Ford Motor Company: Supply Chain Strategy Case Solution

1. Consider the experience that you have had in buy a car; compare these to the experience of buying a computer online. (If you’ve never done this, go to Dell’s website –www.dell.com—and explore how online computer buying works.) What do you think explains the differences?

Buying a car is in itself a complex process, involving many kinds of decisions. Firstly, buying a car, which is made up of a lot larger and complex component, is a much different experience. Although both decisions are associated with a longer-run orientation as both are aimed for long-run use, a computer has fewer components, which make it easier to choose between the two. On the whole, online buying of a computer gives us more choices with clicks of a button, saves more time and energy as opposed to actually going out and buying a car. To explain the main differences between buying of a car and buying a computer online, following factors need to be understood: for buying a car, different places may need to be visited while a website (Dell, for example), provides details of computer models all in one place.

Buying a computer online is an exciting experience because a person can explore the various dimensions of the computer system on the website. For example, the images can be viewed, rotated, and detailed specifications be made available. Secondly, prices are mentioned along with the models which help easier comparison between various models. On the other hand, for various automobiles to be compared which are produced by different manufacturers, different showrooms may have to be visited. Hence, considerable delays in the form of time consumption as well as travelling may be required.

However, the biggest advantage entailed in direct search, and shopping for a car is that the physical touch remains and a ‘feel’ for the products may be experienced. This aspect is missing in all forms of online shopping, including that for a computer system. Therefore, it is evident that the difference between Dell and automobile buying is due primarily to the nature of the industry.

2. What advantages does Dell derive from virtual integration? How important are these advantages in the auto business?

Virtual integration is helping Dell in many ways in its relationship with its various stakeholders, including its vendors as well as the customers. Firstly, Dell is able to cut down many of its costs by virtual integration, where many of its operations are online and real time. For example, virtual integration allows Dell to place and order with its suppliers based on each customer order. Hence, Dell does not have to keep inventory in its stores, rather, it is the vendors who retain ownership of the inventory till a very late stage. This helps Dell cut down on its carrying costs of inventory and avoid the risk of inventory obsolescence.

Secondly, the customers also benefit from virtual integration employed by Dell. They do not have to visit Dell stores to get details on their favorite product and to get details. The customers and potential customers can see the details online or call up a customer service representative of Dell. This means that Dell cuts down its operational costs of maintaining full-fledged stores and showrooms with large operational costs.

Some of the advantages discussed above are important in the auto business, as well. Incorporating virtual integration for auto business would mean movement to a pull system, as opposed to a push system. This means that the automobile business would also place an order as per customer requirements and demand. However, due to the large number of components that go into auto production, it would take a lot longer time to the auto sector to fully incorporate virtual integration. Cost cutting and being able to operate with lesser number of showrooms would also be important for automobile manufacturers.

Moreover, the entry and success of Japanese firms has made it essential to incorporate virtual integration and concepts of Just-In-Time (JIT) and Total Quality Management (TQM).

3. What challenges does Ford face that are not also faced by Dell? How should Ford deal with these challenges?

The main challenge that Ford is facing is that it is a much larger global setup as opposed to Dell, with a larger number of plants and a much larger workforce. Hence, the challenges for Ford are much larger if it was to implement further plans to streamline and make its supply chain more efficient. For example, Ford currently has hundreds of suppliers who are spread in over fifty countries of the world. To streamline operations, many of these vendors need to be cut down, and more centralized operations need to exist.

Although Ford is already in the process of centralizing its operations, due to its large global operations, it would be a time consuming process for the company. Secondly, the buyers of automobiles need to be more sophisticated and tech-savvy than computer buyers to understand and buy the right automobiles for themselves. Till such training is provided by Ford to its sales force to make the purchase process easier for the customers, the advantages of supply chain optimization would need to be fully transferred to the end-consumer. Moreover, the company is facing challenges as it is competing against global firms who have already established an effective relationship with their suppliers.

The concept of VMI, or Vendor Managed Inventory, is being increasingly employed by Japanese firms such as Honda and Toyota. Putting more pressure on vendors and developing better communication with them is essential to cut down costs in the supply chain and cut down on operational costs. Hence, Ford needs to centralize its global operations first to avoid its current challenges. The advantage that Dell had was that it was easier for the company to put its operations online and display its products on its website. For Ford, this decision is tougher, for example, to decide which aspects need to be put online. Whether final vehicles and their models need to be put online or sophisticated components be promoted and displayed online.

4. If you were Teri Takai, what would you recommend to senior executives? To what degree should Ford emulate Dell’s business model? Provide support for your recommendation.

If I was Teri Takai, I would start with explaining the success factors of Dell model to senior executives. Those parts of Dell’s business model which can be emulated by Ford should be implemented as Dell has been a success story in this regard. My first recommendation to senior executives would be to cut down on the number of global vendors. This would require a lot of hectic study of our current relationship with the vendors. Those vendors of Ford who can be trusted and with whom the company has had a long-term relationship should be the first priority while Ford goes for revamping its supply chain. Training must be provided to several selected suppliers on the revised planning strategies of the company.