Analysis of Ford Motor Company’s
Analysis of Ford Motor Company’s
Ford Motor Company (FMC) manufactures and sells vehicles worldwide. The company has two business segments that include automotive segment and financial services. Ford carries out operations in North and South America, Europe, Asia and Africa. Hence, the company has to ensure that its operations are working effectively to meet its organizational objectives. The company also has to ensure that its operations management strategies are adequate to provide maximum benefits to the company. Domestic car manufacturers are facing intense competition from foreign vehicle manufacturers such as Toyota, Honda, Nissan, Mercedes Benz, BMW and Audi just to name a few. There is thus the need to manage operations so as to improve efficiency, reduce costs and in the process achieve competitive advantage. Heizer and Render (2011), noted that operations management is a transformation process that occurs in companies producing goods and also in service organizations. Transformation process involves daily activities that focus on creating value for the organization. Operation processes are determined in terms of effectiveness (whether the process is able to attain company objectives) and efficiency (is the process using resources adequately).
According to Davis and Heineke (2005), different types of transformation could be physical as in manufacturing, location as in transportation, storage as in warehousing, health care which is physiological, and informational which is telecommunication. Ford has numerous activities involving several areas that can lead to cost saving and translate into increased profitability for the company. By effectively implementing and executing operations management strategies, the company is able to deliver value to customers and generate more revenues and profits. Ford employs a wide range of operations strategies and one of these is product strategies. Product strategies employed by Ford includes having many vehicle platforms, brands, and models. As a result of their product strategy, the company is able to produce vehicles that are tailored to different customer requirements. The company’s manufacturing processes and product development carried out in one target region is different from another region (Kassab, 2011).
Another strategy used by Ford is product pricing whereby its products are priced relatively low thus ensuring that as many people as possible can afford its products. Through this strategy the company is able to attract and retain customers which in turn lead to increased sales. Ford has a wide range of product offering and is thus able to attract large number of customers. The wide range of products offered by the company allows it to maintain a balanced revenue stream Its product strategy is also an effective method in increasing market share as its numerous brands and models is able to attract a large number of diverse customers. Ford has shifted its product strategy towards new vehicle segments and this has proved to be profitable for the company (Automotives, 2011). Ford uses numerous production or manufacturing strategies that aims at promoting efficiency and effectiveness. Ford focuses on reducing time and material waste in production, increasing quality and reducing cycle times. All these strategies contribute to cost reduction by the company.
In order for an organization to sustain growth in such a competitive market, it must be able to eliminate processes that waste resources, improve on product quality and achieve customer satisfaction. These factors enhance the company’s competitive advantage and its ability to remain in business. Ford previously utilized a total quality management (TQM) production strategy, however the company is currently shifting towards a six sigma approach. TQM was introduced in the company in the 1980’s to improve product quality resulting from intense competition from foreign manufacturers. TQM emphasizes on processes driven by quality and aim at achieving customer satisfaction. Implementing total quality management meant that processes within the company had to be adhered to strictly and continuously improved in order to meet customer satisfaction.
TQM philosophy looks at developing a corporate culture that is customer focused, empowers employees and seeks continuous improvement. By focusing on the customer, Ford was able to provide value customers with product value and quality that ensured customer satisfaction. This in turn translated into revenue for the company due to repeat sales and first time customers. Essential components of effectively implementing TQM include a commitment from all stakeholders and a change in work culture. Managers at Ford demonstrate such commitment to quality by clearly initiating strategies and policies that aim at promoting quality enhancing activities. Ford’s workers at all levels are informed on steps that should be followed in order to achieve improved quality (Dahlgaard & Dahlgaard-Park, 2006). Total quality management reduces wastage in the production process and eliminates defects. The reductions in defects and wastages assist in lowering production costs which can subsequently lead to an increase in contribution margin.
Lower costs can also facilitate the company’s lower pricing strategy to attract customers and gain competitive advantage. By implementing total quality management Ford was able to reduce amount of waste from production process and also improve on efficiency thus improving performance (Dahlgaard & Dahlgaard-Park, 2006). Ford has shifted towards a Six Sigma approach which aims to sustain company’s ability to manufacture quality products. The Society of Manufacturing Engineers magazine in 2011 noted that Ford’s reputation as a company that offers quality products was being tarnished as a result of a number of setbacks including recalls affecting several models and delays in introducing new ones to market. Customer surveys showed that customer satisfaction and quality of Ford cars had reduced and was behind competition thus the need for the company to shift to a new approach in order to improve on quality concerns.
Six Sigma is more structured and profit oriented compared to total quality management. Ford shifted to this new approach in an attempt to improve on its processes and increase cost savings. The company also aims at establishing a consistent approach that can be used to solve quality related problems by improving organizational learning. Smith, (2003) in his article, “Six Sigma at Ford Revisited” noted that Ford saved $1.0 billion from elimination of waste 5 years after implementing Six Sigma and that internal customer satisfaction survey showed that customer satisfaction increased by 5%. This provides ample evidence that the company’s strategy has been effective in lowering costs and that customer satisfaction regarding the company’s products was heading in the right direction. One of the strategies being utilized in Ford’s production process is a “Global Product Development System” whereby the company has established a single template for designing, engineering and manufacturing its vehicles worldwide. One of Ford’s global product development systems is aimed at enabling the company to develop vehicles faster, improve its competitive ability and provide profitable growth.
The system aligns the company’s technology and global product plans and car programs on characteristics that differentiate Ford vehicles in the market. The global product strategy establishes a standard that all Ford vehicles should conform to which leads to consistency in Ford products and also improves on brand recognition since products will have attributes that differentiate Ford products from its competitors (Kassab, 2011). Since Ford manufacturing points are located across different regions, the global product strategy enables various production regions to produce products that have similar attributes. According to Kassab (2011), every time production centers are reinventing production processes the company losses time that could be utilized in developing new vehicles. Therefore one Ford global product development system is used in the production process to reduce time wastage and ensure consistency in production. Another strategy used in the Ford production process is JIT in an effort to improve on the time it takes to produce a product. Ford decided to adopt this strategy due to inadequacies in material handling and inbound logistics. Using a just in time system enables the company to connect with suppliers and also assists in reducing production lead times and enhances the company’s capability to manage inventory, cost of transportation and storage costs.
Just in time system involves delivering required production component when they are needed in the production process. In relation to logistics, Ford has established different solutions to ensure that supply and distribution is achieved. Ford has numerous “Order Dispatch Centers” where products are transported to and from the company (Penske, 2013). Order centers assist the company in centralizing its logistics network and reducing inventory levels. The company has uniform procedures, carrier requirements and technologies that streamlines supply, improve on performance and accountability (Penske, 2013). Ford utilizes logistics management technologies maintains and tracks information on delivery status and schedules applicable to routing. Through these technologies, the company is able to monitor its supply chain and ensure that all operations aspects of production are functioning appropriately. Ford also has in place capacity strategies where the company practices efficient use of facilities and expansion facilities projects when required. By increasing capacity the company is able to increase output and generate more revenue. The company also has in places processes and systems to ensure efficient use of facilities.
These processes involve being highly automated and strategically placing production points to ensure maximum achievement of efficiency. Ford has work design strategies whereby the company practices job enrichment and institutes motivation systems. Ford has a competency center that assists employees in planning their career, enrolling in training and development programs, and assisting employees on how to balance professional and personal lifestyles (Hines et al, 2004). The company aims at developing an individual who in turn improves on overall organizational capability. By developing its employees, Ford is able to maintain high levels of motivation and morale which eventually leads to improved productivity. The American Psychological Association (2003) in an article “Occupational Stress and Employee Control” noted that Ford Motor Company has shifted virtually all of its manufacturing operations to a team-based approach in which employees have far greater control over their work.
Instead of simply follow directions from supervisors, employees can talk directly to suppliers about parts quality, research better ways to run equipment, and take independent action to eliminate product defects. A pilot program, which began at Ford’s Romeo, Michigan engine plant in the early 1990s, raised productivity and quality along with job satisfaction so successfully that Ford expanded the approach, giving virtually all employees targets and allowing them to find ways to reach them. Ford encourages a self-management environment to boost and maintain employee morale. Employees are involved in problem solving groups and have a say on operational matters related to their jobs. Employees also participate in decision making processes within the organization. As a result of increased employee motivation, employees perform their job activities well which subsequently leads to increased productivity.
By maintaining high motivation levels the company is able to retain high performing employees which benefit the organization in the long term. As a multinational company, a comprehensive location strategy is critical to a successful operations management execution. Ford has presence in North and South America, Europe, Asia and Africa where the company is involved in the production and sale of Ford vehicles. These markets are strategically targeted in an attempt to increase company growth. By having a global presence the company is able to penetrate into new markets and increase market share in the global arena. Ford is a well-known brand globally and its name recognition has assisted the company to penetrate new markets. An international presence assists the company in terms of product development, differentiation and distribution as vehicles are developed to meet customer requirements in specific regions and reduce distribution costs to various geographic regions.
Operations management at Ford Motor is influenced by factors such as competition. Competition plays a part in determining how a company does business. Ford therefore has to plan its operations to ensure it is able to gain competitive advantage and maximize revenues. Ford faces domestic and international competition from General Motors, Chrysler, Toyota, Honda and Nissan. In today’s environment, a car company does not have a great future unless they have a plan for increasing their sales globally. If an auto company is not a global automaker, it is not doing the job that it should. Ford therefore has to position itself to ensure that its operations are efficient, effective and are able to differentiate company products on a global scale. Another factor influencing operations management is customer requirements since this impact whether a company is profitable or not. Ford should ensure that its operations meet customer requirements in terms of quality, design, prices and speed of distribution.
The first success factor in determining Ford’s successful achievement of its business objectives regarding its operations management strategies is financial. Operations management strategies employed in the company aim at ensuring efficient use of resources and reducing cost in the process. The main tools utilized by Ford to achieve success include Six Sigma, just in time inventory management, location and distribution strategies. Ford has successfully utilized the strategies to achieve its cost reduction strategy and this is evidenced by $1.0 billion cost saving after implementing Six Sigma. A just in time system contributes to the success by reducing costs incurred in transporting and storing raw materials and work in process inventory. The company’s distribution strategies include the use of order centers that improve on efficiency by reducing cost incurred in transporting final products to dealerships. Ford Media (2011) stated that the company’s sales increased by 19% in 2010 to $1.935 million compared to the previous year which is the largest increase of any full-line automaker. This achievement is indicative of the success of the operations management strategies implemented by the company.
Another success factor in relation to operations management strategies in the organization is the social condition that exists within the company. Ford has different motivation methods that ensure that employees are highly motivated in their professional duties. This is achieved by training and developing employees and also by ensuring that employees have control over their job activities. The American Psychological Association (2003) noted that increased employee control in job activities is an effective strategy in reducing occupational stress. Ford Motor position and market share in the industry provides measurable evidence on whether the company strategies have been successful. The company recorded mixed fortunes in its target market. Whereas the company increased market share in 2011 to 16.5% compared to 16,4% in 2010 and 15.3% in 2009, market share in Europe decreased to 8.3% compared to 8.4% in 2010 and 9.1% in 2009 (Sustainability Report, 2011/2012). This shows that the company’s strategies were successful in its domestic market but unsuccessful in the European market.
Despite these unflattering results, the company still maintains a strong international presence in the Americas, Europe, Asia and Africa. For 2012, Ford’s total U.S. market share was down 1.2 percentage points to 15.3%, while Ford’s U.S. retail share of the retail industry declined seven tenths of a percentage point. The declines largely came from the discontinuation of the Crown Victoria and Ranger, capacity constraints, and reduced availability associated with our Fusion and Escape changeovers. In Europe, market share declined 0.4 percentage points to 7.9% (Sustainability Report, 2012/2013). Quality is important to Ford in improving customer satisfaction and overall company performance. According to the 2012/2013 Sustainability Report, the results are mixed. In the U.S. first time buyers increased 0.5 percentage points to 10.6% in 2012 while customer loyalty decreased 0.9 percentage points to 47.7% in 2012.
In Europe, first time buyers decreased 2.0 percentage points to 7% in 2012 while customer loyalty increased 1.0 percentage points to 52% in 2012. Ford has decentralized its operations to ensure that the company manufactures products that meet customer requirements by producing high quality vehicles. Ford Motor Company’s mission is one team, one plan and one goal. The mission is for the company to work together as a lean global enterprise measured by customer, employees, investor, supplier, dealer and union satisfaction.
The company’s mission statement influenced its operations management strategies since the company’s one team and implemented strategies aim at achieving lean production where wastes are eliminated to reduce cost. The strategies also aim at improving customer satisfaction by providing quality products. Ford strives to be a lean global enterprise by implementing strategies such as Six Sigma to achieve its objectives. The ultimate goal of all strategies implemented in the company is to increase profitable growth through increased customer and employee satisfaction and by reducing costs.
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