Road Testing The Ford Supply Chain

[From iSource Business, July 2001] Anyone who has ever bought a new car knows just how disagreeable the process can be. There's that high-pressure salesman urging you to buy what you don't really want, while at the same time you're unable to get what you do want. The black interior, super sound system and those white stripes on the wheels? That car will take three months to deliver, you're told. So you settle for less probably not the best customer relationship strategy for a car company.

Ford Motor Co. has a better idea. The Dearborn, Mich.-based automaker wants you to get the exact car of your dreams within 15 days at most. This heady promise will take at least a decade to bear fruit, however. In the meantime, Ford is rebuilding its infrastructure along the lines of a customer built-to-order process. The first phase of this Web-enabled strategy, which consists of locating preferred vehicles at Ford's 4,600 U.S. dealerships or in its manufacturing pipeline, has been smooth. But, as Ford and other automakers gear up to satisfy future built-to-order (BTO) customer demands, they're in for a bumpy ride.

It's not that the strategy isn't sound, rather, it's the getting there that requires major changes in the automotive industry supply chain. Automotive suppliers, already overwhelmed by automakers' demands, are routinely required to decrease the price of their products 3 percent each year unless there are significant product enhancements. That's already tough enough on profit margins, but when DaimlerChrysler insists its suppliers reduce the price of their products by 5 percent, as it did in January, margins become devastatingly thin.

Suppliers must also invest in expensive technology, like joining the Internet-based virtual marketplace Covisint, which was founded by Ford, DaimlerChrysler and General Motors. The automakers expect to shift the $80 billion they each spend procuring supplies on an annual basis to Covisint, meaning that if suppliers want to participate in this bonanza they must junk their expensive electronic data interchange (EDI) systems and replace them with Web-based ones.

Although the strategy at Ford is to give consumers exactly what they want when they want it, the onus is on suppliers to make it happen. That won't be a Sunday drive in the park. As suppliers re-engineer their companies to attain a shorter product-to-market cycle, will this affect quality? And will the emphasis on speed cause inferior products to infect the marketplace? These questions are surfacing as Ford and Firestone confront the tidal wave of public outrage over the design defects that have caused the deaths of dozens of individuals over the past four years.

While it would be a stretch to blame Ford's supply chain re-engineering for the debacle, analysts are concerned that, in the rush to build cars to customer specifications, quality will take a back seat to profits. As you compress the supply chain, the challenge is not to compromise quality, says Karen Peterson, an automotive research analyst at the Gartner Group, a Stamford, Conn.-based technology consulting firm.