Consulting Report Based on Ford Motor Co.: Supply Chain Strategy Report in 2001

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Ford Consultancy Report

Master of Science: Global Logistics & Supply Chain Management

Kühne Logistics University

Supervisor:                 Prof. Dr. Jörn Meissner

Module Name:         Business Logistics and Supply Chain Management

Submission Date:         26th of September, 2017

Executive Summary

The current initiatives of the Ford 2000 Strategy already include a number of important factors that proved to be a major success as part of Dell’s virtual integration model.

Ford reduced suppliers by about 75% and procurement processes have been simplified inherently. Order-to-delivery time was reduced to as low as 15 days and the production schedule (including Forecast) was made available to the suppliers. At the further end of the supply chain the customer relationship has been improved by several measures such as provision of a B2B platform, a Ford Website and the Ford Retail Network (FRN).
The transition towards the desired virtual integration model has now reached a point where further initiatives need to be evaluated more carefully due to the higher complexity of the automotive industry ( as outlined on page 11 ) At a certain stage the risks (e.g. assembly outages) outweigh potential gains (e.g. inventory turnover).
In any case it should be clear that the level of virtual integration that Dell profits from, cannot be reached by Ford due to complexity.

However, further steps towards further virtual integration should be considered in order to find an optimized integration model that is suitable for Ford.

Utilizing the newly established Ford Retail Network for a B2B direct sales pilot project as a test platform for further virtual integration represents an opportunity that should be taken into account by the Ford leadership. An outline of the proposed approach can be found on page 12.

The B2B project would be set-up under the least complex conditions possible in the automotive sector. Costs are expected to be fairly low as only selected customers and vehicle models would participate besides the FRN. KPIs will be defined beforehand and measured closely during the process in meaningful intervals. KPI’s decide on the outcome of the project and learnings will be documented accordingly.

Especially the departments/initiatives of production planning, customer segmentation and procurement would benefit from the result.

Generally, the transition towards a virtually integrated organization should be seen as a staggered process rather than a one-time measure. That can include the necessity for an intermediate stage such as a hybrid of vertical and virtual integration.

Table of Contents

Executive Summary        2

Table of Contents        3

Consultancy Report        4

Consultancy Report

Founded in 1984 Dell is nowadays considered a pioneer and role model in terms of virtual integration. In 1998, Dell was valued at roughly 58bn USD market capitalization, not too far off from Ford which was founded in 1903 and the same time valued at USD 66bn market capitalization. While this is testimony to Dell’s success story maximizing shareholder value, it is however by no means a fair representation of the true size of both organizations; with some 360,000 employees and over 180 production sites around the globe, Ford’s business structure is significantly more complex than that of Dell with some 16,000 employees and 3 manufacturing sites. What is nevertheless comparable is the general layout of the supply chain: Both companies do not create every single step of the value chain themselves. Dell in particular was able benefit from this strategic step by a lot. Dell came across several advantages, which also could be of substantial benefit for the automobile industry: the virtual integration

In the first instance Michael Dell claims that with virtual integration outsourcing has become more and more important. For Dell fewer things are needed to be kept an eye on hence the company is simply not responsible for this specific part. Dell mainly outsources within the manufacturing part of the company hence they can focus a lot harder on trade issues with potentially important and already relevant customers. Furthermore, it is a lot easier for Dell to simply search for a new supplier than setting up an own manufacturing plant in order to get more capacity.         
For Dell, customer relationship plays an important role: The finer the segmentation is, the closer the relationship will be hence all your customers will think that they are being treated in the most appropriate way, which makes them feel unique. A closer relationship to your customer will make the forecasting easier as well since understanding between both parties is faster and more reliable. As Dell is directly selling to the customer and is also making clear cuts in their customer segmentation they are able to purchase a specific amount of supplies on a day to day basis. This brings Dell in the position to do a very precise forecasting. Since Ford is influencing the automobile market substantially also this could be of higher interest for you in order to meet the customer's needs. This can also be an advantage for Ford going forward: By implementing Ford dealers into demand forecasting the company should be able to reduce its inventory levels further. Also, by staying in a close contact to your suppliers and demanding in a consistent and for your supplier in a predictable way the distance between demand and supply will become shorter. Vice versa, the longer the distance between demand and supply is becoming the more likely it will be to have high inventory and related to that also a higher risk hence you cannot get rid of your on-hand value right in time. Moreover, having high inventory also results in a higher variability in the supply chain. To put in a nutshell, the information about the current customer demand and the forecast would be a substantial advantage for all suppliers as they could plan their production and dispatches as needed for Ford’s just-in-time production. A shrunk Supply Chain would have a big advantage.         
Making a good segmentation between large customers which usually are companies from midsize to large as well as governmental and educational department assists Dell to identify some unique opportunities. The company started out by differentiation between large and small customers in 1994 and gradually refined the segmentation into more than eight segmentation groups which are all of high relevance for the company. Following Dell’s model, Ford could tailor its sales approach towards both private individual customers -who tend to choose between different features-, as well as larger corporate customers as corporate customers tend to buy a large number of standardized vehicles of the same type. This higher level of standardisation will shift the decoupling point towards a more pull-driven approach within the supply chain. Setting a higher decoupling point then also relates back to the variability of the supply chain and will affect it in a positive way.         
For Dell losing a single customer is not a major risk since even the largest customer do not account for more than 1% of total revenues. Technology and labelling enables the service employees to easily detect which specific product configuration one is using. Accordingly, the company will be able to add further value to the products they are delivering to their customers.         
Dell sets it goal to be at least one but rather two steps ahead of potential change in the market. By doing so, they not only maintain their spot in a very competitive position in the current market but also are able to shape the change to some extent. Basically, Dell finds themselves in this position mainly due to the cut out of the retailer and wholesaler which makes it a lot easier to communicate with both the suppliers and the end customers.