Ford Motor Company: Supply Chain
Strategy
 Online shopping experience from Dell
and Ford
 What is the difference between the
two buying experience
Ford
 What are the roadblocks that make the
direct model difficult to implement at Ford
 What historical “legacies” affect Ford’s ability to
move to a BTO model
Ford is 100 yrs old Founded 1903, Dell on the
other hand was founded 15 years ago
Product variety
 Necessitates the management of large number of
individual component inventories
 Production capacity for individual components get set
long in advance and cannot be changed quickly
Ford
 What historical “legacies” affect Ford’s
ability to move to a BTO model
 Process Complexity
 A large number of suppliers
 3 tiers of suppliers
 Business was usually over the phone and
fax
 Ford a $150billion company enjoy a
tremendous leverage over its suppliers
 Annual component price decrease and open
book
Ford
 What historical “legacies” affect Ford’s
ability to move to a BTO model
 Powerful independent dealer network
 Unionized labor force
 Incompatible systems
 Ford credit – DEC
 Parts and service – IBM
 Suppliers and dealers – Variety of systems
Ford Motor Company: Supply
Chain Strategy
 What is virtual integration? What benefits
does Dell gain from it
 A way of capturing the advantage of vertical
integration without actually vertically integrating
Vertical integration solves production problems
related to communications, coordination, and
control but at a cost of the increased overhead
needed to arrange production organization
Virtual integration therefore is the ability to
achieve the advantage of vertical integration
without incurring the overhead.
Ford
 What benefits does Dell gain from virtual
integration
 Communication and coordination
 Vertical integration leads to efficient and
effective coordination, through a number of
mechanisms that include likelihood of physical
proximity, established patterns of
communications, and greater willingness to
cooperate with other members of the same
group.
 “Stitching together a business with partners
that are treated as if they’re inside the
company” Michael Dell
Ford
 What benefits does Dell gain from virtual
integration
 Control
 The prospect of improved control over the
actions of suppliers is another important
rationale for virtual integration.
 Un-integrated partners can exert power over
each other as transactions unfold over time
 Though Dell enjoy information sharing for now
but inventory are not completely aligned
 Inventory not held by Dell may need to be held by a
partner who would rather not hold inventory either.
Ford
 What benefits does Dell gain from virtual integration
 Real time responsiveness and inventory management
 Real-time updating of order status and the ability to
check order status regardless of where the order is in the
fulfillment process provided Dell with differentiating
capabilities.
 Inventory velocity
 Forecasting
 Dell’s direct relationship with customers are key to
forecasting.
 Dell has easy access to data useful for forecasting; most
of the data are already in Dell’s systems
 In case of Ford, the dealers own most of the direct data
about customer demand.
 Ford has a very base of individual customer unlike Dell
that has a relatively small number of institutional
customers
Ford
 Compare Ford and Dell
 Old channel players concerns
 Costs of developing web capabilities
 Implication for information sharing
 Problems of connecting to suppliers and
other external parties who tend to be less
technologically advanced than the Ford
 Forecasting what customers will buy for
Dell and for Ford
 Difficulties in implementing a true build-toorder model for so complex product as an
automobile.
Ford
 What practical challenges must Ford
address as it tries to establish
Internet linkages with its supply base
 Difficulties in establishing B2B linkages
 Lack of technology and technological
sophistication that prevail in the supply
chain, especially at lower tiers.
Ford Motor Company: Supply Chain
Strategy

How should Ford use Internet technologies to interact with
suppliers

To address this problem Ford must think about its relationships
not only with suppliers but also with dealers and customers.

As supply chain systems staff members study the Dell model in
particular, they come to appreciate that “virtual integration”
must include design not only of the supply chain but also of
fulfillment, forecasting, purchasing, and a variety of other
functions that had long been considered separately within the
Ford hierarchy.

The question is in fact explosive in its implications, because it
inevitably leads to fundamental questions about the way Ford
has historically operated internally and how it has interacted
with important partner constituencies (including dealers)
Ford Motor Company: Supply Chain
Strategy
 Recommendation on moving forward
 One group are enthusiastic about the
technology and think that the only
appropriate way to answer the question
is to consider, evaluate and recommend
radical changes to Ford overall business
model; this group considers Dell a
serious model for Ford’s business
Ford Motor Company: Supply Chain
Strategy
Recommendation on moving forward
 Another group is more cautious and
believes that the fundamental differences
between Dell’s industry and Ford’s
industry necessitate significant differences
in business models.
Ford Motor Company: Supply Chain
Strategy
Recommendation on moving forward
 What is your own recommendation?