Ford Supply Chain Management - Case Study Example

? Contents Introduction 2 Ford – Background 2 Ford’s Supply Chain and Logistics Activities 3 Recommendations and Alignment to Competitive Strategy 5 Conclusion 7 References 8 Introduction Supply chain management has risen to a whole new level in today’s global competitive business world. With companies being operational in multiple global markets, effective supply chain management is critical to an organization’s overall success. The performance of logistics activities has become of prime importance in an organization’s competitive strategy. Logistics is the function of the organization that is responsible for movement, handling and storage of materials (raw materials) from the suppliers through the different units of the organization to the end user (consumer). Hence, logistics management is best defined as: the process of planning, implementing and controlling the cost-effective, efficient storage of raw materials, in-process inventory, finished goods, and related information flow from point of origin to point of consumption for the purpose of conforming to consumer requirements.(Cooper et al., 1997, 1) In this report, as the Logistics Director of Ford Motor Company, I have analysed the logistics activities of the organization and made recommendations on how to improve supply chain management to achieve competitive advantage. For better understanding, a brief description of background of the company is included. Ford – Background Ford Motor Company is the one of the world’s largest automobile manufacturer in the world with operations spread over continents. The primary product of the company is automobiles but it also manufactures other products such as trucks, tractors, buses and also includes financial services (Ford, 2012). Founded in 1903 by Henry Ford, the company revolutionised the automobile industry by introducing assembly line production which made large scale manufacture of automobiles possible. Ford since the very beginning has been concentrating on vertical integration and this has served the company well for a very long time. But this strategy has its drawbacks in today’s global market place and competition. Ford has around 4600 manufacturing sites around the globe and it has relationships with over 1600 production suppliers. Ford also purchases numerous other non-production supplies from over 9000 suppliers (United Nations Global Compact, 2012). The purchases include products and services such as computers, construction, marketing, machinery, health care, industrial materials, etc. The traditional approach of the company towards supply chain management over the last century has made it difficult for the company to adapt to modern day challenges. The decentralisation of purchasing and the size of the organization are the two main roadblocks for the company to achieve effective supply chain management. Ford’s Supply Chain and Logistics Activities Ford, since the very beginning, had concentrated on vertical integration wherein the company controlled or owned literally every aspect of the business. All raw materials such as rubber, coal, and iron ore came from plantations and mines that were owned by Ford. Raw materials came from one gate of the plant and finished cars rolled out of another. This approach has been central to Ford’s success since the early years. This approach had limitations and this was exploited by the Japanese companies which adopted a lean manufacturing approach as opposed to the bloated business model of the Ford (NFS, n.d.). Due to the traditional approach and the size of the organization, Ford’s supply chain is one of the most complex supply chains in any industry. There is consistent inflow of shipments from thousands of suppliers from all over the globe to the numerous plants worldwide. Ford has a global production network which can be best understood by the following diagram. Basic Pictorial Representation of Ford’ Supply Chain The above representation does not indicate the complexity involved in the Ford’s supply chain network. Different parts and components are shipped by thousands of suppliers from around the globe to numerous plants located across the globe. The parts and components are first received at power train plants where they are used to produce transmissions and engines. These are then transported to the stamping plants and then to assembly plants. It is from these assembly plants that finished vehicles are funnelled to 20,000 plus dealers in over 200 countries. The fact that around 2500 parts need to be delivered to the assembly plants to produce an average finished car indicates the complexity involved in the process. It is estimated that at any given point of time, about half million tons of freight is in transit and the company uses virtually every possible mode of transport (Hoffman, 2001). Following are the various challenges in effectively managing Ford’s supply chain and logistics: Ford is heavily dependent on its supplier base. Any glitches in operations with the OEM (Original Equipments Manufacturer) can cause serious damage to the long-term viability of the company’s production capacities. And the fact that Ford has global automotive supply base does not make it any easier (Hoffman, 2012). The continuous movement of materials should be consistently monitored. Logistics activities that are of prime importance for Ford are demand forecasting, inventory management, logistics communication and order processing. These are of great importance for Ford as inefficiencies in any of the above can be very expensive. Company has already had experienced the effects of poor forecasting and inventory management very recently. In 2002, Ford had to write-off 1 billion due to the stockpile of precious metal, mainly palladium. Ford had terribly gone wrong with the forecasting as it had anticipated growing needs and also feared the unpredictability of Russian suppliers. This proved to be wrong and the company ended up piling unwanted material (Bozarth & Handfield, 2006). The logistics operations of different plants are managed individually at plant levels. This has been the strategy adopted by the company for a long time and it has helped company to achieve total control of logistics at each plant. But on an organizational scale this has lead to excessive storage and handling of material than required. This approach also reduces the efficiency in transportation of materials. This needs to be addressed. Warehouse management is also critical for Ford. Company spending on outward transport is high as it caters to consumers all over the planet. Many a times, transporting of goods from large warehouse to a smaller retail stores happen. Even though this is vital, the cost efficiency of the operation hurts the company on a large scale. Recommendations and Alignment to Competitive Strategy After analysing and considering the various challenges, following recommendations are made of which all or even some implemented would give the company a great competitive advantage: Vertical integration of the company has been one of the primary limitations in today’s business world with ever changing preferences of the customers. It would be best for the company in the long run to disconnect from the supply chain and focus on building a lean manufacturing company (Lamming, 1993). Considering the size, age and complexity of the organization, it won’t be easy but is necessary for Ford to disconnect from the suppliers to whatever extent is possible. This will help the company to achieve capacity optimisation and greater efficiency along with bringing in a cost-centre ownership approach throughout the supply chain (Hayes & Pisano, 1996). Manufacturing operations such as those in the power train plants and stamp plants should either be outsourced to outside entities or must be done under strategic partnerships (Momme, 2002). The idea behind this is to divide the bigger company into smaller business units that function disconnected from the parent company but still can be monitored and controlled by Ford. A centralised approach needs to be adapted to management of logistics operations. A centralised approach adopted throughout the network would increase the visibility and velocity of the logistics operations as well as bring down supply chain costs. For all logistics operations there needs to be a single point of contact (Davis, 1993). The various aspects of logistics operations that need to come under the centralised approach are forecasting, inventory management, traffic and transport, communications, order processing, materials management, plant selection, stock control, distribution networks, retail centres, etc. Automation of the entire supply chain would solve majority of Ford’s problems with respect to supply chain and logistics operations. Due to the size and complexity of the organization, it would not be an easy task but there are numerous technologies that have been created in the recent past that are aimed at doing this. Associations or partnerships with information technology companies will enable Ford to completely automate its entire supply chain. This will give the management more control over the operations and will solve many problems such as with warehouse management, forecasting, order processing, etc (Huhns, 2002). Ford must try to build a network of small warehouses and distribution centres that cater a specific region instead of having one single warehouse. This will reduce costs with respect to transportation of goods but it is to be noted that for this strategy to work, there needs to be an effective forecasting system in place. Conclusion This report has successfully analysed the supply chain and logistics activities of Ford and made recommendations on how to improve the efficiency of the whole process. Ford needs to adopt a centralised approach to its logistics operations and use information technology in the best possible way to accomplish this. Also it must be give up the traditional strategy of vertical integration and move towards building a leaner organization. Outsourcing of some of the manufacturing processes that does not add value to company’s core competency need to be seriously considered. References Bozarth, C.C. & Handfield, R.B. (2006). Introduction to Operations and Supply Chain Management. NJ: Prentice Hall. Cooper, M.C., Lambert, D.M. & Pagh, J.D. (1997) "Supply Chain Management: More Than a New Name for Logistics", International Journal of Logistics Management, 8(1), pp.1 – 14. Davis, T. (1993), “Effective supply chain management”, Sloan Management Review, Summer, pp. 35-46. Ford (2012). Our Company. [Online]. Available at: http://corporate.ford.com/our-company. Accessed on 18 Mar 2012. Hayes, R. H. & Pisano, G. P. (1996), Manufacturing Strategy: At The Intersection Of Two Paradigm Shifts. Production and Operations Management, 5: pp. 25–41. Huhns,M., Stephens, L. & Ivezic,N. (2002). “Automating Supply-Chain Management,” Proc. First Int’l Joint Conf. Autonomous Agents and Multi-Agent Systems, pp. 1017-1024, July 2002 Hoffman, K.C. (2001). Optimization Engine Powers Ford’s Supply Chain. [Online]. Supply Chain Brain. Available at: http://www.supplychainbrain.com/content/industry-verticals/automotive/single-article-page/article/optimization-engine-powers-fords-supply-chain/?adcode=10. Accessed on 18 Mar 2012. Hoffman, B.G. (2012). American Icon: Alan Mulally and the Fight to Save Ford Motor Company. NY: Crown Publishing Group. Lamming, R. (1993). Beyond partnership: strategies for innovation and lean supply. NJ: Prentice Hall. Momme, J. (2002). “Framework for outsourcing manufacturing: strategic and operational implications” Computers in Industry, 49(1). Pp 59-75. NFS (n.d.). Supply Chain Management. [Online]. Available at: http://www.nsf.gov/about/history/nsf0050/manufacturing/supply.htm. Accessed on 18 Mar 2012. United Nations Global Compact (2012). Ford Motor Company: The Ford Purchasing Structure. [Online]. Available at: http://supply-chain.unglobalcompact.org/site/article/51. accessed on 19 Mar 2012. Read More