The Ford Motor Companys Supply Chain Management

Landon Orchard 292 Windermere Court West, London, Ontario, Canada 519-661-7006 Landon Orchard is currently an undergraduate business management major at Ashland University, Ashland, Ohio North Central Ohio APICS Chapter Full-time undergraduate student

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The Ford Motor Companys Supply Chain Management ABSTRACT The influx of foreign automobiles that flood the United States market is higher than ever before and American companies are struggling to adapt to this decrease in market share. Ford is one of the organizations that has restructured its supply chain strategy to better integrate suppliers into their system reducing cost and making delivery more efficient.

INTRODUCTION Background of Ford As European and Asian car manufacturers continue to make advancements on the American markets, Ford's market share will decrease even further. One of the processes that Ford must improve is its supply chain management. By being able to speed up and better interact with suppliers and consumers, Ford will regain lost market share by communicating customer needs between themselves and their suppliers and acting upon these requests quicker and more efficiently. The Ford Motor Company has been the focus of supply chain operations analysts lately as they have begun to revamp their supply chains and how they interact with suppliers and customers. Ford has been a leading automaker and pioneer for the automotive industry for the better part of a century. Established in 1903, the company's single greatest contribution to automotive manufacturing was the moving assembly line... which was first implemented in 1913. This innovation in the car making industry was one that would send the Ford Motor Company into a global market with mass production of its vehicles. Nineteen years after Ford started producing automobiles, fifteen-million Model T Ford's had been produced and the Ford Motor Company

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was an industrial giant that spanned the globe (6). Ford was well on its way to becoming a major contributor of vehicles to countries all over the world and on February 24, 1956 the company went public; establishing and consolidating United States, Canadian and Mexican operations. Strategy for Success With this new expansion of its company, the Ford Motor Company needed a strategy for success and connecting these new manufacturing plants with suppliers and customers. Ford's strategy for increasing and maintaining their share of the automotive market is to establish strong interaction between them and consumers by addressing wants and needs at every stage of the purchasing process. This can be done through new products and services that Ford is able to offer. (6) In order to achieve this level of success the Ford auto maker must have a solid foundation of supply chain management to deliver these goals to the company and its anxious consumers. Topics Covered This paper will focus on what Ford has done in the past, what it is doing presently and what can be done in the future to insure that one of the worlds leading automakers continues to hold that position and ultimately take over the number one spot. Possibly the most important part of any corporation is the management of their supplies and how they interact with their suppliers. For a company such as Ford, a corporation that has thousands of suppliers for various models of automobiles, the coordination and interaction among Ford and its suppliers is essential to the businesses success. Along with examining the strategies Ford is utilizing, the paper will dissect the risks and pitfalls associated with supply chain management and what can be done to avoid and eliminate these costly downfalls that could affect a company well past the date of occurrence. Another issue of any organization is in-house problems that may affect the

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effectiveness and efficiency of various areas of the company. As will be further discussed, Ford has undergone a large amount of changes within the company resulting in slowed production. This is something that must be addressed in supply chain management because if one area of the company is operating below capacity the other sectors will not be able to make up this lack of production. Another main component of supply chain management is how to handle damaged goods. It is a waste of money to send out defective products because it costs the organization large amounts of money to recall the damaged materials back to the factory and replace them, slowing production efficiency. There must be quality controls and regulations that enable Ford to minimize inventory defects and returns. The Ford Motor Company must have damage control operations to continue manufacturing the same amount of automobiles so that they do not lose any necessary inventory. There must also be procedures in place that deal with delivery systems and the delays and unsuitable materials that could easily occur. This paper will fully break down the previous issues associated with the Ford Motor Company's supply chain management and operations. SUPPLY CHAIN MANAGEMENT OF FORD Synopsis of Supply Chain Management as it Applies to Ford The definition of supply chain management (SCM) involves taking a systems approach to the entire supply chain with the overall goal of reducing the level of risk and uncertainty throughout the supply chain. This will ultimately permit lower inventory levels, shorter cycle times, better processes, and improved service levels for the end customer. In a sector that wants to manufacture products as fast as possible, supply chain management becomes increasingly important as every area on the chain does not want to wait for their part of the product since this will decrease profits as idol areas of the supply chain drain money as it is producing well below

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capacity. PAST AND PRESENT SUPPLY CHAIN MANAGEMENT OF FORD Past Supply Chain Management of Ford Ford has had the luxury of pioneering the automotive industry with its assembly line and is now one of the major car manufacturers in the world. It is crucial for Ford to stay ahead of the curve and make their supply chain management as efficient as possible. Technology has helped everyone become faster at what they produce; it is how these corporations apply this technology to its operations that set them ahead of their competitors. However, this technology was not available as Ford was emerging as an automotive power in the mid 1920's. In the past, The Ford Company managed to stay ahead of its competitors by vertically integrating itself as it owned or controlled virtually every aspect of its business. This allowed Ford to eliminate product and delivery mistakes made by suppliers and control the raw materials it needed to produce mass amounts of automobiles. Ford's mass production which led to mass profits and the company was able to buy and control its resources, everything from the mines that provide the ore to the factories that make the glass. Raw materials iron ore, coal, and rubber, all from Ford-owned mines and plantations came in through one set of gates at the plant while finished cars rolled out the other. (5, p.1) This allowed for the maximization of control for Ford, if something went wrong with one of its suppliers it could be identified quickly and fixed immediately so not to slow production. Fords Supply Chain Compared to Other Automobile Manufacturers The method of vertical integration seemed to be foolproof. Today's supplier problems sometimes take longer than expected to fix, affecting the manufacturing company by slowing their materials down, especially if the manufacturer relied heavily on this supplier. It seemed this

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way for many years until the mid 1970s when the Japanese began to show an interest in car manufacturing and used a different method to approach their production and supply chain operations. The Japanese felt that it was cheaper and easier to receive supplies from out-of-house suppliers instead of paying storage costs for large amounts of materials. The Japanese decided to focus on controlling its employees to insure quality automobiles were being produced and to let the suppliers regulate themselves. These new Japanese factories began to cut into Ford's market share in a big way as their factories used smaller work teams to better allocate resources and make an easy transition from one automobile model to the next without losing much production time. An assembly line could not perform this transition and due to their rigid structure, it would take more time and money to move from one type of automobile to the next as the employees would have to be retrained and the assembly line completely changed, losing Ford time which translated to lost sales. Ford, however, was so bureaucratic that its employees were used to building a specific type of vehicle they could not deal with the change needed to diversify their product market. In comparison, the Japanese manufacturers believed in letting their employees come to the controlling officers with any suggestions that could be made to make the manufacturing process more efficient or favorable to employees allowing for quick changes if the market called for one. This type of new relaxed manufacturing caught Ford off guard and it took them some time to move this type of production. However, up until 2006, this type of supply chain management and rigid production structure were still present and is one of the reasons that Ford has had trouble increasing its profits and image as a global automobile maker. Fords Present and Future Operations The Ford Motor Company has made plans to drastically revamp its management style by

The Ford Motor Companys Supply Chain Management 7 job cuts and factory shutdowns and a dramatic shift to a less bureaucratic and more responsive and flexible management style with the ability to produce vehicles that will lure customers away from hot Japanese models. (9, p.1) Along with these outlines the plan also calls for an increase in manufacturing operations designed to ensure that Ford employees are more efficient with raw materials. In short, Ford is ultimately taking the Japanese model and applying it to today's economy and its own operations as they see the need to bring the company out of its decline. The main reason for this change is the fact that the current management structure is unable to respond quickly to changing markets or consumer demands, (9, p.2) an issue that will be discussed further in the paper. In the short-run, the shutdown of plants will cause Ford to revamp its supply chain management system as supplies will have to be re-routed and other factories must ready for an increase in inventory. However, the long-run savings of a leaner inventory system and more flexible production schedule will outweigh these short-term costs. Fords Structural Problems Communication is an important part in this overhaul of Ford and is an issue that the one of the largest automaker has had trouble dealing with. Its vertical organization of employees has not allowed it to communicate ideas throughout the company. In one specific issue, Ford put the blame on its suppliers for recent recalls. Later Ford accepted part of the responsibility and suggested that suppliers should come forward with problems it may have with Ford to better improve relations and eliminate problems immediately.(7) This instance shows how Ford is maturing even as a company that pioneered the auto industry and that organizations, large or small, can learn something when there is less bureaucracy. What this means for supply chain management is that when communication is at its highest, efficiency will be as well. When suppliers and Ford are able to talk about problems they are able to work them out and brainstorm

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solutions that will result in future gains. The primary problems have been identified and Ford is now working toward the solutions. Fords Interaction with Suppliers Communication is an important part of any successful business and Ford is working toward opening itself to its suppliers for better interaction with another North American breakthrough in supply chain strategy. Recently, the Ford Motor Company launched the first North American supply park. The four multi-tenant buildings offer 1.5 million sq. ft. of manufacturing and office space and occupy a 155-acre site that sits one-half mile from the Chicago assembly plant. (8, p.1) This new management of Fords suppliers will result in a more efficient operating system for Ford and the companies that supply automotive parts. The buildings are owned by Ford and leased to eleven suppliers...all in all; the supply park is supplying 60 percent of the value of the vehicle. (8, p.1) By allowing the suppliers to work in close proximity to Ford and other suppliers more ideas will be communicated between companies and any problems can be immediately identified and dealt with accordingly. This new concept of a supply park is something that Ford has used in the past as it has established supplier parks at plants throughout Europe. (1) Ford saw an opportunity to become more efficient in North America as its market share was slipping, by bringing the majority of its suppliers together the Ford Motor Company is able to keep most of its supplies in front of it and maximize control and save money as shipments to the factory have to travel less distance to reach the destination point. In its Chicago business case, previous to the supplier park, the average number of miles traveled by the supply system was 460. The average now is only 120 miles. (8, p.2) This allows for a greater cost reduction as Ford is able to save money on transportation costs and suppliers save on shipping and fuel expenses. The ability to cut costs is extremely important because it

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allows for greater profits and more flexibility for the company to devise strategies necessary for reaching its desired outputs. Furthermore, another perk of the supply park is that suppliers are linked together more productively becoming an integral extension of the plant, responding in broadcast and building in sequence. (8, p.2) Again, it comes down to the fact that control and efficiency is maximized as Ford is working with its suppliers to build the best possible automobile for its consumers. These new improvements, however, do not come without risks and costs that Ford must plan for and solve. Risks and Solutions Associated with Supply Chain Management The new supplier park will definitely make operations smoother as disruptions can reduce your company's revenue, cut into your market share, inflate your costs, send you over budget and threaten production and distribution. (3, p.3) Presently there are a variety of potential risks that could happen that organizations are more aware of compared to years ago when risk management was not as important. Failure to plan for the unthinkable the devastating hurricane, the shocking terrorist attack, or the collapse of an important supplier in the wake of political upheaval or accounting fraud... companies feel as though they can't do anything about it. (3, p.4) While it is extremely hard to plan for natural or organized disasters, Ford must identify potential problems that could interrupt their supply chain, and take appropriate precautions to prevent them from doing harm to their business. This can be done by hiring a consultant or learning from past mistakes. Reiterated from before, the Ford Motor Company was one of the most vertically integrated companies of its time, owning nearly of all its suppliers. Now, however, Ford has realized that it must outsource its supplies to focus more of its attention on building the best quality automobile for its consumers. Ford is attempting to safeguard against temporary unavailability of raw materials by stockpiling inventories at comfortable levels at its

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supplier parks. By bringing suppliers closer to their operations they are able to eliminate potential holdups from suppliers. With the Ford supply park, Ford is embracing just-in-time inventory and other lean manufacturing techniques that emphasize speed and cost reduction.(3, p.5) With this new supply chain management strategy Ford has begun to outsource non-core activities so they can concentrate on doing a better job in those areas where they saw opportunities to build real competitive advantages. (3, p.5) Ford was the first auto manufacturer to bring a supply park to North America and by doing so has attempted to separate themselves from the competition. By reducing suppliers and bringing them into closer proximity of its operations Ford is looking for more efficiency by managing a fewer number of vendors. Ford is looking for immediate savings by reducing their supply system. The auto manufacturer has reduced their suppliers down to a more manageable number. By reducing the number of suppliers cost is saved, as well, communication becomes clearer as the number of companies Ford must deal with is reduced. Recently, Ford has felt the pressure from other car manufacturers to develop a new strategy and they have taken the right steps forward in maximizing efficiency and stability of Ford's supply chain. Changes in Fords Supply Chain Management Throughout Ford's years as a major car company their supply chain management has undergone a complete overhaul. Their new strategy states that they feel they can make a positive impact in the markets in which [Ford] does business by working with suppliers to identify systems that contribute to compliance and Ford's expectations. (6, p.1) To drive home the idea and the success of their new supply park the Ford Motor Company feels that cooperation and communication are extremely important. Face-to-face interaction with plant management allows us to help suppliers identify opportunities for continuous improvement as

The Ford Motor Companys Supply Chain Management 11 well as to develop corrective actions for existing problems. (6, p.1) Ford is trying its hardest to drastically cut costs and is succeeding; however, it is at the price of downsizing and trimming suppliers to manageable numbers that result in a stronger, more integrated workforce. Regulation of Quality Regulations and management help an organization succeed but without quality control regulations and proper strategies to avoid mishaps, the company will not profit socially or economically. Ford takes great pride in its quality control as periodic plant assessments are an important part of their [continuous improvement]. Information resulting from assessments serves to inform the training and provide an opportunity to measure the impact of training efforts. (6, p.1) By learning from previous experiences Ford is able to foresee and adjust for any future problems that may arise. Ford can then improve upon them in the present to avoid potential pitfalls that may occur from negligent training, improper quality of poor supply chain management. By communicating this information throughout Ford, all sectors of the company will profit. Particularly within the supply chain management sector the ability to learn from previous information is crucial especially when Ford deals with as many suppliers as it currently does. The ability to purchase and strategically maneuver the proper supplies to the right factory is the lifeblood of Ford. Internally at Ford, a new position was created, the Director of Supply Chain Sustainability reports directly to the Senior Vice President of Global Purchasing. This signals [Ford's] intention to make sustainability considerations, including working conditions, an integral part of our purchasing processes and strategy. (6, p.2) Dealing with Unsuitable Materials Just as important as the internal quality control is the external control of products. Ford depends on outside products to make its cars and trucks and if they are receiving less than

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standard materials the entire business will suffer. By communicating with suppliers, Ford is able to address every aspect of the product it makes. Supplier representatives will be on the assembly floor and will be treated as extensions of the management. Suppliers will also meet with the plant manager on a daily basis to discuss things like quality and mix changes things that affect their products. (8, p.2) This collaboration enables Ford to immediately discuss problems and brainstorm ideas between themselves and suppliers. Having suppliers this close also decreases the amount of delays and unsuitable materials that are found can be returned and replaced nearly immediately. Delivery Systems Ford's new supplier park is a new idea that allows Ford's delivery system to be nearly immediate, eliminating most delays. Over half of Fords suppliers are virtually in-factory; however, the other delivery systems are more common, using freight to move its supplies from supplier to factory to consumer. The supply company Penske was awarded a contract from Ford and will be responsible for moving $80 million worth of parts and goods...the contract translates into a daily average of 129 trucks and 12 railcars of varied cargo. (4, p.2) Ford is a very large company that depends highly on its suppliers to deliver its raw materials promptly and to the right factory. Recently, The Ford Motor Company has made great advancements to communicate efficiently with its suppliers to eliminate errors and maximize profits. Ford has taken the proper precautions to improve its supply chain management and improve the overall image of the company. They have plans for future success that will take time to implement but once implemented the success of Ford will have no limit to their global success. Focus on the Consumer Ford is trying to make the auto industry as convenient as possible for its consumers by

The Ford Motor Companys Supply Chain Management 13 having cars ready for less waiting time upon order. Ford is rebuilding its infrastructure along the lines of a customer built-to-order process. The first phase of this web-enabled strategy, which consists of locating preferred vehicles at Ford's 4,600 U.S. Dealerships or in its manufacturing pipeline, has been smooth. (2, p.1) This new idea is unprecedented among auto manufacturers and will take a lot of work to move into the current operations at Ford. The main problem with this new strategy is the rush to build cars to customer specifications, quality will take a back seat to profits...automobile manufacturers seek more aggressive, lean, collaborative and just-intime manufacturing for one simple reason: their survival. Cars typically are designed and built based on months-old customer data and pushed to dealers for sale. (2, p.2) If this new strategy is successfully put into place the auto industry will see new gains unlike any before. Technology is the major contributor to this new idea of giving the consumer exactly what they want within a few weeks. Ford has an opportunity to shift to customer-centric manufacturing, which will help them maximize their asset utilization. By learning exactly what customers want and constructing a production schedule geared to providing that in a reasonable period of time, they can widen their margins. (2, p.2) By giving customers exactly what they want within a smaller time frame, Ford's market share will increase, however, they must be able to manage this increase in orders with proper supply chain management strategies to insure quality and efficiency. CONCLUSION AND RECOMMENDATIONS The Future of Ford Ford has certainly taken the right steps toward regaining its control over the automobile market. It has moved from a rigid, vertically integrated structure to one that focuses more on the consumer. (9) The supplier parks are an invaluable idea that will bring Ford together with its suppliers and create an unparalleled efficiency between themselves, their suppliers and the

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consumer. If Ford is able to integrate an on-demand system that allows the consumer to pick out an automobile and be driving it within a few weeks will increase Fords global value. There is still a lot of work to be done to fully implement this system. Both Ford and its suppliers will have to have the proper inventory levels in factory so that turnaround time is limited. If Ford can successfully apply an almost immediate product-to-market sequence they must pay even greater attention to quality. Every aspect of supply chain management needs to be addressed to make this plan work. Both suppliers and Ford cannot hastily produce products that are going to be unsafe and be recalled because this will lose the Ford Motor Company more money and possibly send them into bankruptcy. Ford has close to one thousand suppliers and it must convince all of them to speed up and produce the proper amounts of inventory to make this built to order system work and some suppliers might not want to do that as they could be skeptical of this idea. The ability to forecast customer demands is the most essential part of this new system because if even the slightest error in forecasting is made, inventory holding costs are going to cost Ford and its suppliers large amounts of money. Technologys impact on the Built to Order System Communication is much easier today with the ability to connect with people and organizations all around the world and with Fords global presence this new custom-order system could have international success. Again, it all comes down to the suppliers; if they are not willing to cooperate in this new structure then Ford could be wasting its time trying to locate someone who will cooperate. Ford must convince their suppliers that this is the best for everyone and then create a strategy that allows their suppliers to view the same order as Ford to insure that the proper parts go to the right location making the particular model. A sample test system was used and proved successful but it was only for a limited product line. This is a positive sign for

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the future of Ford as they attempt to have the system ready for every model they produce. Technology can be fickle at times so the precaution of failure to the online system must be taken into account. A backup system must be in place should the online order be lost or the system crashes. As well, if this should happen, Ford needs to be able to effectively communicate with all its suppliers to fix the system and still build and ship the car to the consumer. The internet can be a great asset in this system, if it is used in the proper way. When this first system is put into operation, Ford can expect an influx in sales as it is more convenient for a consumer to design and purchase a car online rather than going to a dealership. The flow of information that will be pouring in from customers must be able to be supported by the physical flow of the product Ford is producing. The internal infrastructure must be efficient to eliminate stagnant time that car is en-route or sitting in the dealership lot. This poses another potential problem for Ford, will dealerships decrease in importance if they only have to hold the car for the consumer. The Ford Motor Company will have to look at possibly eliminating some dealerships or merging those in the same areas to more efficiently distribute their cars to their consumers. Ford must be ready for all problems that could arise with this new system. If it is successful, which it likely will be, Ford will have to increase its workforce to keep up with demand which means more jobs and an economy on the rise. They must be aware that sales will increase at first but with gas prices continuing to rise, the need for a hybrid or a fuel efficient car are necessary. People are becoming more environment conscious and will be pushing for this type of model. If Ford is not able to apply this online ordering system to all its automobile models, consumers will find elsewhere to purchase their vehicle. If Ford is able to have all their models online and ready for purchase, they will have a huge advantage over their competitors as people will not have to wait to be driving their new car or truck. This new system may also pull

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away other brand loyal customers that want a vehicle promptly. If this happens Ford will see a rise in profits and customer satisfaction. The Ford Motor Company has the right idea but it lies on the shoulders of the supplier. Ford must be able to communicate and cooperate with each of its many suppliers to insure quality and quick delivery to keep the consumer happy.

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REFERENCES 1. Accenture Consulting Company. (2001) Ford Business Challenge, United States, October 1994. Accenture Consulting: Author 2. Banham, R. (2001, July). Road Testing The Ford Supply Chain. Supply and Demand Chain Executive, 1-7. 3. Bosman, R. (2006). Risks Associated with Supply Chain Management. FM Global, 310. 4. Lamothe, R. (2001) Supply Chain Reaction: Logistics Outsourcing Firms Make Their Beachheads in Mexico. Business Mexico Magazine. 1-8 5. No Author. (2007, February) Supply Chain Management. Retrieved from www.nsf.gov/about/history/nsf0050/manufacturing/supply.htm 6. 7. No Author. (2007) Ford. Retrieved on March 25, 2007 from http://www.ford.com No Author. (2003, June). Ford Takes New View on Direct Material Procurement Management. Supply Chain Systems Magazine, 1-2. 8. Peter, J. (2004, October). Fords Supplier Parks is a Model for Future Supply Chain Operations in North America. Retrieved March 25, 2007 from http://findarticles.com/p/articles/mi_m3012/is_10_184/ai_n6261228/print 9. Speizer, I. (2006, March 27). Ford: The Right Way Forward? Workforce Management, 1, 24-30.