Ford Motor Company: Supply Chain Strategy Spencer Patterson Becky Tibbenham Tatiana Gonzalez David Windle Quinn Gooch

Ford’s Model T

The Blue Oval Trade Mark

Ford Goes Global

Lincoln Motor Company acquired in 1922

Ford’s River Rouge Factory 15,767,708 square feet B-24 Bombers

Henry Ford Dies in 1947

Ford post WW II

post WWII continued..

Ford Expands its Foot Print

Ford Turns 100

12 Billion in Losses

Matrix Analysis: Ford Motor Company

Ford’s Market Position Broad Narrow Market Positioning Low Cost Value - added Product Positioning

IT’s Strategic Impact High Low Impact on Business ops Low High Factory Impact on Business ops Strategic Support Turnaround Low High Impact on Strategy

Governance and Ownership Community Alliance Corporation Market Hierarchy Partnership Ownership Governance

IT Environment & Enterprise Organization Simple Enterprise Pull system/Low inventory Push system/ high inventory Complex Stable/Certain Environment Dynamic/Uncertain

Where Systems Fall Loose Coupling Tight Linear Interactions Complex

Case Questions What advantages does Dell derive from virtual integration? How important are these advantages in the auto business? What challenges must Ford overcome that Dell does not face? Is the Dell model really relevant to Ford? How closely should Ford emulate the Dell Model?

Auto Industry Industry Sales 2009 2008 2007 2006 2005 US 10.6 13.5 16.5 17.1 17.5 Europe 15.8 16.6 18 17.8 17.6 S. America 4.2 4.3 4.1 3.2 2.7 Asia Pacific Africa 24.5 20.9 20.4 18.6 17.3 US Market Share 2009 2008 2007 2006 2005 Ford 15.3% 14.2% 14.6% 16% 17% GM 19.7 22.1 23.4 24.1 25.8 Toyota 16.7 16.4 15.9 14.9 13 Honda 10.8 10.6 9.4 8.8 8.4

One Ford Strategy Formed in 2006 Implemented by CEO Alan Mulally to better align the auto maker’s global resources Main focus is to impact company’s purchasing operations and its suppliers Simplify, standardize and reduce the number of vehicle platforms and parts Simplify vehicle ordering from the customer’s prospective

One Ford Objectives Formation of “matched-pairs” system Team product development personnel with those from purchasing Share a common cost objective and improve supply-base interface Identify a single product-development and purchasing contact for a particular commodity Boost profitability of suppliers Longer-term contracts with closer working relationship with select preferred suppliers

Profitability/ Efficiency 2006 Profit Margin Asset Turnover Ford -7.88% .56 Toyota 6.52% .79 Dell 6.46% 2.4 2009 Profit Margin Asset Turnover Ford 2.30% .56 Toyota -2.13% .67 Dell 2.71% 1.76

Looking Forward Conversion of assembly plants to small car production to support consumer preferences Closing 3 Ford plans in 2010-2011 period Reduced Suppliers- Target suppliers: 750 2004: 3,300 suppliers 2009: 1,600 suppliers 2010: 1,500 suppliers Downsize/Consolidate dealerships Too many dealers at current and expected US Mkt share

What do you do when… You want to buy a new car? You want to buy a new computer? For a new car: Go to the Internet for information, and then to the dealer to actually purchase the car. For a new computer: Go to the Internet or a store like Best Buy for information, and then compare prices online. Then purchase it at the cheapest place. TRANSITION: Now let’s look at how the companies actually go from the beginner supplier to the customer

Ford’s Plant/Site Operations Ford’s Model Suppliers Ford’s Plant/Site Operations Ford’s Dealers Customers

Dell’s Model Suppliers Dell Customers Now let’s piece these three main components and look at the comparisons for Dell v. Ford. So let’s compare the way they interact with suppliers, internally as a company, and selling to the customers

Ford vs. Dell: Suppliers (1998-2010) Suppliers 30,000 1,600 30+ Manufacturing Plants 180 90 3 Time to Delivery 45-60 days Goal: 15 days 7-10 days Ford obviously has challenges that Dell does not, just because of the sheer size and complexity of their organization. Tatiana will talk later about how the IT specifically affects the supplier relationship at both Ford and Dell. FORD’S GOAL IS TO HAVE ONLY 750 suppliers (from their Aligned Business Framework plan). The No. 2 U.S. automaker, whose purchasing budget runs to about $90 billion annually, said it wants to work with a smaller number of healthier suppliers and plans to reduce its supply base to 750 companies in the long term. In 2000, Ford had daily movement of $140 million of material from 5,000 suppliers to 46 manufacturing and assembly plants, and then on to 7,000 dealers in North America

Ford Supply Chain Profile (2008) Suppliers located in 60+ Countries Suppliers in Emerging Markets 36 Supplier Manufacturing Sites 5,500+ Parts currently being manufactured130,000 Total Global Purchasing $90+ billion

Ford vs. Dell: Supplier Interaction Tiered system Becoming lean Long-term relationship Dell 2-3 suppliers per part Benchmark-oriented

Ford vs. Dell: Customers Primary business only (car sales and computer sales): Does not include the financial services sector of Ford (financing or the capitalization of operating leases for the fleet vehicles) nor does it include Dell’s server sales 30% fleet, 70% retail for Ford … Dell is 85-90% business, and 10-15% individual customer Businesses usually order in large quantities, and as with computers, they tend to buy more expensive. (In 2002, the average selling price was $200 more than the industry average because of the average company’s order of a fully loaded computer)

Ford vs. Dell: Selling to Customers Customers order online Shipped directly to their home or office Ford Customers purchase through dealer Customers receive car at the dealer Dell’s ability to buy a new computer online reduces the costs of order management and customer care, as well as reducing the number of errors and returns. Much of their success is built upon the ability to eliminate middlemen (though they do currently sell in Best Buy, Walmart, Staples… but the overhead is not nearly the amount of Ford’s)

Ford vs. Dell: Selling to Customers What does a Ford dealer do? Maintain inventory Test drives Trade-Ins Expertise Warranty service, recalls, maintenance Financing, Insurance, Warranties Expertise: They know what is available and the features for the various cars

Ford vs. Dell: Customer Care After the Sale Warranty: 90 days to 5 years Business Customers: Online or On-site Assistance Retail Customers: Phone or Locally Contracted Service Providers Ford: Warranty: 3 to 5 years All customers served by dealerships

IT Progression at Ford Public Internet Site WIPS Oracle “Everest” Discontinue Oracle 1995-program developed with Logica for procuring 100,000 parts worth $40 billion  facilitated sourcing, purchase decision support system, and ability to apply “what-if” scenarios 1999: for procuring items from 30,000 suppliers for Ford’s $80 billion in purchasing, supposed to save $500 million annually 2004: went back to system that was developed in-house (WIPS?) mid-1995 May 1995 Nov 1999 Aug 2004

Dell IT: Customer Market Internet Premier.Dell.com Dell.com Call Center IT Management Tech Support Ford uses site for info while dell uses it for transactions

Dell: Supplier Market B2B interface Customer feedback provided to suppliers “Real-time window” into information systems Valuechain.dell.com CAPS PartMiner Programs that are used for supply management :indeed, the on-line real-time sharing of information on orders and productivity throughout the entire supply chain offers clear cost advantages as well as flexibility: despite the fact that inventory is low, both Dell and the suppliers rarely miss out on sales opportunities because of inventory limitations.”

Case Questions What advantages does Dell derive from virtual integration? Inventory Expense (Cost reduction) Control of Supply Chain (VMI, EDI, EAM) Efficient Processes (Pull System) Aids Market Oriented Marketing (Customer is King) Creates a competitive advantage Programs that are used for supply management :indeed, the on-line real-time sharing of information on orders and productivity throughout the entire supply chain offers clear cost advantages as well as flexibility: despite the fact that inventory is low, both Dell and the suppliers rarely miss out on sales opportunities because of inventory limitations.”

Case Questions How important are these advantages in the auto business? In context of Lean production…very. Reduction in inventory and buffer. Carrying & Transportation costs are reduced (pull system, accurate forecast, lot sizing, potential for mass customization) As profit margins erode efficiency and waste/redundancies must be eliminated. Programs that are used for supply management :indeed, the on-line real-time sharing of information on orders and productivity throughout the entire supply chain offers clear cost advantages as well as flexibility: despite the fact that inventory is low, both Dell and the suppliers rarely miss out on sales opportunities because of inventory limitations.”

Case Questions What challenges must Ford overcome that Dell does not face? Aligning supply chain sophistication (EAM, XML, legacy architects) Achieving Lean Sigma in quality control (Safety) Excellent design, quality and time (lead time) Size and scope of organization (suppliers, vendors, networks, geography) Organizational Behavior (Leadership & Management, decentralization) Programs that are used for supply management :indeed, the on-line real-time sharing of information on orders and productivity throughout the entire supply chain offers clear cost advantages as well as flexibility: despite the fact that inventory is low, both Dell and the suppliers rarely miss out on sales opportunities because of inventory limitations.”

Case Questions Is the Dell model really relevant to Ford? Programs that are used for supply management :indeed, the on-line real-time sharing of information on orders and productivity throughout the entire supply chain offers clear cost advantages as well as flexibility: despite the fact that inventory is low, both Dell and the suppliers rarely miss out on sales opportunities because of inventory limitations.”

Case Questions How closely should Ford emulate the Dell Model? Programs that are used for supply management :indeed, the on-line real-time sharing of information on orders and productivity throughout the entire supply chain offers clear cost advantages as well as flexibility: despite the fact that inventory is low, both Dell and the suppliers rarely miss out on sales opportunities because of inventory limitations.”