In viewing sales channels, differences between Ford and Dell center around the typical customer serviced by the companies; a large majority of Dell’s revenue is generated through sales to multi-unit buyers (businesses, government, and education), while a majority of Ford’s revenue comes from single car purchases and financing sales for individuals.
Automotive Industry vs. Computer Industry
From an industry perspective, automobile companies have a more complex manufacturing operation compared to computer companies, with greater capital requirements and significantly greater subassemblies involved. Additionally, automobile parts are generally not interchangeable between different models whereas a significant portion of computer components are generally interchangeable among various models. Automobile companies are also typically connected to their clients through an independent dealer network that generally offer value-added services essential to the continued operation of the vehicle, while computer companies can be directly connected to their clients or sell their product through a retail network that typically provides little after-sale value. Furthermore, computers are more of a commodity product compared to an automobile, as car-buyers require the ability to “test drive” the product and require greater levels of personal service. Saturn, for example, attempted to utilize the internet to sell directly to its customers, but this strategy ultimately failed and Saturn no longer offers the ability to customize its cars and order them directly through the company’s website.
Takai is faced with choosing among the following courses of action:
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Aggressively redesign both the supply chain management system and retail sales network utilizing new information technology, adopting best practices of companies such as Dell and Cisco to achieve the goals of Ford 2000.
- Aggressively redesign the supply chain management system utilizing new information technology, while making minor or no changes to the retail sales network or vice versa.
- Attempt to achieve goals of Ford 2000 without the use of new information technology in the areas of supply chain management and the retail sales network.
Recommendations and Implementation Tactics
We recommend that Ford pursue a two-part strategy relative to their current position. This strategy, along with pathways for implementation, is as follows:
Part 1 - Aggressively pursue a technology solution as the foundation to a streamlined and enhanced virtual supply chain.
The efficiencies seen by companies such as Dell in building a virtual supply chain can be replicated to a large degree within Ford Corporation. Characteristics of this solution should include:
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Architecture: Web-based architecture to minimize compatibility issues
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Product development phase: Capability to enlist collaborative input from vendor partners pre-production – this will allow suppliers to offer input into design-for-manufacturability, thereby lowering costs and simplifying manufacturing steps early in the supply chain
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Sourcing phase: Capability to minimize per unit cost during sourcing while ensuring that parts meet specifications and quality expectations
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Production phase: Capability to contribute to lowering raw material and work-in-process inventory, feedback loops to supplier to correct any quality issues quickly
Steps involved in implementing this component of the strategy include (in chronological order):
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Obtain a strong partnership with a leader in global information technology solutions – The scope of this web-based solution has broad-reaching implications across many organizations; internal functional departments within Ford such as engineering, design, and production will be affected as well as suppliers, which will be discussed later. A company whose core competency is design and implementation of such a massive system is a critical component to the success of this program.
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Restructure the Purchasing Department – The current functional silo of purchasing must be realigned to decentralize raw material sourcing to the Vehicle Centers. Procurement of MRO and supporting services can remain centralized in the traditional purchasing organization.
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Identify requirements for suppliers who want to do business directly with Ford – The new system will certainly put demands on suppliers; these should be clearly outlined at the onset of the implementation with milestones that suppliers can respond to and deploy resources to meet.
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Choose a limited number of vendor partners - These vendors must be capable financially and operationally of implementing the processes and systems required by Ford. In addition, contracts should be structured to ensure alignment of corporate goals. These partners should be incentivized (wording? can use “ motivated”,” driven”) to help Ford meet profitability and performance goals.
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Implement the system with aggressive training both internally and at the partner level – As internal and external stakeholders grow to understand the process better, they will see more where they can contribute to helping the company achieve its goals. For example, the OTD project team should be working with sales and marketing to eliminate the burdensome ordering amendment system as part of its scope and looking for ways to bundle options and reduce one-off options that create disruption and inefficiency in the supply chain.
Part 2 – Dump direct sales efforts at non-fleet buyers and look for opportunities in FPS and the technology solution above to add value to multi-unit (fleet) buyers.
The Ford dealer network, as discussed before, is critical to the success of Ford. Further, these dealers offer value-added services to customers after they’ve been purchased. Direct sales efforts by Ford will put dealers into a competitive situation with the company, which will in turn reduce customer responsiveness.
Ford’s real lesson from Dell should come in how they segment the multi-unit purchaser and offer added value to these buyers. Fleet sales in the auto industry are typically at 15-20% (by units) and represent the lowest area of profit margin. The company should talk to large fleet buyers for latent needs and explore ways to deliver value on these needs through Ford Production Systems and the technology solution above. Steps to implement this include:
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Disband the Ford Retail Network initiative.
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Explore possibilities for dealers to add value to the supply chain technology initiative – We feel it is critical that this be done at little or no cost to the dealers; their role is one of generating sales and responding to customers. Any initiatives to improve channel efficiency should not be borne on the backs of the dealers.
- Redirect resources from FRN and FIECo to explore ways to generate value in multi-unit buyer markets.
Many of the benefits that Dell sees in its virtually integrated supply chain are risk-mitigating efforts against rapidly devaluing inventory and extremely short product lifecycles. Although Ford does not face these risks to the same degree, investing aggressively in technology to deliver value in the supply chain will pay dividends to Ford and contribute to both shareholder value and customer responsiveness. In addition, exploring ways to leverage a redesigned supply chain to better serve customers and improve profitability in a typically ugly market area like fleet sales can represent pathways to growth, the key ingredient to seeing P/E ratios companies like Dell enjoy.
Risk Analysis
This tandem strategy is not without risk. As this is enacted, the following risks must be considered and addressed:
- The largest risk in this strategy is that the return on investment for this significant outlay will not be positive. In addition, this strategy necessitates a significant investment in management time. Expectations for this strategy should be laid out as soon as reasonable quantitative data is available.
- A similar risk exists in the possibility that despite a heavy investment in technology, vendors will not be able to respond appropriately. Parts used to make cars are big, take up lots of space, are heavy, and don’t lend themselves to substitution well. A possibility exists that only minor incremental improvements are available given these constraints and that the price of each marginal unit of efficiency increases dramatically despite technology.
- Ford’s organization is not as integrated as that of Dell’s and their culture is seemingly not as collaborative. Management will have to be sensitive to this and be strong in removing obstacles preventing collaboration.
- Ford’s production environment has a strong union presence that must be addressed at every turn; failure to take this into account could have disastrous results on production manpower and speed of implementation.
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Ford currently has very deep vendor relationships that are the result of many years of doing business together. A new supplier structure may alienate vendors who in the past would have striven (?wording, can use “willing”) to go the additional mile for Ford and hamper the responsiveness of what was a wider base of vendor options in the past.
- Ford must not allow the decentralization of parts procurement to result in increased raw materials costs. This is a risk that if not mitigated, will result in millions of dollars of lost profitability for Ford.
- This strategy is also risky in that Ford is not bringing a sales channel innovation to the largest segment of the market, namely the single unit purchaser. If this model does catch on, Ford will not be a pioneer in this area and will be late to offer an alternative.
Planning can eliminate many of these risks along with involving all stakeholders early on to demonstrate how this strategy will help Ford meet its corporate objectives laid out by the new CEO.
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The degree to which Ford is successful in executing this strategy is likely to determine the long-term viability of Ford as a company in the competitive automotive industry. Consolidation trends in the automotive industry were discussed in the case, and further consolidation is expected. By redesigning its supply channels to leverage technology and carving additional growth out of neglected sectors, Ford is positioning itself as an industry leader with excellent long term shareholder value and customer responsiveness.
