Collaborative Design for a Build-To-Order

¶ … Collaborative Design for a Build-to-Order Supply Chain

Globalization

The Big Picture

In an effort to meet customer, stakeholder and shareholder expectations, many organizations have had to adopt unique supply chain management methodologies as well as to incorporate them into their corporate objectives and strategies. Unfortunately, these efforts do not always meet a firm's needs because of the fact that globalization and other factors such as industry innovation and new technologies constantly force these companies to reevaluate their existing methods and lines of reasoning. Today, 'fix it even if it is not yet broken' can be considered to be an accepted business philosophy. Companies understand that the benefits of constructing collaborative operating processes throughout the supply chain are a must.

The objective of this research project therefore was to investigate some guiding principles that define an effective supply chain process. Through researching various industries and firms to grasp some of the accepted principles of a sound system, this report aimed to answer the why, what, and how of reliable collaborative supply chain scenarios. Through insights into how a successful supply chain process operates, this report can walk through various aspects of constructing and/or operating a successful supply chain. For example, the report attempts to demonstrate some supply chain breaking points such as the fact that organizations often establish their existing supply chain without creating a top down management philosophy supported by the highest levels of management. By having the support of management, various aspects of the process such as demands of uncertainty and risk are far less likely to adversely affect an organization's supply chain environment. The support of management systematically provides a process for adequately addressing a company's needs as well as offering the management team a viable process for predicting and/or forecasting if and when a build to order supply chain system either degrades or enhances organizational performance.

Framework of Collaborative Design

For Build-to-Order Supply Chain

Introduction

In our extremely global and technologically advanced business environment, businesses can no longer initiate ventures in a 'business as usual' manner. That is because the bar has been raised and new consumer markets, shareholders and stakeholders' expectations and standards are higher now then at any other time in history. Businesses can no longer think that maintaining existing customers or working with suppliers in old or outdated ways will provide profitability or quality. Today, all aspects of a business, including the collaborative build to order supply chain processes must create situations that infuse substantial income opportunities to an organization. The key is that all aspects of a business are now required to be as seamless and efficient as possible. The world has changed and will continue to change just like the fact that shareholders will maintain their expectations for continued steady growth and high returns on their investments. To meet these growth expectations, organizations will have to continuously reinvent themselves in order to capture new and future business opportunities.

This report therefore will try to provide insights and understanding into aspects for measuring organizational success and/or failure as it pertains to the process of build to order supply chain management. It was also an underlying objective of this work to introduce specific aspects of the collaborative approach to supply chain management. The report tries to offer some basically understood insights into supply chains such as the various approaches for measuring success. These of course are but are not limited to functionalities such as unit costs, process speeds, output and process quality controls and how responsive the supply chain is to the constantly transforming business conditions. This report will also attempt to show the how and why of underlying philosophies for organizational supply chain methodologies.

For example, the report attempts to demonstrate why the processes must be effectively prepared to flex, bend or to be dropped all together for newly created or reinvented progressions because the business spectrum and life cycles of goods and services in general are in constant flux. In other words, what worked yesterday may or may not work today and even if it does work today, it certainly may not be reasonable tomorrow. Thus, the report can show how flexibility is one key to success by demonstrating how a build to order supply chain requires constant vigilance on the part of management in order for them to be prepared to adjust to the ever moving targets within the business spectrum. The report will do a minor examination into the automobile industry and specifically into the Ford Motor company to analyze and rationally demonstrate how an organization's manufacturing realm for example must adjust to the existing business settings and processes. The need for profitability through new approaches such as build to order supply chain management processes is a never ending struggle to succeed.

Purpose

The purpose of this report is to discuss the build to order supply chain management process. Efficiency has become the name of the game in this current global business spectrum of the twenty first century. The world appears to have become smaller and a more universally connected entity in the sense of trade opportunities between many disparate cultures. Trade-based globalization is and will continue to be one of the more significant trends that affect the world's economy today and well into the future.

A major reason for this trend is that the western nations' consumption rates continue to boost the overall manufacturing economies as demand for goods and services continue to escalate to record highs. Consider that the United States' forecasted Gross Domestic Product has been expected to soar up to and beyond the two and half percent rate on an annual basis. Of course, we Americans believe that this is an outstanding level of growth until we do a comparison with the combined first world nation's Gross Domestic Product. This level of growth has been estimated to be steadily growing at well over a three percent clip with some Asian nations having even greater forecasts.

Businesses in the United States have had to contend with national debt concerns, limited resources, war, the threat of inflation as well as an unbalanced trade deficit that has forced our nation to maintain the stigma of being the world's largest debtor nation. This dubious status will inherently cause the United States to fall behind in global trade and business growth. Couple this with the fact that the trade surpluses from many emerging Asian nations including China will also force products on the United States as these nations' attempt to increase their own status and their citizens' standards of living. The transport volumes into North America and Europe from Eastern Asian nations and especially China have continuously grown over the past two decades with forecasts of certain growth well into the future.

How do these statistical insights apply to build to order supply chain management? These figures aim to demonstrate some of the inherent needs for organizational supply chains that must be capable of responding to and taking advantage of both new and existing collaborative business relationships in order to keep pace and to help companies respond to the changes of global expectations.

Companies can no longer afford the luxury of depending on outdated or inadequate information infrastructures or lack the ability to acquire, store, manipulate, and transmit data effectively and quickly not only within their own organizations but with external vendors, supplies, partners and often times -- directly with competitors. Supply chain processes in this highly technologically advanced times are crucial to the overall success of an organization because this process function represents an underlying foundation for organizational communication and success.

Globalization

The build to order supply chain process has been and will continue to be affected by the phenomenon of globalization. The fact that the utilization rates of global resources are being consumed at unbelievable rates is good indicator that the current need for efficiency will only increase. For example, resources such as oil, coal and other fossil fuels are being consumed at very high levels. "The global appetite for crude in 2003 will grow by a robust 1.9%, or 1.44 million barrels a day, and in 2004 by 1.5%, or 1.16 million barrels a day. The IEA raised its estimates for daily demand growth in the two years by 160,000 barrels and 90,000 barrels, respectively." (Stanley)

Of course, these economic opportunities have the potential to help all nations, organizations and people to prosper. When consumers in the United States, China or any other nation including poor nations such as the African states all have the same ability to purchase a can of Coca Cola, buy Nikes, drink Corona or ride a bicycle produced in China, then we know globalization is working. "The rich industrialized countries contain less than a quarter of the world's population but consume over three quarters of the world's goods. The standard forecasts looking toward the twenty-first century project an even more drastically skewed distribution. For if the world's population growth continues to be concentrated in the poor areas of the globe, as it has been since World War II, and if it continues to outstrip the economic development of these areas, as it did during the 1970s and 1980s, it is highly probable that by the year 2000 the economically underdeveloped countries will contain as much as four-fifths of the world's population but will have to support them on as little as one-sixth of the world's product." (Brown, 1996, p. 74)

That potential of globalization can be attributed directly to the current business processes working to its fullest capabilities. Some may think that these trends towards globalization are new to the twentieth or twenty-first centuries. In a sense that is true because of the fact that our current globalization phenomenon can be linked with the advent of our new technology, financial methods and distribution channels to any point on the globe. However, globalization is technically not a new process that was created in or by our current digital and information revolution. Actually, not even the industrial revolution can be credited with the idea of globalization because the concept originated even before Christopher Columbus or Marco Polo. (Employees, 2005)

World trade has linked disparate locations into highly complex and extensive systems of finance, communication, migration, and other interconnections for thousands of years. Some of these events have been traced back to the earliest documented histories of man such as the Neolithic cultures of the ancient Middle East and China. These cultures already had strong and proficient trade routes that can be compared to build to order supply chain processes and these should be considered to be the true forerunners of modern day globalization.

Build to order supply chain management and collaborative processes therefore were linked with these historically sound trade systems. but, today's supply chain processes and systems have the ability to take advantage of the physical expansion of the global market process where a billion dollars can be moved electronically in milliseconds. Supply chain management alters and can even eliminate the barriers of an organization's view of the geographical domain. These processes today provide opportunities to increase the scales or volume of global resources so business entities can establish the needed interconnectivity of localities that span the day-to-day social, economic, cultural, and political aspects of the communities being served.

The small differences between modern day opportunities and the historical ones are only tied to the scales of the scenarios. For example, standards of a global trade for ancient Rome or Mesopotamia may have required their own version of a build to order supply chain process but it may not have traversed the large land masses of the time because of limited technology. Today we have at our disposal airplanes, ocean transports, satellite communications, the Internet and cell phones and these are all but a basic foundation of a collaborative build to order supply chain process that can have the ability to move our goods and services to the consumer whether that location is in or out of our locale.

Definition

Various organizations approach the underlying progression of build to order supply chain management through different strategic or tactical modeling paradigms. Consider that in some organizations a process may not be fully supported by the various organizational functions such as logistics or sales or the overall management team; yet, in other business settings or scenarios the supply chain management process may the underlying foundation of the entire organization. Each company also has its own philosophy towards collaborative approaches.

Consider that skepticism or a lack of faith may keep a company from interacting electronically with certain vendors while at the same time other industries or companies do all they can to establish communicative links with vendors and suppliers. So, because each organization may approach the process of supply chain management differently, it is critical to first define the concept in order to carry this project further. With this in mind, this report assumes that a build to order supply chain process is one where an organization establishes a systematic approach for designing, engineering, marketing or manufacturing their products and services to and for consumers as well as having the functional processes for receiving resources and supplies from vendors and suppliers.

This also entails that the supply chain must be a collaborative process that fully integrates partners, suppliers and other external vendors in order to help organizations become cost effective, timely, and reliable. Basically, creating electronic communicative links should be seen as the build to order process that reduces the levels of uncertainty in the long run while enhancing the operating environment through the employing of information systems and business processes. The overall objective therefore would be to make an organization and its underlying functions as efficient as possible in their allocation of key resources, assets and outputs for the goods and services they produce or provide.

Based on this definition, it becomes clear that firms need to concentrate on their core competencies in order for them to take advantage of the integration of their internal business processes and information flows in addition to their external contacts. Companies must work at getting the most from these core competencies in order to maximize their overall competitive position as it pertains to the big picture. Management must fully grasp the needs and expectations of the customers, shareholders and stakeholders. Therefore, in order to accomplish these demands, companies must interconnect certain aspects of their businesses and this is would be the true build to order supply chain system.

First, the design and engineering system of all products and services must be integrated so that they create products and services that are needed and desired by the organization's customers. This engineering function entails the physical products, the manufacturing of these products as well as the final delivery systems: all need to be efficient and well engineered. Once the products are produced and ready for delivery, it is taken for granted that they can be sold. To avoid this oversight, the build to order supply chain process must also incorporate the marketing function. An organization's objectives must be centered on the consumer and stakeholder markets for the products and services.

The management system of an organization is a crucial part of any supply chain function. This is because the management's role is to plan, control, and provide a conducive reward system that ensures that all areas of the operations are designed to function smoothly and to be efficient. Management must fully understand the needs of their consumer markets for the products and services they offer so that they are in a better position to provide for those needs. Far too often, organizations do not create a need in the mind's of their customer for the company's goods or services which then reduces demand. In a sound build to order supply chain process, the marketing function is incorporated to create an expectations within the customer base.

Two other functions that are critical to a successful supply chain process are the overall manufacturing systems and the logistics system. This is because the manufacturing processes has to function to a point where it creates the products in a viable cost effective manner and the logistics process efficiently utilizes the raw materials and components provided by the supply chain partnerships, provides outlets for the finished goods for consumers and does all of this in a timely and cost effective manner. In there efforts to cut costs, business philosophies such as just in time shipping and other inbound and outbound logistics processes have been highly successful.

Organizations have become extremely proficient with their outbound loads. Out bound logistics could be considered as the foundation of companies taking charge of the supply chain and transportation management processes which helped these operations merge or consolidate factory or other third-party materials into single pre-scheduled deliveries for customers. The processes also helped reduce the associated costs and provided more efficient delivery systems. In turn, companies were beginning to notice the results of the control of the supply train as improved delivery times to customers ironically led to better control and entire trip order tracking options. Whole industries have announced that their shipping capabilities have become so efficient that deliver to anywhere in the United States in two or less days is now feasible.

Logistics outsourcing was actually more prevalent for the inbound side. "Logistics professionals at manufacturing and distribution companies don't have the tools to meet all of the challenges supply chain management throws in their path. Reluctantly at first, logistics executives adopted outsourcing and broadened the scope of logistics functions handled by third party logistics companies (3PL), now one of the most powerful weapons in the logistics arsenal." (Trunick)

The problem was that in many scenarios, inbound freight was typically handled by the suppliers and therefore those deliveries were not in the direct control of companies. To enhance the supply chain function, companies have discovered that controlling inbound logistics in the same way as outbound distribution has offered new savings or benefits. The TMS software industry has attempted to provide new opportunities therefore in both inbound and outbound logistical programming. "Total sales of TMS solutions are expected to grow from $804.4 million in 2001 to $892.5 million this year. And then the market is expected to top $1.7 billion by 2006, a cumulative annual growth rate of 16.4%." (Gonzalez)

Thus, a successful custom built to order supply chain process today entails both a sound manufacturing and logistical distribution process that utilizes technology to streamline the entire network of shipments into a company from suppliers and out to consumers which reduces costs and creates more efficient delivery schedules.

Methodology/Approach

This work utilized a methodology or approach that was more or less a combination of industry and company case studies and other secondary data research methods to collect the necessary facts pertinent build to order supply chain systems and processes as well as some historical perspective from tools and other implementation methodologies used in the past. The case study research method has consistently been considered a qualitative research method for information systems and supply chain research and fulfills the needs of this project.

Case research consisted of an analysis of the automotive industry and globalization as a whole as well as the integration of data gained from the Ford Motor Company that consistently reinvents its own supply chain process successfully. Case study is also very good at providing answers to "how" and "why" questions while at the same time limiting the control over events being monitored by the researcher. Case study provided the research aims such as providing descriptions of observable facts, helping to establish new theories and providing basis for future hypotheses.

Once Ford was chosen as the organization to represent the case study example, it was possible to more clearly focus the research and protocols that dictated how to best utilize the data collection process and helped guarantee that multiple sources of evidence could be used to increase reliability. For the secondary data analysis, a comprehensive literature search and review was needed in order to meet the needs of the literature search process and it followed specific guidelines for a detail oriented approach to gathering information on build to order supply chain management, processes and systems. The information was acquired through the various sources that included:

Physical Searches: searching core journals, relevant books and articles

Database Search: electronic databases both library and internet

Studies: Student journals, statistics and Studies

Internet: web page studies

Interviews: experts and relevant organizations pertaining to the topic of implementation methodologies, procedure and processes

For example, it was discovered that from a historical perspective, many forces have impacted the evolution of supply chains and the Ford Motor company can be thought to have first hand experience since the beginning of the twentieth century. Ford literally created a vertically integrated supply chain that aimed to meet all of the companies, customers and external factors by included mining, steel and glass fabrication; tire manufacturing, rubber tree farming and just about all of the other manufacturing capabilities necessary to build and distribute their cars. While today's high standards of customers were not in play in the early 1900's, that supply chain proved to be extraordinarily effective and permanently changed the nature of business. Although the need for specialization today is more intense in the modern day era, the origins of Ford Motor Company's attempt to resolve supply chain needs makes them an exceptional example of all required to understand a build to order supply chain process.

Findings

The Ford Motor Company meets all of the before mentioned criteria for an effect build to order supply chain process. Their design and engineering systems are all focused and geared to meet the needs of the consumer. This includes the fact that the company is always enhancing their automobiles to be new and innovative while at the same time cost effective. The design and engineering processes also keep the finished products and services at or near the top of the highly competitive industry. The engineering function is cost conscious and utilizes new emerging markets to reduce costs through methodologies such as just in time inventory control partnering, Six Sigma manufacturing methodologies and many other time and cost control methods.

Since its founder first created the company, the management system has consistently remained in favor of a complete and effective supply chain philosophy. Ford is well-known to be a company that effectively plans, controls, and provides sound reward systems that enhance the companies standing in the eyes of consumers, stakeholders and investors. Ford's management works as though they understand the needs of their consumers which will continue to drive the company in a good direction. This direction comes in the way of successful manufacturing and logistics systems.

The business of manufacturing automobiles has become a complete global process that requires both business and supply chain strategies that account for the needs of cheap labor in developing and emerging nations, limited resources and greater quality demands from consumers and investors. Consider how the Ford Motor Company has begun to address the problems of maintaining manufacturing facilities in regions of the world where there are consistently higher priced labor forces. The process of relocating into areas where the cost of labor is significantly lower has begun. The United States has traditionally had expensive labor forces. The cost of healthcare and high salaries has Ford abandoning these locations throughout America and Europe for cheaper labor havens such as South and Central America and Asia.

Companies like Ford are taking advantage of more efficient supply chains as well with these moves because of the fact that production and manufacturing facilities are now in regions of the world where sales potential and sales growth are much higher than in the saturated markets like the United States. The new emerging nation's will require manufacturing facilities in their immediate regions as the potential for new car sales entices manufactures. "Rapid growth in vehicle ownership is expected in Asia, Latin America and Eastern Europe. (Vehicle Assembly: Industry Information - Trends Shaping the Industry)

The potential of relocating its manufacturing facilities greatly enhances the supply chain process, the component and automobile sectors of the Ford Motor Company have begun relocating to new homes abroad as demand drives production. "Ford Motor Company expects sourcing for parts and components from China to reach $1 billion by the middle of next year and it can rise to more than $10 billion by mid-decade, as part of its overall drive to cut costs." (Ford to Spend $1bn a Year in China) the business strategy of trying to become the global leader in automobile and parts manufacturing has driven these relocation decisions and the supply chain management process will again adapt in a way that compliments the company's business plans and objectives.

To demonstrate how the entire supply chain process must evolve, moving abroad is not the only change that Ford has been instituting. The company has designed, created and implemented all new business philosophies centered on the manufacturing processes. These include new strategies such as a Six Sigma for the manufacturing and accounting processes. The parts, manufacturing and sales processes have all begun to utilize the Just-in-time manufacturing, sales or partnering strategies. and. Ford has not shied away from the tried and true process of merging and of course acquiring the competition. The supply chain process must be available to support and help produce through these various challenging processes, methodologies, strategies and philosophies.

These combined efforts have paid off handsomely for Ford. The overall size of the company has remained constant while efficiency and output have gradually risen. Ford Motor currently has just over three hundred twenty thousand employees throughout the world and was ranked 5th of the twenty five automobile manufactures with a market capitalization of well over one hundred billion dollars. A good example of the organization's efforts to become a streamlined producer of fine automobiles through a customized build to order supply chain process can also be demonstrated in their efforts to attract up-to-the-minute suppliers who are capable of meeting Ford's just-in-time delivery philosophy.

The company will wreak the benefits for many years as they no longer overstock inventory and warehouse and storage costs are becoming a thing of the past. Ford used to use around ninety billion dollars annually on purchasing and of that figure approximately two-thirds went to parts and components. By only utilizing partners that subscribe to the just-in-time philosophy, such as was accomplished during a migration into China, Ford stands to save well over a billion dollars annually by utilizing just-in-time strategies and partnership philosophies in its supply chain.

Brief History

Today's success was established early on by the company founder. From the beginning, the Ford Motor Company demonstrated a sense of longevity through its forward thinking supply chain methods and experiments. In 1903, Henry Ford founded the Ford Motor Company by inventing his own version of the horseless carriage that he called the Quadricycle. The Quadricycle was nothing more than a motorized four wheel buggy. but, from those humble beginnings, Henry Ford established what has matured into the modern Ford Motor, an industry leader and highly successful company. His understanding of the supply chain was an instrumental part of the modern day automobile. "The year 1901 saw Henry Ford, who was to change the ways of American life forever, build the motor car and market it with great public relations skill. Ford in his younger, more flexible days knew the value of publicity and used it in positive ways to emerge from the pack of automakers now lost in the mists of history." (Cutlip, 4)

The story of Henry Ford's success is in his ability to develop and then constantly refine the assembly line process as well as the supply chain system for the entire manufacturing function. In 1908, the Ford Motor Company introduced its first Model T. which at the time was pretty much considered a highly technologically advanced product as compared to competitors. That product changed not only the Ford Motor Company but our entire world. To show just how much, Ford sold over ten million Model T's and one famous line of the time reflected on the notion that a Model T. came in any color you wanted as long as that color was black.

To demonstrate further how well in line the Ford Motor Company's thinking regarding supply chain management was, the company was already looking for world expansion as early as 1916. "Ford began operations in Latin American prior to its competitors, establishing assembly facilities in Argentina in 1916, Brazil in 1924, and in Mexico in 1925." (Morris & Truman, 1998)

Ford understood that each of these markets offered enhancements to his already efficient supply chain process. Today, the company produces some of the top selling cars in the world and staple cars such as the Ford Mustang sell no matter what the economic conditions are. The company's evolution and efficient build to order supply chain processes mimic its founder's need for developing and then refining products and strategies.

The Big Picture customized supply chain incorporates various business philosophies in order to meet the needs of consumers and investors. Ford is no exception to this rule of thumb. Upon completion of a macro-environmental analysis of the company, Ford seems as though they are a strong global corporation with two main businesses:

Automotive

Financial Services

The automotive portion of the company consists of a full range of automobile design, development, manufacture, sales and service sectors. These sectors service both car and truck markets. The financial services sector entails a smaller component that is vital to the overall success of the company. This includes:

Ford Motor Credit Company, a wholly owned subsidiary of Ford

The Hertz Corporation, an indirect, wholly owned subsidiary of Ford

Ford Credit's function is to provide any and all vehicle-related financing opportunities to both private and corporate consumers including leasing and insurance opportunities. Hertz is the well-known and industry leader in the global rental spectrum and rents cars, trucks, industrial and construction vehicles worldwide.

These areas all add to the engineering, manufacturing, logistics and overall company success because they are the creator of demand for the supply chain process. These functions offer:

Strong Leadership

Strong Market Share in Industries

Strong Financial Stability

Sound Company's Ethics and Global Green Policy

Strong Customer Support for Their Products and Services

The supply chain also entails insights into the industry, technology and social issues the company faces. The automobile industry continues to decrease dependence on suppliers and the remaining suppliers have all been pressured into improving the potential quality of their products and services as well as providing just-in-time delivery options. These supply chain improvements have elevated the communication processes between suppliers and the industry in both data and verbal processes.

For instance, computing technology enhancements at the Ford Motor Company allow them to be constantly connected to all of their suppliers in any region of the world. This communication methodology increases efficiency, reduces cost and raises overall productivity. The supply chain business strategy is focused on the company's use of more economical, stronger and cheaper materials that can be delivered at cost effective prices and in a timely manner. The automotive industry has become almost obsessed with the notion of computer and technological advances that have the ability to shape the fate of the supply chain and production processes.

From a marketing perspective, the supply chain has also been reevaluated because of technology and consumer demand. The auto industry has been incorporating newer marketing strategies that utilize the internet for instance where the future of the industry looks bright. Consumers are already experimenting with 'internet ordered personalized cars.' The technology is already available so the future may mean buying cars made specifically for individuals as opposed to mass produced cars. The auto industry' customized build to order supply chain processes and technology have already made this a reality for the not so distant future. Imagine people logging on at the Ford website and choosing the car and features they want such as the color, interior and engine size.

Ford vs. INDUSTRY LEADERS

Statistic

Industry Leader

Rank

Market Capitalization

TM

26.29B

P/E Ratio (ttm)

ARGN

PEG Ratio (ttm, 5 yr expected)

Revenue Growth (Qtrly YoY)

CIGI.OB

EPS Growth (Qtrly YoY)

NAV

Long-Term Growth Rate (5 yr)

ARGN

Return on Equity (ttm)

WNC

Long-Term Debt/Equity (mrq)

Dividend Yield (annual)

GM (Yahoo Finance, 2004)

Of course, the real trend of interest in regard to the supply chain and the automobile manufacturing industry would be the mass migrations of the major manufactures into the developed and newly emerging markets of Asia and South America. Ford has reportedly already spent large sums in the production of manufacturing facilities all over the world as have Ford's competitors. The supply chain also entails downsizing as Ford currently has well over three hundred platforms globally that produce and manufacture cars and components. Ford has already gone public with their long-term strategy which will steadily reduce that number to around 250 platforms by the year 2008. Ironically, the company will be capable of producing more cars on fewer platforms.