Ford supply chain strategy

Assignment 1

Supply Chain Strategy Case Study (Ford Motor)

In this assignment, you will apply strategy concepts to a real-world supply chain relationship management case study.

Review Case 2-3, "Ford Motor Company: Align Business Framework," on pages 41–43 of your Purchasing and Supply Management text.

Complete the following:

· Write a 3–4-page paper addressing Tony's challenges identified under "Finalizing the Plan."

. Describe Ford's competitive strategy. Provide examples of its competitive strategy.

. Compare and contrast the old and new contract and negotiation approaches.

. Analyze the impact of Ford's new supplier relationship approach on its competitive strategy.

. Evaluate Ford's new supplier relationship approach and how this new approach will improve relationships with suppliers.

Case 2–3

Ford Motor Company: Aligned Business Framework 2

Tony Brown, senior vice president of global sourcing at Ford Motor Company (Ford), was putting the finishing touches on his plan for the company’s new supply chain strategy—“Aligned Business Framework” (ABF). ABF was a bold step that would significantly change the relationships between Ford and its suppliers. Tony described his motivation: “We want to operate a supply chain management system that delivers on the dimensions of quality, technology, delivery and cost, while executing programs in a disciplined fashion with faster time-to-market.” 3

It was August 10, 2005, and Tony was expected to review the final details of his proposal with company chairman and CEO William Clay (Bill) Ford Jr. before making a formal public announcement the following month. ABF would substantially reduce the number of suppliers and give those that remained long-term contracts and early involvement in new product development programs. Tony expected that the strategy would provide benefits to Ford through overall lower costs, while suppliers would benefit from long-term financial stability and profitability. The question remained, however, how he would convince Ford’s supplier community to commit to the principles of ABF.

FORD MOTOR COMPANY

Founded in 1903, Ford was the no. 2 U.S. automaker with global sales of approximately $177 billion. In 2005, its global brands included Ford, Lincoln, Mercury, Jaguar, Land Rover, Aston Martin, and Volvo. 4 In recent years all of the “Detroit 3” (General Motors, Ford, and Chrysler) automakers were struggling under intense global competition, rising fuel prices, and steep product discounts and rebates. In the most recent quarter, Ford reported a $1.1 billion operating loss and the company’s debt had recently been downgraded to junk-bond status. To turn around company performance, Ford had announced plans to cut its salaried workforce, reduce capacity by closing plants and selling the Hertz rental car division, and ramp up production of hybrid vehicles. 5

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ALIGNED BUSINESS FRAMEWORK (ABF)

The Ford global supply chain included approximately 2,500 production and 9,000 nonproduction suppliers, with operations in more than 60 countries, supporting 107 Ford manufacturing sites. Total purchases in 2005 were more than $90 billion for roughly 250 production commodities (e.g., seats, heating and cooling systems, advanced electronics, and steering systems) and 500 nonproduction commodities (e.g., health care, software, logistics, and marketing and advertising services). The more than 130,000 active production parts accounted for approximately $70 billion of total annual purchases. 6

Historically Ford leaned heavily on suppliers for annual across-the-board price reductions that averaged approximately 3 percent, although requests for more substantial reductions were commonplace. This environment had created contemptuous relationships between Ford and its suppliers, which were reinforced through annual performance evaluations and bonuses for buyers based on achieving year-over-year price reduction objectives. The foundation of the new ABF strategy was a cultural shift from confrontational to collaborative supplier relationships. Tony commented on his assessment of Ford’s current supply chain strategy: “We have a problem with the business model in this industry. It is not working effectively for our suppliers. It is not working effectively for us. When my day is dominated by issues related to financially distressed suppliers, commodity price shocks, quality problems and costs issues, it’s clear to me that there must be a better approach.” 7