Ford Motor Company: Supply Chain Management and Strategic Fit

Summary This report covers the efficiency of Ford Motor Firm over the previous 10 years and analyzes the outcomes of its “One Ford” marketing strategy. The primary query this report solutions is whether or not Ford’s resent actions match the availability chain technique of the brand new plan. There's additionally a brief comparability between Ford and it closest competitor in america, Common Motors. Information was collected from completely different sources similar to, annual and quarterly reviews, firm web sites, organizations such because the United Nations, together with unbiased sources. This knowledge was evaluate and non-financial and monetary computations had been carried out to see it if Ford’s total efficiency had enhance because the implementation of “One Ford” and the project of recent administration. The outcomes present that the corporate has made enhancements to it efficiency each monetary and high quality primarily based off forecasting, worker effectivity, contribution and value margins, web revenue, and better costs demanded for his or her merchandise. Business Overview Of their business report, First Analysis (2011) describes each america and world vehicle manufacturing industries. The business in america is comprised of about 200 firms. In 2010, two of the bigger manufactures, Ford and Common Motors, had mixed annual revenues of roughly $235 billion & . The auto manufacturing business is a world business with gamers from a number of main international locations. Among the bigger world firms primarily based outdoors america embody Toyota (Japan), Volkswagen (Germany), Hyndai (South Korea), Peugeot (France), Fiat (Italy), and SAIC (China) . Though these manufacturing firms are overseas primarily based a number of have manufacturing amenities inside america. A few of these embody Honda, Nissan and Toyota . Whereas different manufactures have amenities right here in america, Ford and Common Motors have positioned amenities in different international locations. Firms that find amenities in overseas international locations try to maximise earnings by profiting from decrease labor prices, find close to suppliers and prospects, and decrease tariffs and different taxes. There are different challenges which are confronted by the car manufactures apart from the space between their amenities and prospects. These challenges embody world financial situations, gas costs, regulatory requirements, and the quantity of loanable funds out there to customers . To fight macroeconomic points similar to these, corporations should discover different methods to extend profitability. Ford Motor Firm is likely one of the vehicle firms that has been capable of do exactly that. Ford Motor Firm Temporary Overview, Merchandise and Providers The next info was compiled from Ford Motor Firm’s 2010 Annual Report (2011) and www. Ford. com. Ford Motor Firm manufactures and distributes vehicles throughout six continents, employs about 164,000 folks at roughly 70 vegetation. The foremost bands manufactured by Ford Motor Firm are Ford and Lincoln. Ford Motor Firm additionally owns roughly 30% of Mazda that's positioned in Japan. In addition to vehicles, the corporate additionally sells components and affords monetary and restore companies for his or her merchandise to the buyer. In its automobile phase the Ford model affords economical and sports activities automobiles, and a sedan. The economical automobiles embody the Focus, Figo, Fiesta, and Fusion. The sports activities automobile and sedan are the Mustang and Taurus, respectively. MSRP of those automobiles rang from simply over $13,000 to virtually $26,000. The SUV and crossover phase contains the Escape, Flex, Discover, Edge, Kuga, Expedition, and the EcoSport. MSRP for these two varieties of vehicles from Ford ranges from $21,000 to $38,000. Ford model additionally has a truck line that features the F-Sequence, Ranger, Transit Join, Tremendous Responsibility, and E-Sequence Wagon. MSRP for the truck line ranges from $18,000 to $29,000. Ford Motor Firm additionally has a home luxurious automobile phase. The Lincoln model of vehicles contains sedans, crossovers and an SUV. The sedans embody the City Automobile, MKZ, and MKS. These automobiles vary from $35,000 to $47,000, MSRP. The crossovers embody the MKX and MKT and vary in MSRP from $40,000 to $45,000. Lincoln’s SUV is the Navigator and begins at an MSRP of just about $58,000. Ford Motor Firm’s Modifications in Their Provide Chain Technique Over the previous decade Ford Motor Firm has had its monetary ups and downs and had not been capable of preserve a secure web revenue (See graph beneath). To fight this drawback in the course of the final decade Ford made some administration modifications to try to enhance their business place. They addressed provide chain effectivity issues that the corporate was going through. Among the wanted modifications included closing vegetation, retooling, constructing versatile manufacturing amenities, and contracting with new logistics corporations. The plan to make the transformation was coined “One Ford” . “In September of 2006 William Clay Ford, Jr. was named CEO of the Ford Motor Firm. . In Liker and James’ journal article (2011) they famous that Ford introduced in Allan Mulally whose job it was to make use of borrowed monies to deliver Ford Motor Firm again to a extra secure and worthwhile state. Mulally needed to resolve the place to make use of the borrowed $23 billion and the place to chop price. To assist with this he appointed Derrick Kuzak, former vice-president of Europe’s product growth. Kuzack was appointed because the vice-president of world product growth . To fight price Ford has closed roughly ten of its amenities since 2006 . Along with closing amenities, Ford needed to pare down provider to deliver all of its manufacturing amenities and merchandise throughout the globe into alignment. In 2010 James Tetreault, vice-president of North American manufacturing acknowledged, “[it was] costly to keep up separate product and provide chains” . The corporate in 2006 began engaged on standardizing the structure of the all it physique panels, automobile plat types, die designs and processes . Along with making manufacturing modifications Ford addressed it logistics issues in america. From 2000 and into 2009 Ford had used United Parcel Providers (UPS) as its logistics accomplice for transporting each inbound and outbound stock . Since then, Ford contracted with Penske to be its logistic accomplice. Penske works with Ford not solely in america but additionally in Europe, South America, and United Kingdom . Along with inner course of challenges, there are different inner and exterior challenges that the automotive business faces. Exterior Challenges to Ford’s Modifications In the midst of all of its modifications Ford Motor Firm had many alternative challenges apart from its, monetary and course of modifications to make the “One Ford” idea work. First, it had communication points from higher ranges to decrease ranges, and so they couldn't get previous “enhancements” absolutely carried out. Second, relationships with distributors wanted enchancment. Third, the world was about to enter right into a recession beginning in 2008. Regardless that the world’s GDP was falling, there was steady inflation all around the world. Lastly, iron ore worth proceed to rise even through the recession. Of their case examine, Liker and Morgan (2011) mentioned info dissemination was described as “hand grenades” and “scud missiles. ” To enhance this, two varieties of conferences had been began inside the corporate. First, had been the “Skip-level” conferences that allowed engineers and higher degree administration to speak. Second, that they had “All-Fingers” conferences twice a 12 months the place your complete group gathered to debate the standing of the enhancements. Liker and Morgan (2011) additionally quoted Mulally as saying “provider had been handled like enemies” and never companions of Ford. To repair the battles between Ford and its suppliers “a means of dialogues between matched pairs of Ford engineers and consumers in buying who had been liable for the business aspect of working with suppliers” was put into place . This might help the consumers know what, how a lot, and when provides are wanted, and hopefully this can improve the provider confidence within the processes at Ford. Shortly after Allan Mulally got here on in 2006 the world was about to enter right into a recession that some information reviews had been saying could possibly be the following Nice Despair. In response to a United Nations, World Financial Scenario and Prospects 2010 report, the speed of progress for GDP in most, if not all, international locations started to say no in 2007 and really entered into declines someday in 2008. Though GDP was falling, inflation continued with none interval of dis-inflation, that means that costs had been nonetheless on the rise however simply at a slower charge . See the 2 graphs beneath for a graphical view of the United Nations knowledge. These outcomes present that the price of residing (costs) had been nonetheless on the rise, however the quantity of manufacturing (revenue) is in decline between 2007 and 2009. This makes it tougher for customers to buy merchandise like vehicles. Even with the upturn within the economies between 2009 and 2010, there's nonetheless a chance that individuals are going to be reluctant to buy costly sturdy items. Sadly for the car business its best commodity is metal. Over the previous ten years world iron ore costs have been on the rise, aside from a dip in costs between mid-2008 and the primary quarter in 2010 . “About 98% of iron ore is used to make metal” . These worth will increase will drive the value of inputs for the automobile business up as a result of every part from the nuts and bolts, engine, body and physique panel, on most automobiles, are produced from metal. Larger enter costs means both decrease gross earnings and/or larger costs to the ultimate shopper. The graph beneath exhibits the value modifications of iron ore from 2001 till the top of 2010. Ford’s Forecasting, Stock, Transportation, and Income Administration To compete, hold price down, be worthwhile, and keep in enterprise Ford has needed to tackle the fore talked about inner and exterior points even after getting its “Ford One” plan in place. To take action it seems that administration has addressed the forecasting, stock, transportation, and income administration features of their operations. First, Ford needed to tackle its forecasting in order that it will not over or underneath produce its product to a degree that might be detrimental to profitability. Second, stock and transportation was outsourced to capitalize on the information inside a agency that specialised in logistics and likewise had the bodily assets. With an enchancment of the primary and second matters on this part the third subject’s, income administration, duties are made a lot simpler. After a evaluate of the corporate’s quarterly reviews from 4Q 2007 to 3Q 2011 and the 2001 to 2010 annual reviews, it may be decided that Ford makes use of historic quantitative info in its mixture forecasting. A few of this info will not be vehicle business particular however macroeconomic info that impacts gross sales contained in the business. It seems that Ford’s mixture demand forecast makes use of historic knowledge and the macroeconomic info for world manufacturing forecasting after which they base their manufacturing off of latest market share percentages they management. Ford additionally acknowledges that there's seasonality to its prospects buying patterns and modify projection ranges. Within the notes of the “Outlook” part of the 1Q 2008 report (2008) Ford commented that “outcomes usually have been stronger within the first half of the 12 months, with the primary quarter being the strongest”. After having forecast errors in 2008 and 2009 that totaled 1.9 million models, Ford’s forecast for 2010 was solely off 149,000 models worldwide. As addressed earlier, Ford had shifted its logistics in 2010 from UPS to Penske Logistics. Penske claims that they've lowered Ford’s home plant stock by 15% with using Order Dispatch Facilities (ODC) and coaching suppliers on a uniform set of provider procedures . With the ODCs Ford’s suppliers had been not delivering to the plant amenities however to the ODC the place provides had been cross-docked. This was completed as a result of Penske discovered that supply vehicles had been touring at 50% capability and crossing routes. Penske now reviews that “most vehicles are at 95% capability after they depart for a plant . On their web site, Penske states that they've setup different logistical features to streamline Ford’s transportation portion in its provide chain actions which embody info expertise and finance administration methods. Their info expertise system communicates schedules and cargo info up and down the availability chain and the finance administration handles all the freight invoice funds, declare processing and resolutions all through the availability chain . We've all seen the adverts on tv and in newspapers that begin round October and run by means of the top of the 12 months. The producers and sellers give them titles like “Yr Finish Blowout” and “Yr Finish Clearance. ” The specials they're working are to filter out the earlier 12 months fashions. These gross sales are a type of income administration used to extend gross sales through the upcoming vacation months when customers are extra centered on Christmas and holidays. Particularly, it's a type of dynamic pricing. Dynamic pricing is used to sale stock that's changing into much less worthwhile as time persists . Ford is a kind of vehicle firms that partake in such pricing practices. In addition they supply reductions to customers that finance by means of their Ford Motor Credit score Firm. Go to Ford’s web site www. fordspecialevent. com and you will note the particular rates of interest, some even at zero%, and rebates which are supplied on choose models from the earlier 12 months fashions to assist transfer them off of the seller heaps. Such a gross sales observe is an instance what occurs with a list push system. The Efficiency and Monetary Outcomes of “One Ford” After simply over three years from when Alan Mulally took the helm as CEO for Ford Motor Firm, how have they carried out? To find out if Ford’s modifications have truly labored we are able to take a look at a number of metrics. First, we are going to take a look at the mixture forecasting numbers from 2008 to 2010. Subsequent, the utilization of workers which are working within the vehicle sector of Ford shall be analyzed. Lastly, we are going to take a look at some monetary efficiency numbers to see if the plan has had an impact on Ford’s backside line. Ford’s forecasting has significantly improved over the previous a number of years. When forecasting, a company, similar to Ford, should have in mind its current stock and base its manufacturing forecast on anticipated demand that exceeds stock. In 2008 Ford had forecasted that it will produce simply over Four. 5 million models, however truly produced solely three. eight million. Gross sales that 12 months totaled 5. 5 million models. Which means the annual forecast had an error of 1. 7 million models. In 2009 the whole manufacturing forecast was three. 7 million models, however the precise manufacturing was Four. 6 million. Gross sales in 2009 had been virtually Four. 9 million models. That’s a forecast error of -247 thousand models. In 2010 Ford’s forecasting improved much more. Manufacturing was forecasted at 5. Four million models, however precise was 5. 6 million models, and gross sales had been 5. 5 million models. This leads to a forecasting error of 149 thousand models. Ford has lowered its forecasting error by greater than 10 occasions from 2008 to 2010 (See chart beneath). It has additionally lowered its imply common deviation between quarters from 1Q 2008 to 4Q 2010 a complete of 367 models (See chart beneath). These sorts of outcomes might present that Ford is shifting from a push to a pull kind of stock management system. Since 2003 Ford has diminished the variety of workers which are of their vehicle sector. Together with a discount of workers, the implementation of the above mentioned “One Ford” plan to enhance and standardize manufacturing processes has had a optimistic impact on the corporate’s monetary efficiency. Between 2003 and 2010 employment went from roughly 279,000 right down to 157,000, a discount of 44%. However with this discount in employment, manufacturing per worker rose from 24. 1 to 35. 2 or 46%. The elevated variety of models per worker has had a optimistic impact on the corporate’s revenues from auto gross sales and gross revenue margin. Income from the sale of vehicles per worker has risen 53%, $495. 56 million to $759. 75 million. The overall employment at Ford has dropped from 328,000 right down to 164,000. This contains each the manufacturing and repair sectors of the corporate. The impact on whole web income per worker has elevated from $501. 75 million to $786. three million or 57% from 2003 to 2010. See the graph beneath for an outline of the above worker utilization and contribution outcomes. Now we are going to take a look at how Ford’s change of their enterprise mannequin has affected the unit contribution and value, and gross revenue margin of the corporate. The typical contribution per unit between 2001 and 2010 was $18,668 and $21,593, respectively. That's an elevated contribution of 16% per unit. In 2001 the common price to provide one unit for Ford was $18,324. This rose to a excessive of $23,558 in 2007, however the firm was capable of cut back this price again right down to $18,908 in 2010. The proportion discount in price per unit from 2007 to 2010 is 16%. The destructive correlation between contribution and value per unit has a optimistic impact on the gross revenue margin for the corporate. Ford’s gross revenue margin from 2003 to 2010 elevated 100% from 6% to 12%. That's after dipping to lows of -Four% and 1% in 2006 and 2008, respectively. See the beneath graph to see how the modifications in Ford’s operations has affected the above talked about financials. To investigate the whole impact the “One Ford” plan has had on the corporate’s backside line allow us to take a look at the income and revenue aspect of the financials. First, we have to have in mind that the world has been in a recession since about 2008. This has had an impact on the whole gross sales and revenues that Ford has skilled during the last a number of years, and the distinction between 2001 and 2010 outcomes are $160 billion and $129 billion, respectively. To know how the modifications (One Ford) have affected the online revenue for the corporate we should take a look at the pattern between gross sales and value of products offered. Beginning in 2006 the price of items offered for Ford trended downward, as did whole gross sales and income beginning in 2007, however in 2009 there began to be a change between the speed of progress between sale and value of products offered. The speed of progress from gross sales elevated at a quicker tempo than price of products offered. From 2008 to 2009 the change in gross sales was a discount of 19%, and the price of items offered fell by 22%. Between 2009 and 2010 gross sales rose 15% whereas price of products solely elevated by 6%. These variations are a results of the above point out common contribution and value per unit. Different modifications that could possibly be making this distinction are the outsourcing of its logistics and relations with suppliers. These will increase in gross earnings from operations have been sufficient to offset the diminished revenues (22%) from the monetary sector and have resulted in a 141% improve in web revenue between 2009 and 2010. (The entire above employment, manufacturing and monetary knowledge was collected from annual and quarterly reviews printed by Ford Motor Firm and could be discovered on their web site, www. Ford. com, and the Securities and Trade’s web site, www. sec. gov. ) Comparability of Ford and Common Motors Efficiency To check Common Motors to Ford Motor Firm we are going to take a look at worldwide gross sales revenues, price of products offered, and web revenue. In its 2010 Annual Report (2011), Common Motors claims to guide Ford in worldwide gross sales . That is true, within the variety of models offered. In 2010 Common Motors did out gross sales Ford by virtually 2. eight million models. This has been the pattern even again to 2004 the place the distinction was in Common Motors favor at 2.2 million models. Even relating to some monetary performances Common Motors has the benefit. In 2010 common unit price for a Common Motors unit was $14,200 dollars and Ford’s common unit price was $18,900. That may be a distinction of $Four,700. Between 2006 and 2010 Common Motors was capable of cut back their common unit price by 28%. Ford solely diminished its common unit price by 19% in the identical interval. The large variations that provides Ford the benefit between the 2 firms are the common gross revenue per unit and the online revenue. Ford is ready to demand a better common worth, $21,600 versus $16,100, than Common Motors. This has given Ford the benefit in web revenue with a distinction of just about $1. 9 billion in 2010 alone. Plus, Ford has completed this all with out a bailout from america authorities like Common Motors. Conclusion Over the ten years this report covers, Ford has been capable of make main enhancements in its operations. It has been capable of make architectural modifications to the physique meeting and tooling that makes their manufacturing amenities extra versatile. Penske was capable of are available in and cut back waste within the stock and logistics that was not discovered by their earlier logistics firm. The large hurdle that Ford overcame was the implementation and communication points that they had in-house and with suppliers. With all of those modifications Ford has been capable of alleviate among the monetary woes it was experiencing a number of years again. Lastly, the results of the car sector and the whole firm exhibits that Ford Motor Firm as a complete is shifting in the best route with its “One Ford” plan.
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