Ford & Penske Supply Chain Management - Case Study Example

SUPPLY CHAIN AND LOGISTICS MANAGEMENT Student’s name Code & Course Professor’s name University City Date Executive Summary The business world today is characterized by fierce competition, fluctuating demand and the general rise in customer requirements. Customers are becoming more demanding and have increased preferences. In the automotive industry, globalization has created both significant opportunities for growth and additional pressures to improve quality, styling and improve organizational efficiencies, and to include innovative features into their product offerings and processes (Ambe & Badenhorst-Weiss, 2011, p. 1). This paper looks at the benefits of improving the supply chain through the study of the case of Ford Motor Company’s collaboration with Penske. Penske found Ford struggling to manage its supply chain in its assembly plants. Ford used a decentralized approach, which provided control of logistics at the supply chain level, but presented challenges at the organization level. This paper reviews Penske’s transformation of Ford’s supply chain in the context of the current industry standards. Contents 1.0 Introduction 4 2.0 Background and Business Environment 4 3.0 Challenges faced by Ford in the context of supply chain and logistics 6 4.0 Roles of Logistics and Supply Chain management in Ford Motor Company 7 5.0 Tradeoffs in organizational performance in Ford’s Supply Chain 8 6.0 Role of logistic management and Penske’s solutions in adding value to Ford’s operations performance 9 7.0 Conclusion 10 8.0 Recommendations 12 Ford & Penske Supply Chain Management 1.0 Introduction The economic and social importance of the automobile industry makes it important to research ways of improving the diverse operations involved in the production of motor vehicles. Even though this has not always been the case, in the recent few years the management of inter-organizational relations and the supply chain has gained greater significance in the eyes of both managers and researchers (González-Benito, Lannelongue, & Alfaro-Tanco, 2013, p 3489). For Ford Motor Company, one of the world’s leading automotive manufacturers, this realization began when the company hired Penske as its lead logistics provider. Having been trained in the six sigma initiatives, the Ford and Penske collaboration allowed the company to discover several potential areas of improvement in the supply chain network like the elimination of unnecessary premium cost, the reduction of shipment averages and the reduction of inbound carrier discrepancies. Penske further implemented accountability measures and advanced logistics technologies that enabled the company improve its visibility in the supply network. Penske’s involvement helped Ford deal with multiple issues, some of which perhaps they did not realise they had and offered the company a strong base from which to expand while cutting down costs. Some of the challenges the association dealt with include the streamlining of supply chain operations and training of employees, improvement of accountability standards for contractors and the provision of real-time supply chain visibility solutions. 2.0 Background and Business Environment The lead logistics provider system dates back to the eighties and has been used extensively by many industries since then (Huang, Hu, & Wee, 2010, p. 165). Lead logistics providers have over the years assumed an important role as strategic partners actively building strategic partnerships with their supply chain partners. Researchers have studied the evolution of the outsourcing of supply chain management services over the years, from that of single activities like transportation and warehousing to the outsourcing of all activities. There are two basic organisational structures with respect to logistics, a centralised and decentralised structure[Mur15]. Companies have over the years been concentrating their lead logistics provider alliances on a relationship based system rather than on single activities or transactions. The role of the lead logistics provider then becomes to assume the responsibility for performance, management, cost and development of all the supply chain functions. The client then receives the agreed standard of service at all levels, with a single point of contact and a centralised invoice[Hua10]. The lead logistics provider framework consists of three components; logistics synchronisation, resource management and an centralised information system. Logistics coordination involves the establishment and management of supplier portfolios, including the sourcing of vendors, selection, negotiation of contracts and account management mechanisms (Huang, Hu, & Wee, 2010, p. 169). Penske does this through its carrier and premium freight management. The goals were to maximise carrier service through new safety standards, equipment specification, the provision of experienced drivers and new time requirements for delivery and pick-ups. Penske also initiated a rating and a tracking system (Penske, 2010). Central Information systems involve an IT system integration across the supply chain, covering the exchange of data, sharing of information real time and a support system. Penske set up several technology solutions, including fleet management systems like RouteAssist and a web-based reporting system. Drivers had an electronic log from which they could make entries in real time, and equipped with advanced satellite communication and load tracking technology (Penske, 2010). The third component is the most important within the context of the automotive industry. Resource management requires extensive knowledge and experience in process re-engineering processes in order to achieve logistics integration. Penske achieved integration through the setting up ten order dispatch centres that act as central delivery centres for suppliers (Penske, 2010). 3.0 Challenges faced by Ford in the context of supply chain and logistics Many companies in the automotive industry like Ford work under the forecast driven system. This is where the product is built on the identification of the final purchasing party, with a design driven by historical demand information (Cavusoglu, Cavusoglu, & Raghunathan, 2006). While this approach is helpful in terms of meeting customer demands, it is costly in terms of stock and transportation (Ambe & Badenhorst-Weiss, 2011, p 12). This places a huge importance on the supply chain network of the company. From the case study, the problems faced by Ford’s logistics and supply chain were problems regarding supply chain synchronisation and cost. At the time when Ford began its relationship with Penske as its lead logistics provider, every one of the 20 North American assembly plants managed their logistics operations. The company favoured a decentralised approach because of the localised control it offered every plant in its logistics operations. However, the decentralised system also resulted in costly redundancies within the system, with costly material handling and transportation services affecting the company. This network approach based on every plant having its logistics system had supplier trucks having to make deliveries to multiple locations in the same area, all while carrying very small loads. Carriers would cross each other carrying half their optimum capacity, a system that was highly inefficient, costly and resulted in excessive inventory. Ford’s research revealed this to be one of the possible areas of improvement of its supply chain network, and Before the implementation of the centralised approach, another one of Ford’s problems was its inability to gain a clear view of its financial status in the logistics operation. The decentralised system made it difficult to quantify the cost of logistics operations. The company had up to 1500 suppliers doing more than 20,000 shipments every week. Every driver and plant had a different set of paperwork, and this would mean a lot of time would have to elapse before the costs of logistics for every individual warehouse could be computed. 4.0 Roles of Logistics and Supply Chain management in Ford Motor Company The role logistics plays in an establishment is basically to position inventory accurately in the supply chain (Ross, 2013). The logistics program of Penske on Ford Motor Company is transitory and works through the provision of a single point of contact for all the logistics operations in the company. The logistics program established by Penske Logistics Centre includes the core functions mentioned as follows. Penske Logistics has optimized the network designs where the strategy for inbound materials is more efficient due to established centres for the dispatching of orders (Penske, 2010). The previous network design witnessed an inefficient use of carriers where inventory was stored in excess thus increasing storage costs. The new network design has order dispatching centres where various supplier shipments being transported to the same plant are cross-docked at the centre into trailers (Penske, 2010). The management of the carrier and premium freight manages all the companies associated with the freight and carriers and thus effecting a reduction of costs on the premium freights. The procedure mandated by Penske requires that carriers meet the established pickup and delivery time schedule and a stringent supervision on loading and offloading to provide verification on accuracy, labelling and instances of damage. Penske integrates an information technology system into the working of Ford Motor Company (Yee, John T., and Seog-Chan Oh, 2013). The system has allowed for the smooth transition of operations and real-time visibility of supply chain shipments is achieved. The updated tracking of orders and assessment of schedules is done actively with comprehensive knowledge of what is on the ground through the use of information technology systems in the company (Yee, John T., and Seog-Chan Oh, 2013). The logistics company additionally plays an active role in the management of company finances. The Logistics Management System and RouteAssist system is an information technology tool solution that has been implemented to manage routing (Hiebeler, Robert, Thomas Kelly, and Charles Ketteman, 2012). There is also the metric reporting system that is web based and software that tracks orders. 5.0 Tradeoffs in organizational performance in Ford’s Supply Chain Performance in Ford Motors Company had been staggering before it decided to employ the services of Penske Logistics to help streamline the company’s operational affairs (Klyatis, 2015). At first, Penske provided logistic services to Ford’s assembly plant in Norfolk. During this period, the plants in North America managed their operations of logistics. This approach was suitable enough for managing logistics at the level of the assembly plants. The problems, however, arose in the handling of materials and transportation to different sites that the plants could not control. The result was the increase in redundancies, less accountability and an overall decline in performance (Penske, 2010). After careful research and studies, the company opted for a trade-off where they would centralize their logistics operations and thus have one unit that oversaw the supply chain. As a result, Penske was elected to be the logistics company to manage the logistics operations that positively gave the benefits anticipated (Penske, 2010). The benefits of centralizing logistic operations and adopting the services of Penske were apparent in the implementation of a network design that is more efficient and updated. The costs incurred due to excessive storage were reduced with an increase in the utilization of storage space and carrier space. Use of technological systems has majorly improved operations throughout the supply chain as orders are easier tracked and shipments coordinated from a central point with virtual systems. The adoption of this new system is however not one hundred percent foolproof as there are constants that may not succumb to change. The implementation of new systems additionally requires an agreement o fall parties, and this would include the people and processes (Harris, 2013). Furthermore, technological systems are prone to breakdown thus the dependability is relative (de Haan, 2011). 6.0 Role of logistic management and Penske’s solutions in adding value to Ford’s operations performance Penske has made a remarkable achievement in transitioning the operation of Ford Motor Company’s logistics into a design that is more centralized. At the moment, most loads are up to 95% in capacity, and this only means that storage costs have been reduced. The order dispatching centres (ODC), has enabled the consolidation of shipments and utilization of space that was not being used previously. With freight numbers of fourteen million pounds being docked every day, there has been an inventory reduction of 15 percent (Penske, 2010). The establishment of Penske’s carrier rating system has eliminated the previous distribution of Ford, which was undoubtedly costly and ineffective. The current system has supplier sand carriers operating under one set of transportation and procedures of distribution. As such there has been improved service in the supply chain. Accountability levels are furthermore improved due to a system that is more organized and possesses elevated levels of efficiency. The integration of technology into logistics operations has indisputably aided in the monitoring of shipments and enabled the management to spot functions that are running with less efficiency in less time than was before. Occurring matters and issues are currently being addressed in an environment that is real time. In addition, the costs incurred by logistics are directly input to the supply chain and the result is that Ford Motors can view the general costs of supply chain at any appointed time. The accountability procedures implemented by Penske are strict and involve logistic management technologies that are advanced (Penske, 2010). These technologies assist in the provision of virtual visibility of the statuses of delivery and schedules for routing. Productivity numbers can also be invoked from the system automatically. The new freight billing system that has been introduced has been designated to capture logistic costs with an immediate effect. 7.0 Conclusion The collaboration of Ford and Penske could be among the more intelligent moves the company adopted to manage its logistics. Penske Logistics allowed the company to realize several potential areas of upgrading in the supply chain network like the removal of needless premium cost, the diminution of shipment averages and the reduction of inbound carrier discrepancies. Penske further implemented accountability measures and advanced logistics technologies that enabled the company improve its visibility in the supply network. Penske’s involvement helped Ford deal with numerous issues, some of which perhaps they did not realise they had and offered the company a strong base from which to spread out while cutting down costs. Before engaging the services of Penske Logistics, Ford Company faced setbacks such as an inefficient system that increased operational costs and had wastage on storage and carrier capacity. One other challenge included the lack of accountability and performance that was arguably low. Furthermore there existed the difficulty in integrating all the supply chain systems and controlling them consequently resulting in poor productivity. Penske’s logistics, in this regard, established a network design that was optimized where operations are centrally controlled, and usage of space, both on storage and freight has been maximized to a near perfect potential. The management of the carrier and premium has effected a reduction of costs on the premium freights. Penske has integrated an information technology system into the working of Ford Motor Company, which has allowed for the smooth transition of operations and real-time visibility of supply chain shipments is achieved. Penske has remarkably achieved in transforming the logistics operations of Ford Motor Company where there is effective management of the channel structure of the organization. There is the management of order as well through the order dispatching centre (ODC) and the management of inventory. Transportation has been duly managed through the use of ODC where there is a remarkable improvement in the control of time. Conclusively, Ford Motors has to a large extent succeeded in improving its costs and operations via the employ of Penske, which considerably implemented effective methods to manage time and run the supply chain in a smooth manner. 8.0 Recommendations Based on the literature on Ford and its logistics operations, it is evident that the improvement in the design and the implementation of technological systems has substantially affected the running of the company to a great extent. To further improve the operations of Ford Motor Company, there is the need to integrate continuously the use of information technology as the era of innovation is indisputably dynamic. The technological systems being created keep advancing to more involving yet efficient systems that can be used in the organization. Research is additionally needed to improve on strategies of logistic operations and as such provide a competitive edge for the company in the business. For strategies that are not working the company is obliged to eliminate them and streamline its processes. With this effected, the Ford Motors is bound to remain the company with the highest logistics operational efficiency. Reference list Ambe, IM & Badenhorst-Weiss, JA 2011 ‘An Automotive Supply Chain Model for A Demand-Driven Environment’, Journal of Transport and Supply Chain Management, pp 1-22. 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In Technology Integration to Business (pp. 23-66). Springer London. Read More