INTRODUCTION

Ford Motor Company was founded by Henry Ford in 1903, in Dearborn, Michigan. It is one of
three leading automotive manufacturing companies in United Sates and grew to reach revenue of
more than $144 billion with 370,000 employees and operation spanned 200 countries. In the
1970s, the automobile market for the major auto-makers, General Motors (GM), Ford and
Chrysler was crunched by competition from foreign manufacturers such as Toyota and Honda.
The automakers faced the need to continue to improve quality and reduce cycle time while
dramatically lowering the developing cost and looking for ways to take advantage of their size
and global presence since the industry was fast becoming global. One element that helps them in
achieving this is to become the biggest automaker and Ford has announced to acquire Swedens
Volvo. There was a need to change in accordance to fast technology changes in order to have
advantage over other automakers.
Fords Director of supply chain system intended to change to virtual integration model in Ford
supply chain and has used Dell as the benchmark for the change. However, there are difference
in Dell and Ford operation and network system that need to be taken into consideration.

FORD 2000
Ford has come up with restructuring and reengineering plan by merging its North American,
European and International automotive operation into a single global organization called Ford
2000. This is done in order to reduce the cost and globalizing corporate organizations and
processes. By globalizing the processes Ford intended to eliminate organizational and process

redundancies and realize huge economies of scale in manufacturing and purchasing. This new
global approach required new technology in order to overcome the geographical constraints in
information flow. Teams from different continents needed to be able to communicate with each
other easily and all information need to be spread easily and received by all parties.
Since the internet technology has grown very fast, Ford 2000 made it possible to achieve. They
also intended to expand the process to the suppliers to enhance materials flow and reduce
inventories. They also worked together with Chrysler on Automotive Network Exchange (ANX)
with the aim to create consistency in technology standards and processes in suppliers network in
making good interaction between all automakers in the same means.

SUPPLY CHAIN MANAGEMENT

Previously, Ford has thousands of suppliers that supply all the materials to them. All these
suppliers were chose based on the lowest price offered. But then Ford begins to reduce the
number of suppliers by building longer-term relationships with subset of very strong suppliers
who could provide the entire vehicle sub-systems. Ford also made its expertise available in
dealing with the suppliers in order to improve their operation via Just in Time inventory, Total
Quality Management and Statistical Process Control. By this close and longer relationship, Ford
expected reducing in price every year. By using Dell as benchmark, the supply chain system
team has found out that there are different in its nature and complexity of supply base. One of the
differences was the purchasing activities. Dells purchasing activities happen in the product
development organization which mean centralized while for Ford it is decentralized activity as

the purchased was made in accordance to product development. All purchasing is made during
each product development.
One of Ford 2000 initiative was Ford Production System. FPS is integrated system that aimed at
making Ford manufacturing operations learner, more responsive and more efficient. One
important part is Synchronous Material Flow which is a system that produces a continuous flow
of material and product driven by fixed, sequenced and leveled vehicle schedule, utilizing
flexibility and lean manufacturing concepts. One of the important things is that the system will
assure that all vehicles were assembled in order sequence. By so, Ford can tell what material to
order at exactly when and where needed days in advance and the buffer stocks could be
dramatically reduced. But this can only be effective if all sequenced assembly could be kept level
and if it was well forecasted.
Other than the system, Ford also initiates Order to Delivery with the purpose to reduce to 15 days
of the delivery finished products. This method helps Ford in identified bottlenecks throughout
Ford supply chain, including its marketing, material planning, and vehicle production and
transportation process. This approach relied on several elements such as ongoing forecasting of
customer demand from dealers and secondly a minimum of 15 days of vehicles in each assembly
plants order bank to increase manufacturing stability, gaps in order bank are filled based on
historical buying patterns provided by dealers. Furthermore, regional mixing centers that
optimize schedules and deliveries of finished vehicles via rail transportation and lastly a robust
order amendment process to allow vehicles to be amended for minor color and trim variation
without having to submit new order. This Order to Delivery is meant to create a lean, flexible
and predictable process that enable Ford to provide customers the right products in the right
place at the right time. By doing this it can helps Ford to provide better quality, higher customer

satisfaction, improved customers selection, better plant productivity, stability for its supply base
and lowering the company cost.
Ford also launched Ford Retail Network to take advantage of the changing face of retail vehicle
distribution systems in North America. It has two primary goal, first to be a test bed for best
practice in distribution throughout the dealer network and secondly to create alternate
distribution channel to compete with retail chain. This is accomplished by buying the dealers in
local market so that the dealers were in competition against the real market rather than to each
other.
In conclusion to all of the above, Ford has prepare themselves in order to adapt to the technology
changes. With all of the system introduced Ford can examine whether they can switch from
current practice to virtual integration like Dell is doing. They need to examine whether the
changes is suitable for them and help in reducing the cost or not. Whether the changes would
bring benefit to them or otherwise, all aspects of the changes need to be taken into consideration
in order to ensure the changes is the right thing to do.

QUESTIONS & ANSWERS

Question 1
What historical legacies affect Fords ability to move to Bill to Order (BTO) model?
From this case study, it can be seen that Ford was established long time ago in 1903 whereas
Dell was not as old as Ford is now. The older the company, the more difficult it is to reform the
company. For Ford, there were thousands of supplier networks in complex business relationship.
The case study shows the differences between Dell and Ford. As Ford deal with bigger assets,
higher number of employees and manufacturing facilities in the world, this would be a challenge
for Ford to move to virtual integration system.
Inventories for Ford are more complex rather than Dells. There are more numbers of
individual component inventories for Ford. Production capacity for individual components gets
set long in advance and cannot be changed quickly. The manufacturing process in Ford is more
complex since they have large number or suppliers eventually 3-tiers of suppliers and the
business with the suppliers is either done through phone or meetings.

Question 2
What is virtual integration and what are the benefits Dell derives from virtual integration?
In virtual integration, physical assets are replaced by information where manufacturing continues
to be controlled by the companys planning department through providing logistics management
and forecasts for demand and receipts. In this, company no longer delivers finished goods to the
customer instead the goods are completed by one partner and then go to the warehousing partner

who sends the product to the customers as orders come in. One of the biggest advantages is that
virtual integration allows partners to be located far apart from each other, and they do not have to
be in the same building. This reduces production problems related to communications,
coordination and control.
For Dell, virtual integration gets them real updated or order status and gives them the
ability to check the order status regardless of where the order is. Through this, forecasting will be
easy. Since Dell has easy access to the data, they can predict the customer demand. As Dell has a
relatively small number of institutional customers, virtual integration makes their business easy.

Question 3
What practical challenges must Ford address as it tries to establish internet linkages with
its supply base?
One of the major challenges Ford will face is that this plan is costly as Ford do not have
sufficient technological advantage. They need to align all the data in a network connecting
companys suppliers which covers the areas of quality, manufacturing, product development,
purchasing, marketing and customer service. As Ford suppliers are based on tiers, it is a big
challenge to unite all their suppliers network in one connection. It is time consuming as well.
Ford had derived a multi-tiered system of supply. This shows that Ford has a complex
network of suppliers to deal with and much of their supplier base does not have IT knowledge or
capabilities. This can be a draw back for Ford as virtually integrated supply chains require
considerable IT capabilities for information sharing.

Question 4
How might Ford move toward a BTO model in a way that makes sense in the auto industry
context?
Ford can move toward BTO model by partially implementing the virtual integration system
implemented by Dell where they can discard the part that does not fit with their supply chain.
Ford need to centralized and share their IT system with their suppliers since Tier 2 and 3
suppliers might not be able to update their IT as often as Ford. This can help to coordinate
smooth flow of the material and avoid bottlenecks and enhance efficiency of the supply chain.
Dealer can play an important role in car distribution process since it can help customers to make
a better choice rather than customer dealing online with the 3d model and description. With the
help from the dealer, customers can clear their doubts and confusion directly. This will not only
reduce overhead and inventory carrying cost but open new market segment and attract clients
who love online shopping.

Bibliography

Kaplan, M. C. (n.d.). Ford Motor Company:Supply Chain Stratgy. Bogazici University.

Operation Management. (2014). Singapore: McGraw-Hill Education.
The Power of Virtual Integration: An Interview with Dell Computers Michael Dell. (1998).
Harvard Business review.
Trakselis, J. (2000). M. Wood Company. Retrieved Noivember 25, 2014, from
http://www.mwoodco.com/value/ecommerce.php