After conducting an analysis of the current situation, it was found that there are several problems present in the supply chain. One major issue is that the information flow is hindered beyond level one suppliers.
Advancement of Information Technology within the supplier base.
Competitors migrated to an online organization.
The decision at hand is whether to integrate the supply chain virtually, creating a virtual marketplace for authorized personnel, or continue with the traditional operations of automakers. The recommendation is to opt for virtual integration by establishing an online center that provides access to a vast database for suppliers, dealers, and customers. Users will only need an Internet browser and will be charged a small fee for this service.
Although implementation costs will be approximately [cost], there will be significant savings in terms of purchase discounts and reduced transaction costs for materials and parts. Real-time information flow will lead to a decrease in buffer stock, resulting in lower inventory and storage costs. Furthermore, additional revenue can be generated through transaction fees and advertisements.
Ford has an extensive supplier base with intricate business relationships in its supply chain. The supply base consists of multiple tiers of suppliers, with Ford directly engaging with tier one suppliers who then handle interactions with lower-tier suppliers. If feasible, lower-tier suppliers can directly ship materials to Ford’s manufacturing unit.
Suppliers have been engaged in negotiations to secure long-term contracts for ensuring uninterrupted supply and maintaining minimum inventory levels.
Ford has provided its suppliers with techniques such as Just-In-Time (JIT), Total Quality Management (TQM), and Statistical Process Control (SPC). This allows Ford to obtain materials at a reduced expense and involves suppliers in activities like the design process, leading to cost savings for both parties.
The Ford Production System (FPS) aims to streamline operations, enhance efficiency, and be more responsive to customer needs in order to reduce production costs and improve profit margins. Regional mixing centres optimize scheduling and delivery of finished vehicles via railway, ensuring that customers receive the right product at the right time and place. This improves the speed and predictability of new vehicle deliveries. Suppliers face pressure to provide materials at a lower cost per year while offering increased value-added services. The supply chain is easily visible to both upstream and downstream activities, allowing Ford to meet customer demands. Information flows smoothly through Ford’s close relationships with tier one suppliers and dealers. However, information flow beyond tier one suppliers is limited due to outdated technology used by lower-tier suppliers. Ford encourages these lower-tier suppliers to establish collaborative working arrangements with larger tier one suppliers.
Ford incorporates the continuous prediction of customer demand from dealers into its production schedule. The recommendations from dealers are utilized to supplement any shortages in the order bank. Moreover, tier one suppliers maintain regular communication with Ford through electronic data interchange (EDI).
However, Ford can invest in new technologies faster than these tier one suppliers due to their stronger financial position.
The powerful purchasing department works closely with new product design engineers in negotiating with suppliers. Engineers are discouraged from discussing prices with suppliers. All components in the chain collaborate closely to lower costs and enhance customer service.
At Ford, the purchasing department holds a significant role, functioning autonomously from product development. It collaborates closely with all key product design teams.
Price negotiation with suppliers is carried out solely by the purchasing department. The department has gained significant power due to the large volume of purchases made each year, as even a slight reduction in price can result in significant savings in annual procurement expenses.
The supply chain performance is often analyzed and restructured in order to cut costs by improving material flows, reducing inventory (JIT), and lowering manufacturing costs (FPS). The information flows seamlessly throughout the supply chain streams, but encounters obstacles beyond the tier one suppliers.
Ford conducted a review of its chain, addressing bottlenecks and implementing measures to enhance efficiency, agility, and responsiveness. This included the implementation of key components such as the Ford Production System, specifically the “Synchronous Material Flow” (SMF) process, as well as the Ford Retail Network. The company has a vast supplier base, involving interactions with over 30,000 suppliers. However, direct dealings are limited to less than 1000 suppliers. (http://global.umi.com/pqdweb?Req Type=301&UserId=IPAuto&Passwd=IPAuto&JSEnabled=1&TS=953862775 To facilitate effective communication and coordination with tier one suppliers, Ford utilizes modern techniques like Electronic Data Interchange (EDI), Just-in-Time (JIT) delivery, and Total Quality Management (TQM).
Despite having modern Information Technologies (IT), Ford’s major suppliers are unable to keep up with the rapid pace of investing in new technologies. This lack of technological advancement becomes even more evident in lower tiers of the supplier base due to financial limitations. As a result, Ford faces the question of whether it should leverage the advantages offered by emerging information technologies and ideas from high-tech industries to transform its interaction with suppliers. One of the main challenges identified is the impairment of information flow beyond level one suppliers. For Ford to fully benefit from its supplier network, information must be able to flow seamlessly through the second and third tiers of the supply chain.
The sub-tier suppliers lack the technological advancements of tier one suppliers or Ford, resulting in an overall inefficiency in the supply chain.
Due to the nature of non-real-time communication, costs are bound to rise because of issues such as miscommunication and delays. Ford does not have direct contact with its sub-tiered supplier but instead relies on its main suppliers to handle this task. However, establishing a direct relationship typically leads to better outcomes for both parties involved.
2. The development of Information Technology within Ford’s supplier base is varied. With a network of 30,000 suppliers, each operates with different levels of technology. The suppliers in the top tier have relatively advanced information systems, but lack the capability to quickly invest in emerging technologies. On the other hand, the lower tier suppliers are even less equipped with IT knowledge and modern systems compared to the top tier suppliers, causing obstacles within the supply chain.
Furthermore, Ford faces geographical constraints in terms of information flow, operating in 200 countries3. Other automakers, such as Chrysler and General Motors (GM), have found great success by posting their procurement requirements on the internet. GM has successfully utilized this method to find tier one suppliers by posting their needs online. For instance, a belt fastener manufacturer in Lima could access GM’s requirements through the web and potentially supply at a lower cost than an American supplier. The traditional method of ordering supplies is time-consuming and expensive, with costs associated with paper and stationery.
Annual procurement spend is around $80 billion dollars (source), so even a slight decrease in procurement cost would lead to significant savings. Despite Ford’s utilization of EDI to connect with major suppliers, EDI only transmits basic transaction information and is not capable of responding to quickly evolving markets. Additionally, it is cost-prohibitive for smaller suppliers.
Ford has 2 options to choose from. The first alternative is to virtually integrate the supply chain. This involves allowing the 30,000 suppliers to access information and data using restricted security codes for different levels of access. The goal is to transition to a ‘pull mode’ where cars and parts are produced based on consumer demand, leading to overall savings. Currently, we operate at full capacity, building a predetermined mix of cars and shipping them to dealers, who then rely on aggressive tactics or large rebates to sell the unwanted ones. By streamlining purchasing and reducing inventory throughout the supply chain, we can save billions in purchasing costs and reduce the time it takes to build cars for custom orders.
The supplier can quickly and in real time communicate necessary changes in product or design, as well as orders, either online or on paper. Suppliers can utilize the website to promptly communicate required changes in parts design and easily modify product specifications.
Enhance communication between tier-one and sub-tier suppliers enables the supplier to: decrease costs; provide higher quality parts; and gain faster access to engineering design for order changes. This ultimately results in savings on overall purchase and production costs.
By providing the supplier with online access to necessary data, they will also be held accountable for the product. This accountability will incentivize them to produce high-quality materials at a lower cost. Additionally, conducting transactions through the internet will result in almost instant ordering and billing. Furthermore, the website can offer sales forecasting and other related services, enabling suppliers to accurately predict and efficiently manage their operations.
Electronic interaction with suppliers could reduce costs and expedite deliveries, resulting in faster service. Online platforms can facilitate the formation of new teams involving both suppliers and dealers. This will enable dealers to share crucial data with the company and participate in various processes such as product scheduling. The suppliers’ feedback will be highly valuable for areas such as new product development and design.
Both main suppliers and the design/new product development team can collaborate to reduce costs and improve processes. Harnessing the power of the Web allows for streamlined supplier and distribution methods, resulting in potential savings of up to 25% of a car’s retail price.
The web-based approach to reducing costs includes lowering procurement costs through strategic supplier sourcing, streamlining administrative costs with online servicing, minimizing communication costs by utilizing web-based communication channels, reducing inventory costs through the production of custom-built cars, and cutting storage costs.
There will be no need for costs such as promotions and rebates that are provided to get rid of surplus finished inventory.
Customers will determine the desired construction projects, which may reduce the current 60-day average time from customer order to delivery, thus releasing a significant portion of capital that is currently invested in inventories of completed vehicles.
Decrease working capital by reducing surplus inventories and eliminating expensive rebates required to sell unwanted cars. The Internet will facilitate the discovery of top-notch suppliers, suitable for forming partnerships, expanding the global marketplace.
Suppliers worldwide may have an advantage in providing the necessary materials.
Additionally, Ford employees, dealers, and suppliers will have the ability to communicate as though they were physically present in the same location and collaborate on decisions. This will streamline operations by exchanging information pertaining to business processes with suppliers, dealers, and even customers, resulting in reduced cycle time and inventory needs.
Despite its established infrastructure, the automobile industry has a long history but is resistant to change. The emergence of new online methods for selling cars directly to consumers conflicts with the existing dealer network, protected by state franchise laws. While online data is highly secure, the risk of unauthorized access by hackers cannot be ignored. Therefore, it is important not to disregard the advantages of emerging technologies and continue conducting business in a traditional manner.
Ford has always kept its supply chain updated by employing techniques such as Just-In-Time (JIT) and Total Quality Management (TQM). This approach helps reduce costs including manufacturing and inventory expenses while ensuring high quality standards are maintained. By embracing this approach, we can avoid investing billions of dollars in untested strategies without any success stories.
Toyota and other companies are considering entering the online market, potentially resulting in a decline in their market share.
There is an increasing demand for low-cost cars that offer exceptional quality. To achieve lower prices, it is crucial to reduce the gap between different components in the supply chain for maximum advantages. Ford must maintain its competitiveness in the automotive industry by being a cost-effective manufacturer of top-notch vehicles. I strongly suggest alternative one, which involves virtually integrating the supply chain. This entails using the website as a central hub for data from Ford’s diverse client/server and Mainframe applications. These applications oversee functions such as product design, quality control, sales, and after-market services.
The Ford website facilitates faster and more efficient information sharing between the automaker and its suppliers. This includes design requirements, demand forecasts, and production schedules. By utilizing the Internet for real-time data, inventory across the supply chain can be reduced, leading to decreased time and costs. Additionally, this system promotes closer collaboration among supply chain components, particularly in the development of new products. To enhance relationships with suppliers, strategic purchasing efforts will involve cross-functional teams, stronger supplier partnerships, the establishment of top-tier supplier programs, and the improvement of internal performance metrics for supplier evaluation.
The site facilitates communication by offering real opportunities to enhance end products. Additionally, the new system will aid in monitoring vehicles throughout the entire supply chain until they are delivered to the final customer. This technology can be customized to incorporate dealers, who can utilize a web-based information system to track the progress of vehicles from production to final delivery. Subsequently, consumers can also access the tracking service when shopping online for cars and trucks. By inputting their order number, they will receive information about the current stage of manufacturing or delivery their vehicle is in.
The project will be implemented in stages, beginning with the current online facilities for ordering products and expanding into the future. To ensure successful implementation, the following actions should be taken: 1) inform all components of the supply chain about the change, and 2) organize information sessions to discuss the change. This will allow for input from various stakeholders, including the workforce, suppliers, and particularly the purchasing department.
It is crucial for Jacques Nasser to fully endorse and back the project throughout all its stages in order to ensure successful implementation.
3. In order to effectively manage and coordinate efforts across company lines, groups, and teams will be created. This is crucial for unbiased decision-making. It is important to have a sufficient number of technical professionals on the team, since it involves IS and IT. These cross-functional teams will help maintain the project’s progress on track as it advances.
It is crucial to establish training programs for Ford’s employees so that they can acquire the essential skills needed to adjust to the upcoming online technology.
5. To facilitate acceptance and understanding of the project, it is recommended to establish call centres or information centres for suppliers, staff, dealers, and customers.
6. Reevaluation of functions by top-level individuals and effective communication of these changes to purchasing personnel will be necessary due to the significant power held by the purchasing department at Ford. Additionally, providing training for the new job description is imperative.
7. Detailed plans must be devised to ensure that necessary information is provided to suppliers from tier one and beyond so they can conduct their operations on the Internet.
8. In order to encourage employees to adapt to the Internet, incentives should be offered along with facilities such as free or subsidized net access that support this transition.
9. Essential steps include collaborating with existing affiliated websites like Carpoint, partnering with internet service providers (ISPs) for web space and services, as well as establishing partnerships with PC manufacturers to secure advantageous equipment deals.
10. It would be a good option to outsource the entire software solution, such as through a joint venture with a company like IBM.
1. Cross-functional teams should consist of members from various departments, including finance, marketing, sales, and the IS/IT department (or from the outsourced company).
2. Hardware/Software: The infrastructure will require new, modern hardware such as fast servers/networks and computers.
3. Trained personnel will be needed to acquaint and instruct the workforce on the new system.
4. The recruitment of new employees with a web-based background such as system administrators will be necessary.
5.Dollars: Regular investments will be needed for the project’s successful implementation (see costs). These investments, although significant initially, will lead to lower inventory and manufacturing costs, reduced waste, and less reliance on paper-based processes. Additionally, it will enable us to depend on reliable suppliers. The estimated cost for the entire project is around $100 billion per year. This expense includes outsourcing services like database management from a software company and partnering with internet service providers.
Purchasing new hardware is necessary, and it will be balanced by savings such as a decrease in inventory costs (including parts inventory and finished automobile inventory), faster delivery of finished goods, and a decrease in excess inventory (due to a pull mode and built-to-order cars). Additionally, Ford will generate substantial income from transaction fees and access fees from its website users.
The launch of the network will occur in phases within a timeframe of 15 to 24 months. The initial phase focuses on bringing all suppliers online, with full operational capacity expected within 12 months from the start. Access for dealers will follow shortly thereafter, with their online tracking service anticipated to be available within 13-15 months from the start. Once suppliers and dealers have complete access and any technical issues have been resolved, consumers will be able to access the network. However, customers will have the last access privilege as it enables Ford to supply at lower costs and provide faster delivery once the supplier and dealer networks are established. The entire purchasing function is expected to be conducted online within a three-year period from implementation, allowing the transition of the annual procurement spend of $76.5 billion to the digital platform. The success of the site will be determined by several key indicators, including a reduction in the annual procurement spend from the current $76.5 billion, a decrease in order-to-delivery time from 60 days, a decrease in finished and parts inventory, and improved customer feedback with enhanced information regarding car availability and order tracking.
This has the potential to revolutionize the automobile purchasing process, adopting a build-to-order model similar to Dell Computer Corporation. Ford has the opportunity to gain an early advantage by reducing delivery times, improving or even transforming the car-buying experience, and maintaining continuous engagement with customers throughout the lifespan of their vehicles.
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