Supply Chain Management Term Paper

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Supply Chain Management

Founded in 1903, Ford Motor Company now manufactures or distributes automobiles across six continents. Ford employs about 164,000 people in about 70 plants worldwide. The company's automotive brands include Ford and Lincoln. According to Ford's corporate website, in 2010 Ford earned $6.6 billion, their highest net income in more than 10 years.

In 2010 Ford launched 24 new or redesigned vehicles in key markets around the world. Ford expects 70% of its growth in the next 10 years to come from its Asia Pacific and Africa region. By 2014 at least 80% of the vehicles sold under the Ford brand globally will be built off 13 core platforms. By bringing suppliers into the development process earlier, Ford hopes to generate a healthier and more efficient supply chain.

The recession had at least one positive effect for Ford: it forced them to closely examine their supply chains, analyze their assumptions, and move to eliminate major inefficiencies.

Ford must contend with serious challenges that include:

Changing business conditions of the 21st century ranging from globalization and economic uncertainty to new technologies and increasing consumer demands

Manufacturing processes that design and build vehicles globally

Increasingly complex supply chains with challenges that undermine profitability and shareholder value

Long order-to-delivery (OTD) lead times, unreliable production schedules, excess inventory across the supply chain

Lengthy demand planning cycles

Lack of visibility of suppliers

The global economic meltdown increased pressure on automotive executives to make good decisions about their supply chain in hopes of improving performance. Not surprisingly, Ford faces a highly challenging and competitive environment wherein the supply chain is viewed as a tool for improving organizational competitiveness. These conditions necessitate an efficient and effective supply chain strategy for Ford and its component manufacturers in order to meet changing consumer demands.

Ford's website describes the automotive supply chain as one of the most complicated in any industry. Automakers like Ford rely on thousands of suppliers to provide the materials, parts and services to make their final products. Ford's direct Tier-1 supply chain involves a million people and more than 100,000 parts made at more than 4,000 manufacturing sites.

Many Ford suppliers serve numerous automakers, and each of those suppliers in turn has multiple suppliers. There are often six to ten levels of suppliers between an automaker and the source of the raw materials that eventually enter the manufacturing process. As Ford points out on its Supplier Relationship webpage, the breadth, depth and interconnectedness of the automotive supply chain make it challenging to effectively manage business and sustainability issues.

Ford describes the need to work jointly with its suppliers to deliver great products, have a strong business, and make a better future. In today's challenging economic environment, achieving lower costs, improving quality and meeting sustainability goals require an unprecedented level of cooperation with suppliers and the maintenance of strong supplier relationships.

To this end, in 2005 Ford introduced an Aligned Business Framework (ABF) with strategic suppliers to accomplish their goals. In 2010 Ford expanded the ABF by designating additional companies to join the select group of key component and service suppliers chosen for closer collaboration on a global basis where possible. With the new suppliers named in 2010 and early 2011, the ABF network includes 102 companies, including 75 production and 27 nonproduction suppliers from around the world. Ford has built the network into a diverse group of suppliers to help implement Ford's global sourcing plans, thereby helping improve Ford quality and lower development and production costs.

Ford states that they are committed to maintaining strong relationships with their ABF and other suppliers. The following are excerpts from that statement, describing their commitment to:

Deploying a single global product-creation process that combines aggressive execution of product plans with minimal variances

Enhancing process stability, commonality, and reusability

Improving communication by providing real-time performance data to the supply base

Providing suppliers with greater access to senior Ford managers in small-group settings

Establishing organizational stability models in manufacturing, product development and purchasing

Improving order fulfillment

Engaging the supply base in discussions about process stability, incoming quality and corporate responsibility, and involving suppliers in coalitions to create awareness of industry issues

Today the automotive industry is characterized by fierce competition, fluctuating market demands and rising customer requirements that show customers to be more demanding with increased preferences. The realities of the marketplace require Ford to manage shorter product lifecycles along with volatility in demand. And while globalization has created significant opportunities, at the same time it has put more pressure on manufacturers like Ford to enhance quality, increase organizational efficiencies and drive innovative features into products in order to attract customers and expand into new markets. Industry analysts see Ford's vertical integration as a limiting factor in a world of changing customer preferences. Ford must manage these challenges to be flexible and responsive to customer demand in order to succeed.

As a result, the last two decades have seen Ford move toward SCM practices with more lean processes in order to increase supply chain efficiency by reducing costs and eliminating inefficiencies.

According to Ambe and Badenhorst-Weiss (2010), the automotive industry is made up of supply management and physical distribution management. The industry supply chain ranges from producers of raw materials to assembly of the most sophisticated electronic and computing technologies. Major components of the supply chain include Tier1 -- 3 suppliers, OEMs, distribution centers, dealers, and customers. Most OEMs create 30 to 35% of value internally, and delegate the rest to their supplier. Automotive manufacturers purchased entire subassemblies, such as doors, power trains, and electronics from suppliers.

Ford's desire to work with partners to outsource subassemblies is leading to radically new infrastructure to support the design, procurement, and logistics processes. Some of the tools that are available to Ford to improve their innovative ability, get cars to market faster and reduce errors include:

Computer-aided design (CAD)

Computer-aided process planning (CAPP)

Computer-assisted manufacturing (CAM)

Computer-aided engineering (CAE)

Concurrent engineering (CE)

Product data management (PDM)

Business process engineering and so forth

Source: Ambe and Badenhorst-Weiss, 2010, Strategic supply chain framework for the automotive industry, p.2118

Ford's supply chain strategy is part of its overall business strategy. This involves decisions relating to the selection of suppliers, the location of facilities, and the choice of distribution channels. Accepted best practices now recognize that "one size does not fit all" when it comes to designing a supply chain strategy that must support a wide range of products with different characteristics. A lean supply chain involves a strategy that produces just what is needed, when it is needed, and where it is needed.

The primary objective of the lean supply chain can be implemented by integrating the most basic form of data communication on inventories, capacities, and delivery plans and fluctuations, using just-in-time principles. The lean supply chain is mainly concerned with cost reduction achieved by operating basic processes at minimum waste. Customers in lean supply chains are delivered value through low production costs and logistics are achieved by using all available synergies and economies of scale. However, because the lean supply chain is a low cost strategy, it is unable to deal with turbulent market conditions.

The agile supply chain, on the other hand, focuses on responsiveness to customer demand. The drivers behind the need for agility stem from the rate of change and uncertainties in the business environment. The main focus is on running businesses in network structures with an adequate degree of agility to respond to changes as well as anticipate changes and seek new emerging opportunities.

By 2003 Ford was still using an order-to-delivery (OTD) process, and one of the primary strategic goals they announced that year was to decrease OTD from 60 days to less than 15. While Ford continues to move in the direction of agility, industry experts characterize its supply chain strategy as more lean than agile.

With respect to supply chain management, Henry Ford's original goal was to achieve total self-sufficiency by owning, operating and coordinating all of the resources needed to manufacture an automobile. By the 1930s this goal was realized at Ford's Rouge Factory located just south of Detroit.

Nearly a century later, Ford's manufacturing strategy and supply chain structure is nearly the exact opposite of Rouge's self-sufficiency model. Newview -- one of Ford's partners in its efforts to manage visibility and control of their extended value chain -- describes the challenges Ford faces. Because Ford manufactures only approximately 20% by value of its production parts, components and assemblies, the remainder of their production is provided by their external network of partners and suppliers. As a consequence of this strategy, Ford experiences:

Loss of visibility and control of a strategic commodity category and significant cost driver

Fragmented metals spending that reduces purchasing leverage and priority status with steel producers

More complex and extended planning process for the entire supply network

Exposure to price and supply volatility as well as financial instability in the supply base

Excessive parts and materials proliferation affecting capacities and inventory held…[continue]

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