product complexity | High: 30,000+ parts | Low: 300+ parts |

Product cost | High | Low |

Life span | Long term | Shorter term |

No. of suppliers/sub-suppliers | Large (1000+) Multi tier | Small (50) Single tier |

Distribution/Dealers | Many | None—direct to customer |

Ford Motor Company

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Environmental & Root Cause Analysis

Ford has a strong history, founded in 1903, and is the second largest industrial corporation in the world with revenues in excess of $144 billion. Its main competition until 1970’s was General Motors and Chrysler, but increasing competition from foreign based auto manufacturers is challenging with the auto market being over capacitated.

In 1995, Ford had embarked on an ambitious restructuring plan called Ford 2000 to reduce costs and increase overall efficiencies through re-engineering and globalizing operations. Redundancies were eliminated and economy of scales was realized by making processes and products globally common. The numerous initiatives underway that were to position the company to integrate an extended enterprise that includes suppliers and customers have paved the road to implementing the virtual integration model.

* Segregated Departments—Ford is over a hundred years old and its structure is deeply rooted. Ford will need to tread carefully and implement change management accordingly in order to integrate the purchasing and product development into one organizational unit to realize any cross-departmental efficiencies.

* Large number of suppliers with many layers is hard to manage effectively. Although the 3 tiered supply base and product complexity of Ford’s automobile manufacturing does not lend itself to a true build-to-order model Ford can leverage vertical integration to gain increased control and transparency of the entire supply chain. Coupled with improved IT systems a predictable flow of

Ford Motor Company

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components can be established to provide the right products in the right place at the right time.

* Incompatible systems—In order to move forward with vertical integration Ford must address the disparity in IT infrastructure across its suppliers particularly 2nd level suppliers and lower. Establishing business to business linkages will be vital in aligning all stakeholders to Ford’s strategies.

* Facing overcapacity with an estimated over-capacity at 20 million vehicles the higher the risk of carrying inventory. Therefore, Ford needs to mitigate exposure to inventory by moving from a push oriented system to a pull system.

* Poor demand forecasting—partner with dealerships in forecasting customer demand to continue improving cycle times. Leverage FRN as an information system to understand the value of consumer input and consumers need, which can help Ford to tailor design models after public demand; as well as create marketing strategies that help boost sales.

* Powerful independent dealer network—the Ford Retail Network initiative creates an alternate distribution channel that focuses on creating a superior selling experience that reduces Ford’s dependence on dealerships, allowing it to phase out inconsistent dealers if necessary.

Ford Motor Company

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Alternations and Options

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