The Ford Motor Company finds itself in a dynamic business environment where new technologies and practices offer the potential to alter in a significant way the landscape in which it operates. Henry Ford was in his time an innovator in offering ‘cars for the masses’. He introduced to the car industry methods and systems innovative in their day. Ford needs once again to forge new paths to ensure future competitive advantage .
Executives at Ford have been considering the ‘Direct Model’ created by Dell Computer Corporation and finds that there is considerable appeal. Dell has been able to speed up inventory velocity such that there is only eleven days of inventory on hand. This has led to an inventory turnover rate of thirty times per annum . This achievement, termed by Michael Dell ‘Virtual Integration’ has been achieved by blurring the line between supplier, Dell and client, to the extent that third party service staff are often thought, by clients, to be Dell’s own staff.
In order to see how congruent the Dell model is to Fords’ business we need to examine the similarities and differences between the two companies. This will allow us to gain some insight as to whether virtual integration could work at Ford.
Ford Motor CompanyDell Computer Corporation
*Cars are consumer items.*Computers are a consumer item.
*Suppliers are often located close to manufacturing facilities.*Ford maintains close locational links with suppliers.
*Number of suppliers is small.*Ford is working to build relationships with a limited number of strategic suppliers.
*Ford’s customers range from large corporations, to government institutions, to the consumer.*Dell’s clients range from large corporations, to government institutions, to the consumer.
*Cars are personal in nature and many clients want to have close contact. A showroom is usually preferred.*Computers are generic in nature and do not need showrooms.
*Safety and reliability are major concerns.*Computers are not expected to be entirely reliable.
*A car is made up of generic (tyres, petrol caps) and custom (dashboards, body panels) parts.*Computers are made almost entirely of generic parts.
*Suppliers are often completely dependent on Ford*Suppliers are not entirely dependent upon Dell.
*Ford is large and may have limited manoeuvrability.*Dell is flexible and can rapidly respond to market or supplier pressure.
*Ford has a large dealer network, both independent and company owned.*Dell has no retail network, all sales are Direct.
*Ford has a vast range of products.*Dell has a limited range of products with a narrow palette of variations.
Analysis and Suggestions
Key to Dells’ strategy is their policy of outsourcing all manufacture. Dell acts merely as the assembler and packager. The company is able to pick and choose from the range of industry leading components, allowing other manufacturers to make the investments in leading edge technology. The suppliers manufacture their, essentially generic, products for many customers and therefore are economically independent of them and also have little difficulty in meeting the JIT (just in time) requirements of Dell.
Ford has at one time, both notable similarities and striking differences in terms of their relationship with suppliers. Many Ford components such as tyres, windscreen wipers, and electrical components are sourced from large suppliers who supply the same components to other companies. These products are well suited to a closer integration of supply – virtual integration.
On the other hand, a very large proportion of Ford components are custom made for Ford. Tier one suppliers of custom components such as body panels, seats and engine components are heavily dependent on Ford and other large carmakers. These suppliers second tier suppliers, who in turn also have suppliers. If virtual integration is to succeed with these components every company along the value chain right back to the raw materials would need to be involved. This would be a very difficult and complex network to coordinate.
Fords’ history is a factor to be considered, their longevity and size in the industry gives them a tremendous degree of influence when compared with Dell, a relative newcomer to business and whilst a large buyer of components, not so influential on trends and technology. The disadvantage may be that this stature may make it hard to bring their very large organisation and supplier network along the road to virtual integration.
The dealer network must be considered. The dealers carry a very limited range of products, which they hold in stock. If Ford decides to carry the Direct Model towards the end consumer they need to ask whether they need a dealer network and in what form. The possibility of disintermediation needs to be examined. Alternative forms, that use the existing network ay be viable, for example, the dealer might be used to postpone the final form until the point of customer order. This might be the fitting of audio equipment, air conditioning or interior trim customisation. This would enable more consumers to benefit from the vast possible range of options, as well as, at the same time reducing the factory lead-time for manufacture.
If Ford is to successfully emulate Dell then they are best able to do this in areas where they have similarities. The most notable congruency is in the area of supply of generic components. Here Ford should continue its process of building strategic relationships.
Where components are of a more specialised nature then Ford should examine the relationships to ascertain whether bringing suppliers closer to the company will offer benefits to both parties.
Ford should work on its’ internal culture. Integration of supply chains on the scale practiced by Dell can only occur in an environment where information flows freely to all points of the supply network. As outlined in the case documents; Ford maintains a high degree of separation of the purchasing departments from marketing and production. Ford will not be able to provide focus up and downstream unless they themselves are committed to an open culture where logistics information is a part of the life blood of the company.
The relationship with customers is more difficult. The dealer network will probably be averse to Ford moving towards direct sales, as it will threaten their livelihood. They can reap some of the benefits by introducing a web based ordering service for cars, allowing clients to specify the car that they want and then matching the requirement to the cars already in stock through out the network. If a client prefers they could order a vehicle built to order and supplied to a local dealer. This will enable Ford to become closer to the needs of clients, seeing accurately what they want rather than what they buy because it is available.
This compromise will give the company some benefits:
*Information about customer wishes.
*Opportunity to reduce both dealer stocks and Fords’ stocks by avoiding duplication.
*Delaying the final form of the product by increasing the range of dealer fitted items will enable Ford to simplify manufacture, whilst offering a greater degree of ‘real customisation’ to clients.
*Delay of final form will increase dealer revenues, buying their enthusiasm and consent for the next stages of coordination.
Since this case was written, Ford has, in collaboration with General Motors and Daimler Chrysler established a joint venture, now called Covisint. It is envisioned as a global business-to-business supplier exchange. Its purpose is to share information with suppliers
Each of the partners has combined their E-business initiatives in order that suppliers would be able to develop systems to deal with a single system rather than . The hoped for benefits are:
*Increased levels of collaboration
*Lower costs for all members of the supply chain
*More efficient business practices
GM is now piloting a build to order system for its Brazilian ‘Celta’ model. They are able to do this because they have the support of dealers who are sharing the cost savings with GM
Austin, Robert D. 1999. Ford Motor Company : Supply Chain Strategy. In Huff Wade Schneberger. New York: McGraw-Hill.
Joan Magretta. The Power of Virtual Integration: An Interview With Dell Computer’s Michael Dell. Harvard Business Review, March – April 1998, pp. 73 – 84.
Covisint web site, < http://www.covisint.com/about/history > [Accessed: November 2nd, 2002]
US News.com web site, < http://www.usnews.com/usnews/biztech/articles/020401/1industry.b1.htm > [Accessed November 2nd, 2002]