Supply Chain Management.

University Degree Business and Administrative studies

Introduction

The manufacturing supply chain is increasingly complex while technology continues to hold the promise of greater efficiency and lower costs. Businesses today are examining their supply chain operations and looking for innovative solutions.

As global competition increases and customer expectations rise, companies are competing on the agility of their supply chains.

As the world’s second largest automaker, Ford Motor Company had proved that how successful they implement the supply chain management in the industry. For the over two decades, the company had facing some problem in the increasing of production cost, increasing importance of e-commerce, increasing levels of outsourcing and competitive in the industry etc. Consequently, the company decided to change their strategy and integrated supply chain. However, in the process of implement the supply chain to the company, the management team of the company also faces some problem before they succeed.

2.0 Concept of Supply Chain Management

The supply chain has been defined as ‘the network of organizations that are involved,

through upstream and downstream linkages, in the different processes and activities that

produce value in the form of products and services in the hands of the ultimate customer’

(Christopher 1992).

Information Flow (order, schedule, forecast etc.)

Supplier Manufacturer Assembler Retailer Customer

Materials Part Manufacturer Product Assembly Sales Use or Consumption

Material Flow (supplies, production deliveries etc.)

Figure 1: Generic configuration of a supply chain in manufacturing

SCM looks across the entire supply chain (Figure 1), rather than just at the next entity or level, and aims to increase transparency and alignment of the supply chain’s coordination and configuration, regardless of functional or corporate boundaries (Cooper and Ellram 1993).

According to some authors (e.g., Cooper and Ellram 1993), the shift from traditional ways of managing the supply chain towards SCM includes various elements (Table 1).

The traditional way of managing (Table 1) is essentially based on a conversion (or

transformation) view on production, whereas SCM is based on a flow view of production.

The conversion view suggests that each stage of production is controlled independently,

whereas the flow view focuses on the control of the total flow of production (Koskela 1992).

2.1 Methodology of Supply Chain Management

In the literature on SCM, many supply chain methods have been proposed. Most methods

address logistical issues of the supply chain, e.g., quality rates, inventory, lead-time and

production cost.

The methods of pipeline mapping (Scott and Westbrook 1991), supply chain modeling

(Davis 1993) and logistics performance measurement (Lehtonen 1995) analyze stock

levels across the supply chain. The LOGI method (Luhtala et al. 1994, Jahnukainen et al.

1995) studies time buffers and controllability problems of the delivery process. Supply chain costing (La Londe and Pohlen 1996) focuses on cost buildup along the supply chain. Integral methods like value stream mapping (Hines and Rich 1997, Jones et al. 1997) and process performance measurement (De Toni and Tonchia 1996) offer a “toolbox” to analyze various issues including lead time and quality defects.

Table 1: Characteristic differences between traditional ways of managing the supply chain and SCM (Cooper and Ellram 1993)

Element Traditional management Supply chain management

3.0 Case Study of Ford Motor Company

Ford Motor Company has a 100-year legacy of supplying automobiles and innovative car products to an increasingly mobile population. In 1903, the company started by Henry Ford produced 1,708 cars. Since then, Ford has expanded into 200 markets worldwide and boasts eight of the leading automotive brands, as well as employing nearly 400,000 people. Capitalized for $100,000 with just 12 stockholders, Ford now generates $160 billion in annual revenue and produces more than 7 million vehicles sold in the worldwide market. During 2000, the company faces some problem in their current supply chain. ...

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3.0 Case Study of Ford Motor Company

An analysis of the current situation revealed the following issues in the current supply chain:

1. Information flow impaired beyond level one supplier.

2. Development of Information Technology in the supplier base.

3. Competitors headed to a virtual organization.

3.1 Current Situation Analysis Physical of Flow Goods

Ford has a large supplier base for material procurement in a complex network of business relationships. The supply base of Ford consists of several tiers of suppliers. Ford directly deals with tier one suppliers and these deals with the next tiers. If feasible the lower tier suppliers ship materials directly to Fords’ manufacturing unit. Long-term contracts with suppliers have been negotiated to ensure uninterrupted supply and minimum inventory levels. Ford has provided its suppliers with techniques like Just-In-Time, (JIT) Total Quality Management (TQM) And Statistical Process Control (SPC). Ford benefits by procuring materials at reduced cost and supplier involvement in the company operations like design process, leading to cost saving for both parties. The Ford Production System (FPS) is designed to make the operations leaner, efficient and more responsive to the customer needs, hence reducing production costs and improving profit margins. The Regional mixing centre optimized schedules and delivery of finished vehicles via railway, to provide customers the right product at the right time and place, by improving the speed and predictability of new vehicle deliveries. The pressure is on for suppliers to provide materials at a reduced cost per year with increased value added services.

3.2 Information Flows

The supply chain is highly visible to both upstream and downstream activities, enabling Ford to meet customer demands. The information flows freely due to the close relationships Ford shares with its tier one suppliers and dealers. But the information flow beyond the tier one suppliers is restricted mainly due to the use of old technology by lower tier suppliers. Ford encourages lower tier suppliers to initiate collaborative working arrangements with larger tier one suppliers. Ford includes the ongoing forecasting of customer demand from the dealers in its production schedule. Dealer’s suggestions are used to fill in gaps in the order bank. Tier one suppliers communicate frequently with Ford using electronic data interchange (EDI). But these tier one suppliers are not financially sound enough to invest in new technologies as rapidly as Ford can. The powerful purchasing department deals closely with the new product design engineers. All negotiations with suppliers are done by the purchasing department and engineers are discouraged from discussing prices with suppliers. All the components in the chain work closely to reduce costs and improve customer service.

3.3 Organisational Structured

At Ford, the purchasing department enjoys a prominent position. It is organizationally independently of product development. It works closely with every major product design. Price negotiation with suppliers is done by the purchasing department, alone It has gained power because of the sheer volume of purchases annually; a small reduction in price leads to large saving in the annual procurement spend.

4.0 Supply Chain Performance

The supply chain performance is frequently analyzed and it is restructured to save costs by enhancing material flows, reducing inventory (JIT) and lowering manufacturing costs (FPS). The information flows smoothly across the supply chain streams, but is handicapped beyond the tier one suppliers. Ford reviewed the different components of its chain, identified bottlenecks and took measures to make them more efficient, leaner and responsive. For e.g. The Ford Production System, its important part “Synchronous Material Flow” (SMF) and the Ford Retail Network were implemented. Ford has a large supplier base. It procures from over 30000 suppliers and deals directly with less than a 1000.

(http://global.umi.com/pqdweb?ReqType=301&UserId=IPAuto&Passwd=IPAuto&JSEnabled=1&TS=953862775. Up-to-date techniques like EDI, JIT and TQM are being used to communicate and coordinate between Ford and tier one suppliers. Ford’s major suppliers have modern Information Technologies (IT) but do not have the capacity to invest in new technologies as rapidly as Ford. This technology modernity diminishes further in the lower tiers of the supplier base, mainly due to financial constraints.

4.1 Major Issues and Problems

1. Difficulties in establishing B2B linkages

Lack of technology and technological sophistication that prevail in the supply chain, especially at lower tiers.

2. Development of Information Technology in the supplier base Ford has a network of 30000 suppliers operating with different levels of technology. Its tier one suppliers have fairly modernised information systems but do not have the ability to rapidly invest in new emerging ones. The lower tier suppliers do not even have the same level of IT understanding and modernity as the tier one suppliers do leading to bottlenecks in the supply chain.

3. Of all the activities operations and supply chain managers perform, relationship management is perhaps the most difficult, and is therefore the most susceptible to break down. For example, an unreliable supplier can virtually cripple a plant, leading to inflated lead times and resulting in problems across the chain, all the way to the final customer.

4.2 Technique of Measurement and Coordination

The project will be rolled out in phases starting with the current facilities provided on the Internet to where products can be ordered for the future. For successful implementation the following had been carried out:-

1. All the components of the supply chain had been informed of the change and information sessions organised to discuss the change. This will provide a general view from the sprawling work force, the suppliers, and especially the purchasing department.

2. To manage and coordinate, drive the efforts across company lines, groups and teams will need to be formed. There should be sufficient technical people on the team as it is involves IS and IT.

3. Training programs had been chalked out for Ford’s employees. The company is going online the employees had been skilled for the new technology.

4. Call centres or information centres had been set up for suppliers, staff, dealers and customers. This will facilitate acceptance and understanding of the project.

5. Details will need to be worked out and suppliers from tier one and beyond given the information they need to bring their dealings onto the Internet.

6. Incentives to adapt to the Internet backed by facilities to do so should be provided to employee e.g. free/subsidised net access..

7. To ensure that everyone communicated effectively, Ford required all its vendors to work on the same software platform known as CP3 (CAD/CAM/CAE/PDM).

4.3 Resource

1. Cross-functional teams: These had comprise of members from different departments i.e. finance, marketing, sales, especially IS/IT department (or from the company it is outsourced from).

2. Hardware/Software: Ford also has developed consumer-focused e-commerce initiatives for its Web sites, and , and with its partners and . On the Ford Web sites, consumers can customs configure a new vehicle, view up-to-date manufacturer-suggested prices, place an order, and arrange for delivery to a nearby dealership.

3. Training Personnel: Trained personnel will be required to familiarize and train the workforce for the new system.

4. New Skilled Staff: To keep employees abreast of the technologies affecting their interactions with consumers and one another, Ford is implementing new Internet-ready PCs and sophisticated information systems in its sites around the world. These resources rely on an end-to-end Cisco network.

5. Dollars: will be need to be invested recurring, in the project to ensure successful implementation (see costs)

4.4 Costs

The entire project will roughly cost an estimated $100 billion per annum. This will include costs like: Setting up the Internet site, Outsourcing the software company who will provide services like database management, Partnering with Internet service Providers, Purchasing new hardware required, Training the existing staff, Hiring new employees.

5.0 Contribution of SPC to the Success of Ford

Communication

The supplier can communicate (changes in product or design, orders etc.) to the required party in quickly and in real time (online vs. paper). Smooth communication between tier-one, and sub-tier suppliers. This will allow the supplier to reduce costs, supply better quality parts, and there is quicker access to engineering design to change orders, leading to saving of overall purchase and production cost. Dealing via the net will, make ordering and billing almost immediate, the site can provide sales forecasting and similar services, so suppliers can better predict and manage their operations. Electronic dealing with suppliers could cut costs and speed deliveries.

Increase efficiencies through material specification rationalization and consolidation (e.g. grades, gauges, and width)

3. Reduction in the number of financial and material claims disputes and the associated cycle time for resolution.

4. Enabled program expansion to other materials or geographic region without

increasing stuff.

Increased visibility to financial, material and information flow-and the ability to

mind data for strategic and tactical decision making.

6. Saving IT cost due to outsourced management of solution.

5.1 Practical Implications of SPC to Operation Managers

Gioia spends a lot of her time up front choosing her suppliers based on skills, expertise, and collaboration ability.

"When I staffed my Ford team for the T-bird, I looked at the available skill set vs. how many people are new to the company and how many have been involved with only a portion of vehicle development," Gioia says. "I do the same with my team of suppliers."

She tries to reach a good balance throughout the supply chain. "With more dependency on suppliers for systems design or systems interaction, I am much more interested in the skill and capability levels of the suppliers I am employing," she says.

"This is a new approach for us. But we are doing things more this way," Gioia says.

In this new collaborative relationship, automobile manufacturers must ask, `How good is my supply chain,'" says Belzowski from OSAT, "Not `how good are my suppliers.'"

says Nancy Gioia, Vehicle Line Director for Lifestyle.

The implication of the SPC to Gioia is that they have to be more careful in the selection stuff. They also improve their skill and take action to improve the supply chain of their company. The operation managers have to monitor the performance of the supplier and the stuff. Besides that, the operation manger also have to monitor the feedback of the customer for the evaluating the performance of their supply chain time by time.

"We expect more from our suppliers these days," says Gioia. It isn't enough just to make good components. "We want to know what ideas and technology they have to offer." These trends involve a great deal of communication and the need for open, effective collaboration between customer, supplier, manufacturer, and everyone in between.

6.0 Conclusion

In today’s auto world to remain competitive, Ford will have to remain a low-cost producer of high-quality vehicles. With the new supply chain the Ford site will let the automaker and all its suppliers to share more information and do it more quickly for design requirements, demand forecasts and production schedules. Furthermore, it will help the components of the supply chain to work closely together, especially when developing new products. Purchasing should be strategically geared toward further improvement of the relationship with suppliers. Ford will be able to peel out to an early lead in the race to shorten delivery times, enhance or even completely replace the car-buying experience and stay involved with the consumer throughout the life of the car.

Content

Introduction-------------------------------------------------------------------------1

Concept of Supply Chain Management--------------------------------------- 1

2.1 Methodology of Supply Chain Management----------------------------------2

3.0 Case Study of Ford Motor Company-------------------------------------------2

3.1 Current Situation Analysis Physical of Flow Goods-------------------------3

3.2 Information Flows------------------------------------------------------------------3

3.3 Organisation Structured----------------------------------------------------------4

4.0 Supply Chain Performance-------------------------------------------------------4

4.1 Major Issue and Problems--------------------------------------------------------4

4.2 Technique of Measurement and Coordination-------------------------------5

4.3 Resource------------------------------------------------------------------------------5

4.4 Cost------------------------------------------------------------------------------------6

5.0 Contribution of SPC to the Success to Ford-----------------------------------6

5.1 Practical Implication of SPC to Operation Manager------------------------6

Conclusion----------------------------------------------------------------------------7

References

(2003).Suppliers who can collaborate throughout the supply chain.(Internet).Supply Chain Management Review. Available from:<http:// SP CH MGNT\Supply Chain Management Review - Needed Suppliers who can collaborate throughout the supply chain.html>

C. Bhatnagar,(2000). Ford;s supply chain strategy in 2000. (Internet). Mega Essay.com. Available from:<http:// SP CH MGNT\scm\CollegeTermPapers - Business - Ford;s supply chain strategy in 2000 - Free Term Papers, Book Reports, Essays, and Research Papers.html>

By Kurt C. Hoffman.(2001). Optimization Engine Powers Ford’s Supply Chain. Supply Chain Brain.com. Available from:<http:// SP CH MGNT\scm\2_01_Ford.html>

Ruben Vrijhoef1 and Lauri Koskela2..( 1999). Roles of Supply Chain Management in Construction. University of California, Berkeley, CA, USA. Pp135-136.

Malcom Saunders. (1994).Strategic Purchasing & Supply Chain Management. London. Pitman Publishing. (1994)

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