Ford Motor Company Issues - Case Study Example

FORD MOTOR COMPANY FINAL REPORT Student’s Name: Code + Course name Professor’s name University City, State Date Executive Summary The increase in costs of transporting loads in the decentralized stores of the Ford Motor Company necessitated the introduction of 10 centralized Order Dispatch Centres (ODCs). The strategic decision targeted to reduce the costs that the company incurred in transporting its load besides increasing the real-time visibility of the company on its financial records linked to the logistics operations and supply chain management. The consolidated logistics operations yielded an optimised network design and the efficient management of premium freight and carrier services. Penske also introduced freight management information technologies that enhanced the management of the company’s finances. However, reduced resilience of the inventory, customer service, and the company's agility are some of the trade-offs that accompany the new system. Through continuous process improvement, Penske should maintain a balance between the new logistics system and the sacrificed advantages of the decentralised supply chain and logistics system. Introduction The Ford Motor Company has worked with Penske as its lead logistics provider (LLP) on several Six Sigma initiatives to address the challenges that affect the logistics sector (Penske 2010). The report consists of four sections. The first section describes the challenges that the company encountered in the management of its supply chain and logistics. The second part discusses the role of logistics management in the supply chain and operations management both in the company and general practice. Moreover, the report also discusses the essential trade-offs associated with meeting the goals of the organization by minimizing total costs in the firm and the general practice. Finally, the report discusses the role played by logistics management and the contribution of Penske’s solution towards adding value to the management of the company’s operations. Background and Business Environment The need to enhance logistics operations compelled the Ford Company to partner with Penske in the creation and maintenance of a more centralized network for logistics. The ultimate objective of the company was to reduce the total costs associated with its logistics operations. In order to meet the goal, Penske professions identified the potential areas of real cost savings. In the process, they targeted to reduce inbound discrepancies exhibited by the carriers, reduce shipment overages and get rid of unnecessary premium costs. Penske established 10 Order Dispatching Centres (ODCs) to attain the 95% capacity of most of its trucks. It also introduced consolidated plant shipments that resulted in a 15% reduction of the company’s inventory. Penske also trained 1,500 suppliers on a uniform set of logistics technologies and procedures to ascertain that they conducted their operations as required. It also introduced carrier rating systems and strict carrier requirements to measure the performance of the carriers. Penske also introduced technologies for advanced logistics management besides implementing stringent accountability procedures. By so doing, the firm intended to achieve real-time visibility on the routing schedules, delivery status, and productivity. In order to capture the costs incurred in logistics, Penske also introduced a freight billing system. At the end of its intervention, the logistics system developed and implemented by Penske consisted of an optimized network design and the efficient management of premium freight and carriers. The other results of Penske’s intervention encompass the integration of the information technology system and the proper management of the company’s finances. The transition of Ford’s logistics operations took place within 18 months. Currently, the number of inbound and outbound trailers that move to and from the ODCs on a daily basis are in excess of 700 and 500 respectively with the carriers attaining the 95% capacity. The new logistics operations have also reduced Ford’s inventory by 15% (Penske 2010). The Challenges of the Ford Motor Company in logistics and supply chain management Prior to Penske’s intervention, Ford Automobiles encountered significant challenges associated with the implementation and management of its logistics operations. The decentralized logistics system compelled the company to incur costs as a result of inbound discrepancies, shipment overages, and unnecessary premium costs. Moreover, the company did not have a real-time visibility of its supply network (Penske 2010). Therefore, the main challenges that Ford faced include the development, maintenance and operation of a centralized logistics system for its supply chain and plant operations. The firm also encountered constraints in the streamlining of the carrier and supplier operations to foster accountability and performance. The company also lacked a real-time financial visibility and a supply chain. Logistics refers to the management of the movement of goods from the manufacturer’s premises to the end user; usually the customer. Supply chain management refers to the process of planning, implementing and controlling the effective and efficient flow of services, goods and pertinent information from the source such as the manufacturer to the end point such as a customer with the rationale of meeting customer requirements. Some of the common challenges in logistics management include the lack of real-time visibility regarding the logistics and supply chain operations, risk management, the containment of risks, globalization and increasing customer demands (Bhattacharya et al. 2014). Apparently, the supply chain and logistics operations of the automotive sector has exhibited the worst performance as compared to the other sectors such as pharmaceuticals and retail. Consequently, it is imperative for the major players in the sector to improve the management of the supply chain and logistics so as to eliminate the challenges mentioned above. Pereseina et al. (2014) also acknowledge that cost reduction and the effectiveness of the supply chain and logistics operations are the principal focus of automobile and logistics companies. Therefore, the sustainable supply chain management necessitates a reduction in the wastes of the logistics operations and the supply chain, saving costs and enhancing the environmental performance of the system (Pereseina et al. 2014). The Roles of logistics management in supply chains and operations management It is evident that logistics management played a pivotal role in the management of Ford’s operations and supply chain. The consolidation of the logistics operations took place through the implementation of an aggressive transition from the traditional decentralized logistics operations to the new centralized operations (Penske 2010). The result was the provision of a single contact point that enabled Ford to track and manage its logistics operations from a centralized point. Logistics management allowed Penske to outline the current procedures and provide the recommendations to the corporate management and individual plants. The management of the logistics operations carried out by Penske resulted in a new logistics and supply chain system that consisted of an optimized network design that enhanced the efficiency of the inbound materials via the ODCs. Logistics management also yielded the effective management of the premium freight and carriers in the company thereby eliminating unnecessary costs associated with premium freight. Logistics management also produced an integration of the information technology system thus enabling the company to attain real-time visibility of its orders, schedules, and supply chain shipments. Finally, logistics management improved the management of Ford’s finances by enhancing resolution, claim processing and freight bill payments. Apparently, the end customer can envision quality, cost and speed associated with a logistics systems since they form the “hard objectives” of any logistics and supply chain system. Logistics management avails the supporting capabilities that control variability and deals with the uncertainty. Logistics management also caters for the system’s “soft objectives” that include security and confidence (Harrison & van Hoek 2005). The effective management of logistics also guarantees the utility of the best transportation infrastructure utilized by the carriers from the vehicle assembly plants to the end customer. The three main advantages associated with the utility of a proper transport infrastructure encompass improved efficiency of the logistics operations, costs savings and enhanced service quality (Tseng et al. 2005). The Essential trade-offs in meeting organizational performance goals while minimizing logistics and supply chain costs Logistics management in the Ford Company has resulted in a significant reduction of the company’s inventory as a result of an improvement in the efficiency of its logistics operations. Just like any other supply chain and logistics operations system, Penske intervention has reduced costs incurred by the company in its logistics and supply chain processes. Moreover, Penske’s logistics management strategies reduced the wastes noted in the traditional decentralized logistics system. The reduction in the level of inventory of the company complemented by the 95% carrier capacity following the implementation of the centralized logistics systems is a trade-off with the potential decline and running out of the company’s stock (Penske 2010). The fact that the continuous process improvement role performed by Penske targets to reduce costs and integrate the supply chain to attain maximum efficiency is an indicator of the gradual transition of the company to the zero stock level. At that point, it is evident that the firm would have sacrificed the resilience of the supply chain with the reduction in the costs and increase in the efficiency of the logistics and supply chain processes. It is evident that lean management focuses on cost reduction by minimizing wastes. Some of the lean principles encompass value specification with reference to the end customer, the value stream, and the value process flow. The other principles include the "pull" that requires the company to manufacture only what the client needs and "perfection" that requires the company to produce the exact specifications of the customer. Lean management results in the reduction of virtually all costs incurred by the corporation that may emanate from overproduction, waiting time and transportation. The other wastes minimized by logistics management include inventory waste, process waste, product defect waste and motion waste. The result of lean management in logistics is an efficient logistics system that sacrifices the resilience of the supply chain (Maslaric et al. 2013). A reduction in the company’s agility that refers to its ability to respond to changes in customer demand is the other trade-off associated with minimizing logistics and supply chain costs to enhance organizational performance (Bygballe et al. 2012). The role of logistics management and Penske’s solution in improving operations management in the Ford Motor Company Penske’s solution impacted positively on the logistics operations of the Ford Motor Company. The traditional plant-centric approach that saw suppliers make multiple deliveries of similar automobile parts to different plants increased the costs involved in the provision of the products. To solve the problem, Penske introduced the centralized logistics system that resulted in the introduction of the 10 ODCs that acted as the delivery points for the suppliers. The OCD cross-docked different supplier shipments heading to a common destination in trailers. Cross-docking resulted in the consolidation and distribution of the loads based on its schedule. The result was a reduction in the level of milk runs, premium freight charges, and less than truckload shipments. In the quest to improve premium freight and carrier management, Penske imposed more stringent requirements on the carrier partners to minimize carrier costs and maximize carrier services (Penske 2010). Moreover, Penske introduced information technology solutions to monitor the performance of the fleet. The technologies also enabled Ford to have a real-time view of the performance of its logistics operations. Logistics management may involve the utilization of auctioning to determine the suitable supplier of the company’s products based on predetermined guidelines used to select the best supplier. The bids enable the company to choose the best supplier that will pick up and deliver the load within the allocated timeframe to yield customer satisfaction. Logistics management also ensures that the company delivers its products to customers based on the available demand. Moreover, logistics management enhances the operations of a corporation regarding promotion, chain management and pricing (Li 2014). It is also evident that logistics management enables a company to adopt proper system changes that enhance the efficiency of the logistics operations. Some of the logistics operations that benefit from a good logistics management encompass reduced inventories, quicker collections, and reduced split shipments of loads, increased levels of customer service, and decreased warehousing and transportation costs. Logistics management also improves return on assets and cash flow besides enhancing production planning and forecasting accuracy (Kujawa 2003). Discussion It is evident that the decentralized management of logistics operations utilized by the Ford Motor Company prior to the Penske’s intervention was improper. Initially, a supplier would pick up a load and transport it to a different plant before picking up another small load and to transport it to a different plant. It is evident that the approach was costly on the part of the company. However, the centralized system for logistics operations transformed Ford’s logistics operations to reduce the inventory and attain the 95% capacity of the carriers. The 15% reduction in the level of inventory implied and the accompanied continuous process improvement indicated that the firm would continue to witness a reduction in its stock and costs incurred in logistics and supply chain. However, the primary chain entails maintaining the trade-off between improved efficiency of the logistics operations and the company’s agility to meet demand fluctuations following a decline in the level of inventory. However, it is imperative that Penske should also conduct regular supply chain risk management to guarantee the availability of sufficient inventory to cater for an unexpected increase in the demand for automobiles. It is also imperative that Penske should concentrate on addressing the challenges associated with the management of the supply chain and logistics operations. As mentioned earlier, the challenges include the containment of costs, risk management, visibility, globalization and increasing product demand. Apparently, the centralized logistics operations generate significant challenges in the management of risks pertaining the increasing customer demand and globalization. The utility of information technologies and the internet has introduced online market platforms that enable customers to purchase products and make online payments. The time required to deliver the ordered products from the centralized stores to the customer's premises contributes immensely to customer satisfaction. Apparently, even though the decentralized logistics operations yielded additional costs on the Ford Company, it reduced the lead time. Therefore, it is also important for the company to balance the trade-off between the declining customer service and the increasing efficiency of the logistics operations. Conclusion and Recommendations The transition from the decentralized logistics system to the centralized ODCs impacted positively on the efficiency of the logistics operations of the Ford Motor Company. The strategic decision implemented by Penske reduced the costs associated with the pick-up and delivery of load from the distribution centres to other centres and the premises of the end customer. However, customer service and the resilience of the inventory are the resultant trade-offs associated with the introduction of the centralized approach. In the quest to manage the risks linked to the trade-offs, Penske should conduct a risk management on the supply chain to strike a balance between the merits of the centralized approach and the trade-offs. The further improvement in Penske’s recommendations entail ascertaining the continuous addressing of the challenges that accompany logistics operations and supply chain management. For instance, Penske should maintain a collaborative relationship with the suppliers and all the other stakeholders of the company. It is also proper to inform and include all the stakeholders in the process of transformation and change. Finally, the proper implementation of lean technologies is imperative to guarantee the company’s agility and responsiveness to customer demands. Reference List Bhattacharya, S, Mukhopadhyay, D & Giri, S 2014, ‘Supply Chain Management in Indian Automotive Industry: Complexities, Challenges and Way Ahead’, International Journal of Managing Value and Supply Chains, vol. 5, no. 2, pp. 49. Bygballe, L E, B & Grønland, S E 2012, ‘Managing international supply: The balance between total costs and customer service’, Industrial Marketing Management, vol. 41, no. 3, pp. 394-401. Harrison, A & van Hoek, R I 2005, ‘Logistics management and strategy’, Pearson Education. Kujawa, B J 2003, ‘An investigation into logistics outsourcing practices, trends and issues within the manufacturing sector in South Africa (Doctoral dissertation, Rand Afrikaans University). Li, X 2014, ‘Operations Management of Logistics and Supply Chain: Issues and Directions’, Discrete Dynamics in Nature and Society, 2014. Maslaric, M, Backalic, T, Nikolicic, S & Mircetic, D 2013, ‘Assessing the trade-off between lean and resilience through supply chain risk management’. PENSKE 2010, ‘Ford Motor Company: Six Sigma Initiatives Streamline Operations’, Penske Truck Leasing. Pereseina, V, Jensen, L M, Hertz, S & Cui, L 2014, ‘Challenges and Conflicts in Sustainable Supply Chain Management: Evidence from the Heavy Vehicle Industry, in Supply Chain Forum: an International Journal (Vol. 15, No. 1, pp. 22-32), KEDGE Business School. Tseng, Y. Y, Yue, W L & Taylor, M A 2005, ‘The role of transportation in the logistics chain. Eastern Asia Society for Transportation Studies'. Read More