Supply Chain at Ford Vs. Dell Term Paper

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Supply Chain at Ford vs. Dell

Supply Chain Management -- SCM is fundamentally a process that entails the flow and conversion of materials and other resources into products and services, which fulfill the demands of the ultimate consumer. Supply Chains are considered as regards processes, activities and organization. The processes link the activities which carry out this transformation. Processes focus towards the end product for an end user in mind. The importance of managing a supply chain has been there ever since the days of Ford Plant at River Rouge when companies wished to own all of the activities included within the supply chain and as an alternative have recently relied increasingly on external partners. Dell follows a new approach, wherein it produces very few of its own products, depending on external suppliers, procurement and inventory management. (From Markets to Networks: The Concept of Supply Chain)

Supply Chain diagram

(Retrieved From Markets to Networks: The Concept of Supply Chain)

(i) Situational Analysis:

Ford:-

Ford is the largest manufacturer of trucks and it ranks second in the manufacture of cars and trucks taken together thereby marketing and selling roughly 7 million vehicles worldwide armed through its seven brands. Ford has a workforce of 3, 45,000 spread over in its production facilities, offices and laboratories to cater to its customers in more than 200 nations and territories. Globally, it is also among the largest providers of financial services through its 2,400 branches spread over 33 nations. (Cisco signs pact with auto-xchange, a Ford/Oracle joint venture; becomes equity partner)

Considering its scale, it has a mammoth 200,000 part numbers, 3,100 suppliers, and 5,100 dealers. The U.S. auto industry until the present has continued with the policy of service parts replenishment strategy with several large one-size fits all local warehouses carrying high volumes of a wide selection of components that increases complexity, in the opinion of Don Johnson, Global Director, Ford Customer Service Division Parts Supply and Logistics -- PS& L. The novel segmented network caters to the same day or the following day repair needs and those which are planned and/or more serious needing second day delivery. Ford has embarked on a parts delivery network revolving around a customer centric model. The advantages of this model will be that it will enhance the Order Response Time -- ORT through segmenting parts for scheduled repairs at the dealer. This design strategy is a unique one as it utilizes decentralization and centralization concurrently to produce optimal service with reduced costs. (Supply Chain Collaboration and Visibility)

The new business model comprises of three warehouse categories viz (i) 19 High Velocity Centres -- HVCs concentrating on the faster delivery of smaller, high volume components to dealers on a daily basis (ii) 1 Low Volume / Low-Cub Centre or LV/LCC holding small, slow moving parts based on critical orders available within a 24-hours ORT. (iii) 3 High Cube Centres -- HCCs stock large-size inventory items supplied to the dealers within 24 to 48 hours ORT. The outcome of this will be that Ford seeks to attain increased fill, faster ORTs and reduced costs while delivering higher customer satisfaction from this network design. (Supply Chain Collaboration and Visibility)

Dell:

In 1994 Dell was a not a frontline PC manufacturer like it is today. Similar to a lot of other companies, Dell placed orders for its components and manufactured as per inventory following which it started to implement a new business model. Dell converted its operations to a build-to-order process, did away with its inventories by means of a Just-in-Time system, and sold its Computers directly to its customers and the results were outstanding. Through placing these new supply chains potential at the centre of its strategy, Dell developed a supply chain strategy which transcended the simple pursuit of efficiency and productivity of assets. But, Dell had to undertake a string of extremely difficult strategic tradeoffs so as to bring its functional activities to dovetail with its new business model. (Knowledge Zone -- Operations: Supply Chain Management)

Dell Computer is an acknowledged Case Study of build-to-order manufacturing system, on which is based on the integration of information technologies across every facet of the functioning of the company. Michael Dell describes his company as 'virtually integrated', which is different from vertically integrated. In the case of computing technology, vertical technology was required during the initial year as the supplier base was not properly set up, leaving companies without any means but to design and produce product components in-house.

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Under this scenario, the propriety technology which was costly was the main source of competitive advantage. (Dell's Made-to-Order System Leaves Competitors in the Dust)

Virtually integrated companies like Dell have secured direct relationships which bride the gap between customer, manufacturer and supplier according to Michael Dell. Virtual companies have accurate knowledge regarding how to add value and they have set up partnerships with the best category of suppliers. These suppliers are bound within their businesses and should show results up to the same quality, standards and metrics. Virtual companies exploit the Internet not just an additional facility, but as fundamental part of their strategies. It is by this process, that it can be used as a cross-traditional company-to-company boundary to attain virtual integration. (Dell's Made-to-Order System Leaves Competitors in the Dust)

(ii) Main Issues and Problems:

At Ford there were problems in its supply chain as the existing supply base was on several counts old. Since Ford had grown over the years, similarly had the supply base, to an extent where during the late 1980s several thousand suppliers of production material were present in an intricate network of business relationships. Suppliers were selected mainly on basis of cost and scanty attention was paid to the overall supply chain costs, inclusive of the complexity of dealing with such a huge network of suppliers. Starting in the initial stages of 1990s, Ford started to reduce the number of direct suppliers and Ford leaned towards longer-term relationships with a core group of efficient suppliers having potential of providing complete vehicle subsystems. These 1st -- tier suppliers would manage relationships with a larger base of suppliers of components or subsystems i.e. 2nd tier and below suppliers below them. (Article given by client)

Ford made available its competence to help the suppliers in bettering their operations through various techniques like Just-in-Time or JIT inventory, Total Quality Management -- TQM and Statistical Process Control -- SPC. As a reciprocal measure, Ford expected that for closer relationships and long-term commitments, the suppliers would lower their costs on a year-to-year basis. Whereas the 1st tier suppliers possessed properly streamlined IT capabilities they were incapable to invest in new technologies at the pace Ford could. Besides, the IT maturity decreased rapidly in lower tiers of the supply chain. On the other hand, Dell's supply base was different as regards its inherent nature and complexity.

An additional important difference between Ford and Dell was at the organizational level. At Dell the procurement activities reported into the product development organization. However at Ford, purchasing was organizationally independent of product development and had been since long till the present a potent force within Ford. Due to the total volume of materials and services that Ford procured, a slight lowering in procurement cost could outcome in very substantial savings. Accordingly, purchasing was involved closely in almost every product decision. The Engineers were taken into confidence to avoid discussing price while interacting with suppliers since price negotiation was the only realm of purchasing agents. (Article given by client)

The existing supply chain at Ford was the world's most complex one. Ford might be excelling in quality; nevertheless managing the inbound stream of deliveries from 4,000 suppliers spread across the globe to roughly 100 plants throughout the world constitutes a daunting task. Indeed the target at Ford since several years has been to formulate a procedure to optimize its immense and intricate worldwide production network and to exploit the Internet for exchanging and disseminating movement of materials and production planning data internally and with its suppliers and logistic service providers. Figures speak eloquent regarding the complexity of the network at Ford. The logistic division engages an army of 300 logistics and trade professionals to tackle the inbound movement of materials to assembly points, finished vehicles from manufacturing facility to dealer point, and the global custom and trade operations for Ford and all of its associates. (Optimization Engine Powers Ford's Supply Chain)

Roughly, 4000 global suppliers deliver components to 31 power train plants manufacturing engine and transmissions, 13 stamping plants and 54 assembly plants. It is from these assembly plants, the vehicles move to more than 20,000 dealers in more than 200 nations. Ford consistently is the world's second biggest global trader. The company at any given point of time has half-million tons of freight in transit. The main challenge at Ford as the company steps into the 21st century entails re-orienting the company from a conventional.....

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