Ford Motor Company: Supply Chain Strategy Online shopping experience from Dell and Ford What is the difference between the two buying experience

Ford What are the roadblocks that make the direct model difficult to implement at Ford What historical “legacies” affect Ford’s ability to move to a BTO model Ford is 100 yrs old Founded 1903, Dell on the other hand was founded 15 years ago Product variety Necessitates the management of large number of individual component inventories Production capacity for individual components get set long in advance and cannot be changed quickly

Ford What historical “legacies” affect Ford’s ability to move to a BTO model Process Complexity A large number of suppliers 3 tiers of suppliers Business was usually over the phone and fax Ford a $150billion company enjoy a tremendous leverage over its suppliers Annual component price decrease and open book

Ford What historical “legacies” affect Ford’s ability to move to a BTO model Powerful independent dealer network Unionized labor force Incompatible systems Ford credit – DEC Parts and service – IBM Suppliers and dealers – Variety of systems

Ford Motor Company: Supply Chain Strategy What is virtual integration? What benefits does Dell gain from it A way of capturing the advantage of vertical integration without actually vertically integrating Vertical integration solves production problems related to communications, coordination, and control but at a cost of the increased overhead needed to arrange production organization Virtual integration therefore is the ability to achieve the advantage of vertical integration without incurring the overhead.

Ford What benefits does Dell gain from virtual integration Communication and coordination Vertical integration leads to efficient and effective coordination, through a number of mechanisms that include likelihood of physical proximity, established patterns of communications, and greater willingness to cooperate with other members of the same group. “Stitching together a business with partners that are treated as if they’re inside the company” Michael Dell

Ford What benefits does Dell gain from virtual integration Control The prospect of improved control over the actions of suppliers is another important rationale for virtual integration. Un-integrated partners can exert power over each other as transactions unfold over time Though Dell enjoy information sharing for now but inventory are not completely aligned Inventory not held by Dell may need to be held by a partner who would rather not hold inventory either.

Ford What benefits does Dell gain from virtual integration Real time responsiveness and inventory management Real-time updating of order status and the ability to check order status regardless of where the order is in the fulfillment process provided Dell with differentiating capabilities. Inventory velocity Forecasting Dell’s direct relationship with customers are key to forecasting. Dell has easy access to data useful for forecasting; most of the data are already in Dell’s systems In case of Ford, the dealers own most of the direct data about customer demand. Ford has a very base of individual customer unlike Dell that has a relatively small number of institutional customers

Ford Compare Ford and Dell Old channel players concerns Costs of developing web capabilities Implication for information sharing Problems of connecting to suppliers and other external parties who tend to be less technologically advanced than the Ford Forecasting what customers will buy for Dell and for Ford Difficulties in implementing a true build-to-order model for so complex product as an automobile.

Ford What practical challenges must Ford address as it tries to establish Internet linkages with its supply base Difficulties in establishing B2B linkages Lack of technology and technological sophistication that prevail in the supply chain, especially at lower tiers.

Ford Motor Company: Supply Chain Strategy How should Ford use Internet technologies to interact with suppliers 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)

Ford Motor Company: Supply Chain Strategy Recommendation on moving forward One group are enthusiastic about the technology and think that the only appropriate way to answer the question is to consider, evaluate and recommend radical changes to Ford overall business model; this group considers Dell a serious model for Ford’s business

Ford Motor Company: Supply Chain Strategy Recommendation on moving forward Another group is more cautious and believes that the fundamental differences between Dell’s industry and Ford’s industry necessitate significant differences in business models.

Ford Motor Company: Supply Chain Strategy Recommendation on moving forward What is your own recommendation?