Supply Chain Monitoring Ford Parts Supply & Logistics Case Study

Roger MerkleFormer Manager, North American Inventory Planning Department

Ford Parts Supply & Logistics (PS&L)Business Overview

• PS&L operates a network consisting of:> 198K unique part numbers, over 1M SKUs (part/location)> Wide mix of velocity, size, and value> Vehicle base - 50 million vehicles on the road, 35 model years> Logistics network - 2,000 suppliers and 5,900 authorized

dealerships> 18 HVCs, 3 HCCs, 1 LV/LC, 1 PRC, and 1 NPD> Service Parts - US, Canada, Mexico and direct global export

• Complex logistics hubs, many containers, railcars, suppliers, packagers, sources/destinations, and paths

• High degree of magnitude and complexity

SUPPLIERS PACKAGERSREDISTRIB.

CENTERREGIONAL

DISTRIBUTIONDEALERS

Ford PS&L … Gearing Up for Change

• Acquired and centralizedrelevant data sources

• New systems for forecasting, inventory planning, DRP, electronic supplier communication and management

• Implemented SupplierPerformance Monitoring

• Reduced inventory bytwo thirds

• Record customer servicelevels

• Record turn rates

PURCHASING

Low purchase price (High Inventory)

(Stable schedules)

(Long lead times)

PURCHASING

Low purchase price (High Inventory)

(Stable schedules)

(Long lead times)

SOURCESOURCE (MAKE)(MAKE)

DISTRIBUTION

(Process-focused)

Stable Fixed Costs

Low inventory

Stable Part Mix

Stable Schedules

Low Transportation Cost

DISTRIBUTION

(Process-focused)

Stable Fixed Costs

Low inventory

Stable Part Mix

Stable Schedules

Low Transportation Cost

DELIVERDELIVER

ReturnsReturns

CUSTOMERFULFILLMENT

Voice of the customer

(High inventories)

(High safety stock)

(High Costs)expediting, overtime

CUSTOMERFULFILLMENT

Voice of the customer

(High inventories)

(High safety stock)

(High Costs)expediting, overtime

RETURNRETURN

SELL

SUPPLY

Reliable Suppliers

(High inventories)

(Long lead times)

FlexibleTransportation

SUPPLY

Reliable Suppliers

(High inventories)

(Long lead times)

FlexibleTransportation

PURCHASING

Low purchase priceLow Inventory

Flexible schedules

Short lead times

PURCHASING

Low purchase priceLow Inventory

Flexible schedules

Short lead times

DISTRIBUTION

High customerservice

Stable Fixed Costs

Low inventory

Stable Part Mix

Stable Schedules

Low Transportation Cost

DISTRIBUTION

High customerservice

Stable Fixed Costs

Low inventory

Stable Part Mix

Stable Schedules

Low Transportation Cost

CUSTOMERFULFILLMENT

Voice of the customer

High Service Levels

Managed inventories

Managed safety stock

Managed Costsexpediting, overtime

CUSTOMERFULFILLMENT

Voice of the customer

High Service Levels

Managed inventories

Managed safety stock

Managed Costsexpediting, overtime

SUPPLY

Reliable Suppliers

Low inventories

Short lead times

FlexibleTransportation

SUPPLY

Reliable Suppliers

Low inventories

Short lead times

FlexibleTransportation

Ford - Lack of Integrated Data

Ford’s Business Challenges

Ford PS&L Supply Chain Overview

RETURN RETURN RETURN

Stocking PDC Consumption

Stocking PDC Consumption

StockingPDC Consumption

from any PDC

Reclass

x-fer

Emergency

Bypass /Redirect

Emergency

Emergency

Bypass

Reclass

Consumption

DEALERSCount - 5,900

Bypass /Redirect

DD

DD

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to any PDC

PARTSREDISTRIBUTION

CENTER

NATIONALPARTSDEPOT

Carrier Carrier Carrier

PACKAGERSCount -7

SUPPLIERSCount - 2,000

SS

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REGIONALDISTRIB.CENTERS

Count - 8

PDC

PDC

PDC

PDC

PDC

PDC

PDC

PDC

DELIVER(MAKE) / DELIVERSOURCEPLAN

Analytical Data updated weekly, at

best

Analytical Data updated weekly, at

best

Highly Reactive - focus on

backorders and blame assessment

Highly Reactive - focus on

backorders and blame assessment

* Voluminous reports - both

paper and electronic

* Labor-intensive to collect

* Voluminous reports - both

paper and electronic

* Labor-intensive to collect

High levels of processing time

variability+

Forecast error over supply chain process

=High safety stock

levels

High levels of processing time

variability+

Forecast error over supply chain process

=High safety stock

levels

Increasing complex supply chain including

external partners and sources as

well as non traditional channels

Increasing complex supply chain including

external partners and sources as

well as non traditional channels

Different cultures, processes and

practices at each node

Different cultures, processes and

practices at each node

Metrics not aligned - Data not commonMetrics not aligned - Data not common

Material expedited by teams of people

at headquarters

Material expedited by teams of people

at headquarters

Little ability to prioritize which

actions are critical to the business requirements

Little ability to prioritize which

actions are critical to the business requirements

Forecast accuracy and safety stock

management

Forecast accuracy and safety stock

management

Ford’s Requirements

• Culture Change> Enable lean performance of existing

systems> No disruption to existing operations

• Prediction> Support intelligent, proactive

analysis vs. reactive> Predict impact of current plan within

lead time for resolution

• Prioritization> Drive data to lowest actionable

level in organization> Identify high-impact opportunities> Combine forecasted and actual

demand levels> Manage material velocity based

upon any desired variable of prioritization

> Manage escalation

• Model-based analytics> Adapt to any supply chain, any level

of data availability> Calculate metrics across “white

spaces” where data availability is poor

> Combine varying sources of data• Closed-loop issue management

> Support analysis of current operating business systems

> Manage variability in real time w/ feedback to analysts / source systems

> Manage approval process for recommended changes

• Comprehensive visibility> Identify segments and processes

with biggest problems > Locate specific material throughout

the supply chain> Assess historical performance

• Support segmentation

Build vs. Buy Decision• Why not custom?

> Integrated solution (data acquisition, data model, analysis, prediction, ad-hoc OLAP capability, security, alerting, administration)

> Investment in complex algorithm development> Speed of implementation (rapid ROI)> Proven business value> Teradata Supply Chain Intelligence (SCI) provides Standard KPIs,

Reports & Alerts> SCI Based on Industry Standards & Best Practices

• Technology Benefits> Scalable database architecture> Operational use of analytics> Expandable and configurable data model and analytics> Reduced Support Costs> Multiple database repository support> Developed Exception Management System

(alerting, escalation, message broadcasting)

Ford purchased Supply Chain Intelligence (SCI) from Teradata, a division of NCR

• Process the analytic results into actionable information in the format and level appropriate for the operation

• Provide analytic results for 4 distinct audiences:> Management - personalized for responsibility

• Performance metrics and trends for product, processes (including alerts themselves) and lines of business.

> Analysts • Performance metrics identifying exceptions and outliers.• Predictive performance and opportunities based upon statistics. • Specific reports that address points of interest

– Recalls, missing, new product, new processes, new facilities etc.

> Operations• Reactive alerts (standards) – events that exceed standard• Proactive alerts (critical) – product to be re-prioritized to prevent an issue

> Partners• Late shipment reports, trend analyses

SCI Creates Actionable Information

Solution Example

Ford’s Three-Pronged Solution

FORD SUPPLY CHAIN EXAMPLE: PS&L Operation

Supply Chain Modeling

• Utilize daily product position and business requirements snapshot

• Re-calculate projected quantities and time via models. Projected customer service levels via variability analysis

• Comparison to expected aggregated Demand by family, SKU, path

• Detailed analysis of segment or aggregate performance by time, yield, capacity, constraints, …….

• Model management at segment levels include:

o Segment lead timeo Yieldo Split/merge/path selection

• Long term highly accurate forecasts not required

• Track and tune standards over time

SUPPLIERS(Count: 2,000)

Demand

INTERVALS

Segment

Allocation

SUPPLIERS CUSTOMERS

PACKAGERS(Count: 7)

REDISTRIB.CENTER(Count: 1)

REGIONALDISTRIBUTION

(Count: 10)

DEALERS(Count: 5,900)

REDISTRIBUTIONCENTER

REGIONALDISTRIBUTION

Ship to In-YardIn-Yard toReceipt

Receipt toStock-Keep

SCI Modeling & Segmentation

Critical Alerts – In Yard

Critical Alerts – In Yard

Over Standard Alerts

Inventory Visibility

SCI – From Two To Eight Opportunities To Avoid Back Orders

ChangeShipDate

SUPPLIERS

ChangeShipDate

None

PACKAGERS

1. Receive 2.Process

1.Normal/Critical

REDISTRIB.CENTER

1.Receive2.Stockkeep

3.Normal/Critical

None

REGIONALDISTRIBUTION

1.Receive2.Stockkeep

DEALERS

The actual cycle time for this O/D pair averages over 6 days, so the assumptions for segment cycle time are

not modeled properly.

The actual cycle time for this O/D pair averages over 6 days, so the assumptions for segment cycle time are

not modeled properly.

For the shipments through this segment, the average cycle time is

compared to the standard.

For the shipments through this segment, the average cycle time is

compared to the standard.

Parameter Management scores actual cycle time vs. the current

model parameter to detect segments with a poor fit.

Parameter Management scores actual cycle time vs. the current

model parameter to detect segments with a poor fit.

Standards Management

The current model does take average segment variability into account. Now actual variability can be incorporated

into the model to drive accurate safety stock

The current model does take average segment variability into account. Now actual variability can be incorporated

into the model to drive accurate safety stock

New model parameter evaluated for fit with actual shipment

transaction cycle times

New model parameter evaluated for fit with actual shipment

transaction cycle times

Drilling into the detailed data for each segment supports outlier

identification and users can evaluate how well the model fits each

segment within the supply chain.

Drilling into the detailed data for each segment supports outlier

identification and users can evaluate how well the model fits each

segment within the supply chain.

All detailed data supporting the evaluation is available in the drill.

All detailed data supporting the evaluation is available in the drill.

Histogram shows the distribution of shipment

cycle times as a percentage of the total

shipments

Histogram shows the distribution of shipment

cycle times as a percentage of the total

shipments

Ford: Growth in User Base

FORD USER COUNTS - ACTUALS THROUGH PROJECTIONS

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Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Apr-02 Jun-02 Oct-02 Apr-03 Aug-03 Feb-04 Sep-04

RunningWeb User Count

RunningAlert User Count

• The SCI Solution gives Ford the ability to predict and prevent potential back orders - not just react

• Powerful Analysis of “Every SKU, Every Day” on hundreds of millions of dollars of inventory

• Daily metrics and historical trending that allow reality-based planning to be linked with execution management

• All members of the network now perform as a synchronized team!

Benefits: Reduced Inventories Improved Customer

Service levels Less overtime,

expediting, and special handling

Higher margins No new data sources

required

Results: 10% One-Time and

Recurring Reductions in Inventory

20% Back Order Reduction

25-30% Reduced “referrals”

30% Cycle Time Reduction

Ford – ROI

Savings in first 6 months alone was five times the cost of the system.

Thank You for your Attention

Email: ramerkle@comcast.net