BACKGROUND:

Teri Takai- Director of Supply Chain systems is in a dilemma whether to modify

FORDs existing supply chain or not.
Suggested radical redesigning of FORD supply chain to Dells Virtual
Integration Supply chain Model

Advantages:
o To reduce working capital and inventory obsolescence.
o Using information to blur the traditional boundaries between
suppliers, manufacturer, dealers and buyers.
o Strong conceptual blueprint for what Ford should attempt is
available.
Limitations:
o Considerable Differences in auto business and computer
manufacturing.
o Complex supplier network with many layers and numbers.

FORDS Initiatives to redesign its supply chain:

Supplier relationships changed from many , cost oriented approach to few,

long term relationship approach to reduce the supply chain complexity
Concept of Tier-1 and Tier-2 suppliers. Improving supplier operations by
sharing expertise using JIT, TQM, SPC technologies.
Shifting towards leaner, pull based synchronised production.
Ford Production system to improve order schedule with suppliers thereby
buffer inventory could be reduced.
Reduction in Order to Delivery Time by
o Association with dealers in forecasting demand.
o Having at least 15 days of work-in-process inventory to increase
manufacturing stability.
o Regional mixing centres to optimize delivery schedules of finished
goods.
o Robust order amendment process.
Ford Retail Network
o To create superior selling experience.
o Personnel and advertising cost savings, inventory efficiencies due to
economies of scale.
o To compete with publicly-owned retail chains.

Virtual Integration vs. Extended Enterprise:

Issues:
o Dells success depended on Information replacing inventory.
Whereas in FORD, drop in IT Systems capability between Tier-1 and
Tier-2 suppliers leads to information asymmetry between the
suppliers value-web.
o Purchasing department independent of Organisation whereas in Dell
all departments work closely together.

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Significant differences in the enterprise model between Dell and

Ford. Dell has closely knit information/inventory network. FORD has
fragmented model leading to inefficiencies in supply chain.
Suppliers not owning inventory until used in production may prove
to be a risky and costly affair for FORD.
Lag in sharing demand forecasting revisions with supply base due to
vast network of suppliers.
Incomplete information for inventory substitution Demand pull in
FORDs supply chain.
Component complexity in FORDs supply chain.
Company owned dealerships may be positive in increasing market
presence and share but this will increase the cash conversion cycle
(Operating cycle- Days Payables). This is a cost disadvantage.
Large number of manufacturing facilities makes the coordination
more difficult as compared to only 3 manufacturing facilities in
DELL.

Recommendations & Suggestions for Improvements:

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Setting up a web based value-chain, reducing costs of investment in

emerging IT Technologies for Tier-1 and Tier-2 suppliers. Thus
ownership of raw materials can be shifted to suppliers by proper
information sharing of demand with suppliers.
Reducing this investment costs for tier-1 supplier will not only
improve long term relationships but also help FORD to gain leverage
in this supplier-dependent relationship.
This web based value-chain will help FORD in sharing designs with
suppliers as DELL did, thus reducing lead time from supplier side,
also increasing inventory velocity.
Re-aligning purchase department with product development can in
turn reduce costs and improve efficiencies.
Segmentation through the extensive ford retail network will enable
addressing specific needs of customers. The finer segmentation
makes FORD predict customers needs better.
It will make sense for Ford to go with Dells Virtual
Integration Strategy if they make the necessary changes in
their supply chain to address any pressing issues that arise
from this change. Only then can Ford have a supply chain
which is efficient and also responsive.