FORDBy group 8Surbhi SinghWasim AkhtarZebaAsthaShilpa GuptaSweta Kumari

1. Will you buy a car online? Consider the experience that you (or your friends or family members ) have had in buying a car . Compare these with the experiences of buying a computer online ( If you have never done this, go to Dell’s website and explore how online computer buying works) . What do you think explains the differences?

In general , we will not prefer to buy car online, unless we are getting significant price difference by buying online.

Comparison of Buying Experiences Buying Car Buying Computer online

Purchasing decision time

More time Less time

Influence of reference group

Significant Less

Evaluation of alternatives

Involves more time and complex

Easy

Option of customization

Restricted Extreme

Other concerns Resale value, safety and reliability

Performance, Speed

Reasons for difference in buying experiences

Buying Car Buying compute online

Category of product High involvement product, more of luxury product, Integral

Moderate involvement or low involvement product, more of necessity, Modular

Role of third party High Less

Ease of purchase Less High

2.What is virtual integration and what benefits Dell derives from virtual integration ?How important are these advantages in the auto business ?

•Virtual integration is a new form of value chain management.Under such a system, the links of the value chain are brought together by informal arrangements among suppliers and customers. •Shipments of the components that the firm needs can be easily arranged through the Internet or a networked computer system. The same type of arrangement allows the firm to fully serve their customers in ordering, services, or any other needs.

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.

Benefits derived by Dell

Cost•Eliminates the

cost associated with carrying large inventory of finished goods

Relationship•Good relationship

with the customer

Communication and coordination•Business partners

treated as insiders of the company which speeds up time to market

ControlThe prospect of improved control over the actions of suppliers is another important rationale for virtual integration.

Important in case of Auto Industry

Inherent complexity of the automotive productMany components such as tyres, windscreen wipers, and electrical components are sourced from large suppliers and are same for all companies. So these products can be virtually integrated.

Difficult in case of model specific component.

Being powerful and large company makes it difficult to develop virtual integration ( e.g. Ford supplier network had many layers )

Q3.Compare the enterprise models of Dell & Ford. Do you think the financial performances the two firms are linked to their enterprise

models?

Enterprise Model ComparisonDell

Operating Principles

CustomerIntimacy

DemandPull

Ford Production SystemOrder to Delivery

Supply Chain Mgmt. Leadership

Demand to DeliveryFord Retail Network

FordBreakthrough Objectives/Key

Initiatives

VirtualIntegration

Order to DeliveryFord Product Development

SystemVelocity

Fixed to Variable Cost ShiftModular Assemble

“Extended Enterprise”

Customers frequently steered to PCs with high availability to balance

supply and demand Suppliers maintain nearby ship points;

delivery time 15 minutes to 1 hour

External logistics supplier used to manage inbound

supply chain

Focused on strategic partnerships: suppliers down from 200 to 47

Similarities

Suppliers own inventory until it is used in

production

Demand forecasting is critical—changes are shared immediately

within Dell and with supply base

Demand pull throughout value chain

—“information for inventory” substitution

Complexity is low: 50 components, 8-10 key,

100 permutations

Differences

Dell eliminated the reseller’s markup

Assemble facilities rather than setting up manufacturing

plants which reduces cost

Inventory confined to suppliers reduces the inventory cost

and working capital.

Employees are less in no. in case of Dell

which reduces the expenses.

Financials

–Process Complexity–A large number of suppliers–3 tiers of suppliers–Business was usually over the phone and

fax–Ford a $150billion company enjoys a

tremendous leverage over its suppliers»Annual component price decrease

–Powerful independent dealer network Unionized labor force

4.What do you think is the ideal use of internet in the auto-business vis-à-vis its use in PC industry (you may focus on marketing & distribution, production & purchasing, after

sales service, new product development)?

•Internet technologies helps in interaction with suppliers and customers.•Helps in sharing design databases and methodologies with suppliers•Helps in communicating inventory levels and replenishment needs regularly•Keeps track of the customers which further helps in forecasting demand •Focus on digital advertisement•Online marketing surveys aimed at customers.•Online customer feedback centre. •Solving all the queries and problems of customers by making all the technical support available on the companies website•Customer interactive forum•Enabling MIS.

5.What historical legacies and operational issues do you think will affect Ford’s ability to move to a Built-to-order model?

Ford is 100 yrs old Founded 1903, Dell on the other hand was founded 15 years ago

Product varietyThere is a requirement to manage large number of

individual component inventoriesProduction capacity for individual components get

set long in advance and cannot be changed quickly

Contd…–Process Complexity–A large number of suppliers–3 tiers of suppliers–Business was usually over the phone and fax–Ford a $150billion company enjoys a tremendous

leverage over its suppliers»Annual component price decrease

–Powerful independent dealer network Unionized labor force

6.What practical challenges must Ford address as it tries to establish internet linkages with its supply base and its customers?

• Difficulties in establishing business to business linkages• Difficult to determine feasible and appropriate redesign of the process• Ford supplier network had many more layers and many more companies

as compared to Dell• Lack of technology and technological sophistication that prevail in the

supply chain, especially at lower tiers ( the lower tier suppliers were not able to invest in new technologies)

• To create consistency in technology standards and processes in supplier network

• At Dell, purchasing activities reported into product development organization but at Ford, purchasing was organizationally independent of product development

7. Customer responsiveness initiatives that Ford took to position the company favorably for success

Ford Production system – made production process more responsive and pull based systemReduce the customer order to product delivery time to 15 daysForecasting of customer demand from the dealersHaving regional mixing centers that optimize scheduled deliveries of finished vehiclesRobust order amendment processCreating an experience for the customer in the showrooms that would make him come back frequently (FRN)Superior selling service and more service outlets

Q8. If you were Teri Takai what would you recommend to senior executives? To what extent

should Ford emulate Dell’s business model.

• If Ford is to successfully emulate Dell then they are best able to do this in areas where they have similarities.

• The most notable congruency is in the area of supply of generic components. Here Ford should continue its process of building strategic relationships.

• Where components are of a more specialised nature then Ford should examine the relationships to ascertain whether bringing suppliers closer to the company will offer benefits to both parties

• Ford should work on its' internal culture. Integration of supply chains on the scale practiced by Dell can only occur in an environment where information flows freely to all points of the supply network.

• As outlined in the case documents; Ford maintains a high degree of separation of the purchasing departments from marketing and production. Ford will not be able to provide focus up and downstream unless they themselves are committed to an open culture where logistics information is a part of the life blood of the company.

The relationship with customers is more difficult. The dealer network will probably be averse to Ford moving towards direct sales, as it will threaten their livelihood. They can reap some of the benefits by introducing a web based ordering service for cars, allowing clients to specify the car that they want and then matching the requirement to the cars already in stock through out the network. If a client prefers they could order a vehicle built to order and supplied to a local dealer. This will enable Ford to become closer to the needs of clients, seeing accurately what they want rather than what they buy because it is available.

This compromise will give the company some benefits:• Information about customer wishes.• Opportunity to reduce both dealer stocks and Fords' stocks

by avoiding duplication.• Delaying the final form of the product by increasing the

range of dealer fitted items will enable Ford to simplify manufacture, whilst offering a greater degree of 'real customisation' to clients.

• Delay of final form will increase dealer revenues, buying their enthusiasm and consent for the next stages of coordination.