Case Study Analysis Quinn Gooch David Windle Tatiana Gonzalez Spencer Patterson Becky Tibbenham T e a m # 5 Ford One Initiative
The auto industry is a steadily declining market in the United States. Automobile sales were
17.5 million and 10.6 million in 2005 and 2009 respectively. How is Ford going to adapt to the
change in demand and continue to be a major player in the automobile industry? In 2006, Ford
Motor Company realized they needed to adjust their business model to better align its production
process with its consumer demand. Implementation of the One Ford initiative provided the
needed change. CEO Alan Mulally implemented this strategy with the main focus of realigning
the automaker’s global resources. Additionally, the dynamic comparative landscape required a
lean carmaker that capitalized on efficiencies and quality.
One Ford Strategy’s main focus was redesigning the company’s purchasing operations and
supplier base.1 In order for this strategy to be effective, Ford moved to standardize and reduced
number of vehicle components. The initiative would make their supply chain easier to manage
and more efficient. It also focused Ford’s goal of becoming market-oriented. Ford made their
new strategy public, giving the world notice. Ford had become: One Team, One Plan, One Goal1
(One Ford initiative Appendix 6).
Ford has worked hard to stay true to this strategy and is constantly finding ways to enhance
efficiency. They have cut their number of suppliers by more than half since 2004, with a target
level of 750 suppliers worldwide. They plan to close three Ford plants in 2010-2011 to further
consolidate their manufacturing process. Ford has also realized that consumer preferences are
changing so they are converting their assembly plants to produce the desired smaller cars.
Lastly, they are downsizing their dealerships and consolidating their efforts because there are
currently too many dealerships for the current and expected U.S. demand.
In 2006, the year the strategy was implemented, Ford was operating at a negative profit margin
(-7.88%). Through the One Ford strategy, they have brought their profit margin to a competitive
2.3%. If they are able to sustain this level of growth in their profitability, Ford will gain back its
lost market share and utilize their resources to maximize shareholder wealth.
Matrices Analysis
There are several business matrices to consider when comparing Ford Motor Company to Dell
Computers. Ford can be described as a company with broad market position, exemplified by a
large vehicle lineup targeting various consumer groups. Along with their broad position, they
offer varying levels of quality and luxury, which enables them to straddle the line between low
cost producer and value added producer. Comparatively, Dell is a low cost producer and
straddles the narrow and broad Market Positioning line within the matrix (see Appendix 1).
Dell’s core competencies give them the means to offer more affordable prices with mass
customization features.
At the beginning of the case Ford’s IT had a high impact on the day-today-day business
operations with little emphasis on IT as a strategic initiative. In comparison Dell’s IT, is
1 www.ford.com/doc/one_ford.pdf , The One Ford Strategy. 2 strategically utilized as a core competence of their business. The main difference between Dell
and Ford is in the way Dell uses IT to seamlessly acquire needed inventory from vendors to
service their customer more precisely. Dell’s competence has become a source of competitive
advantage within their industry. Ford would obviously like to be similarly positioned like Dell,
but the feasibility and scope connected with such change may be unobtainable.
The third appendix shows Ford position between the Hierarchy and Corporation section. Ford is
positioned here because of its size and scope of operations, which makes their management
structure very vertical. Dell is also a corporation, but their management structure is flatter due to
their comparatively smaller size. Dell is positioned in the Corporation/Partnership cross-section
because of their special relationships to its suppliers. Ford would like to migrate their governance
position towards Dell’s, becoming strategic aligned with to improve supply chain management.
The matrices in appendixes four and five are related. In the Environment & Enterprise matrix we
see that Ford’s IT structure is more complex and stable than Dell’s. Ford is positioned to produce
lots of inventory and push it downstream to dealers. Dell is more dynamic and somewhat
simpler. Dell keeps no inventory on hand, instead relying on a pull system with interconnected
suppliers that can provide short lead times and small lot sizes to meet demand. On the “Where
System Falls” graph Ford has a liner system with its automobile parts ordered according to
departmental processes. Dell’s system is far more complex; as the customers order is finalized
the order is sent through the Dell’s system through to their supplier for instant supply chain
reaction. This EDI system cuts out excess and facilitates Dells pull system. Ford has shifted to a
pull system, and will continuously improve their systems to reduce waste and increase
productivity along their supply chain.
Ford vs. Dell: Suppliers
Dell’s just-in-time supply chain is their competitive advantage. Their business model consists of
not owning inventory, pushing the burden onto suppliers, and ordering inventory only after a
customer have made a purchase. Their success can be attributed to the multiple suppliers for each
part and their benchmark-oriented evaluation system. If suppliers do not meet Dell’s rigorous
quality standards (via the JIT concept), they are released as a Dell’s suppliers. Though Dell is
quick to dismiss suppliers, they have only had 1,400 total suppliers since their inception in 1993.
Dell rigorous standards are facilitated by an unmatched IT competence. Dell aligns its suppliers
in a “vertical relationship, which integrates their supply chain.”2 Through order tracking and
database access at all levels of the process as well as at various levels of management, the
company can track supply and maintain enough inventory to have a “lean just-in time pull
system” that requires minimal inventory on stock.3 This computer management system is a real
time update system, which maintains a tight quality and supply chain control. The real time
window is comprised of an internal platform called valuechain.dell.com.4 Currently, Dell holds
2 Schmid, Jochen, and Daniel Vogl. Dell Computer Corporations-­‐Best practice for Relationship Marketing?. Dundee City: University of Abertay Dundee, 2003. 3 Schmid and Vogel, 7 4 Schmid and Vogel, 8 3 the industries lowest inventory level, without sacrificing innovation or speed in providing
customer satisfaction because they locate suppliers within minutes of Dell’s manufacturing plant.
Ford’s supply chain interacts differently. Ford employs a tiered system of suppliers, whereby
they order complete systems from the tier one suppliers. The tier one suppliers then manage the
relationships with the tier two and tier three suppliers (who supply the parts for the tier one
complete systems). The One Ford initiative sought to reduce the number of suppliers from
30,000 (in 1999) to 750 (goal for the future), and to employ the just-in-time production method.
The initiative also moved from choosing suppliers based on cost to choosing them based on
quality. Thus, they are shifting to long-term relationships and commitments in the hope that these
commitments (guaranteed demand) will give them price reductions and better quality. Chosen
suppliers are certified by Ford based on criterion such as site visits, the number of defects, and
safety.
Ford vs. Dell: Customer Relations
Ford and Dell are also dissimilar in how they interact with customers, particularly in the
customers’ identity and purchasing behavior. Ford and Dell have different demographics, with
Dell’s business customers providing 85% of their sales, and Ford’s business customers providing
30% of their revenues (in the United States).5 Additionally, the purchasing behavior of Ford and
Dell customers is different. Dell leverages their IT with purchasing, 100% of their orders coming
through the Internet. Both business accounts and consumers are able to order their custom-built
computers online, with the product being shipped directly to their home or office. Dell’s business
model is organized around three main customer segments, corporate/relationship customers, the
public sector, as well as home and small business.6 The company tailors its practices to suit
each segment of business accordingly. In other words, Dell customizes service and purchasing
ability to fit the needs of the segment. For example, when corporate customers at Dell need to
purchase large-scale products or services, they have an entirely separate network to utilize.
Premier.dell.co” is the procurement portal for large customers like Boeing.7 Ford is quite
different, with all purchases going through their dealership networks. Though vehicles,
dealerships, and dealership inventories may be viewed online, the vehicle must ultimately be
purchased through the dealership. There is no at home portal available for purchasing Ford
vehicles.
Case Suggestions
Is virtual integration a viable option for Ford Motor Company?
Ford has demonstrated that virtual integration is a viable option within the auto industry. The
One Ford strategy has aimed their company towards a lean and agile future, which can only be
facilitated by virtual integrating their supply chain. Ford will need to ensure that, as they prune
suppliers, they only build relationships with vendors that meet the technical complexity and
6 Schmid, Jochen, and Daniel Vogl. Dell Computer Corporations-­‐Best practice for Relationship Marketing?. Dundee City: University of Abertay Dundee, 2003. 7 Schmid and Vogel, 4 4 quality assurance that will guarantee success. Finding vendors with ERP and EDI systems that
can integrate with Ford’s existing architecture is crucial. Ford will also benefit from an online
portal, or a more complex VMI system. These systems would enable outside vendors to access
Ford’s production forecasts, basing their output off real-time production needs. Such a system
would enhance the pull-system, replacing inventory with information and facilitating a
completely integrated supply chain.
Can the advantages of the Dell business model be applicable in the auto industry?
While some of the advantages created by the Dell business model can migrate into the auto
industry, the buyer experience and dealer networks will make the auto industry reluctant to fully
implement Dell’s model. The computer industry has a different point of sale, and a computer is a
relatively low investment when compared to an automobile. Also, the automobile industry relies
heavily on emotional sales after a customer has test driven a vehicle. The best attributes to
migrate into the Ford’s business structure will be the supply chain management techniques. Ford
will also benefit from SCM systems and partner relationships by creating a network that can
promote and enhance Ford’s ability to collect information about customer demand. With
accurate and timely information Ford can become agile to adjustments in market preferences.
Accurate demand information will also reduce inventory, resulting in increased communication
and coordination of production schedules. This ensures that desirable production levels are
maintained and lead times are achieved.
What are some challenges Ford will face that Dell will not?
Along with the issues of aligning sophistication with their vendors, providing a product that is
market oriented and has the quality necessary to compete on a global scale is the major goal for
Ford. Ford will have to overcome the sheer scope of their business entities and develop the
ability to leverage economies of scale in order to ensure achievement of both lean sigma and
decentralization of managerial decision-making. There are new positions being created to deal
with the ever-increasing complexity of supply chains. An EAM position under the CIO could
facilitate the information migration between ERP systems, online modules and vendors,
mitigating some of the risk associated with new levels of business complexity. (They will also
utilize XML, which breaks down the computer process into transactions between modules and
companies.) Ford will also have to ensure the quality of their products. The One Ford initiative
has been critical in focusing the company towards few products with uniform or standard parts.
Decreasing the number of components in each automobile enables Ford to better manage the
quality of their products. Ford can also draft policy measures that ensure quality buying from its
vendors. Six Sigma and ISO 9000 are both certificates that can be achieved to ensure quality
throughout the car building process. Creation of a mandate, that suppliers must conform to
standards, will further reduce the need for erroneous and (timely) inspections. Finally, Ford will
have to overcome the scope of their business entities. Ford has become a global power and must
continually strive to improve their brand position in each geographical location. IT can facilitate
this process with a global ERP system. With each business unit being linked into one core, Ford
can ensure that all units are progressing towards one vision.
Is the Dell model relevant, and how close should Ford emulate their model?
Our presentation and paper has hopefully established that some aspects of the Dell business
model can be utilized to improve Ford’s deficiencies in operations. Ford can glean the most from
5 Dell’s supply chain management competence. Dell has been the leader in SCM, and if Ford can
continue to develop their pull system and promote lean production, they are poised to improve
their current market position and profit margin. The One Ford strategy was the beginning and the
future for Ford can only be realized if they become leaner, more agile, and more informed along
the supply chain. As many large organizations are learning, this really is the information age.
Information, to an extent, is replacing physical inventory. Competition is forcing reform within
the auto industry, and the company with the right mix of vision, leadership, supply chain
integration, and IT infrastructure could build a brand customers view as unparalleled.
6 Appendix 1 7 Appendix 2 8 Appendix 3 9 Appendix 4 10 Appendix 5 11 Appendix 6: One Ford Initiative 12