Procurement and Inventory Strategy: Ford Motor Company

Introduction

It is crucial for the firms to make the fast delivery of their goods and services to the customers by adopting an effective supply chain management. For this, they need to consider the significance of procurement and inventory strategies that are helpful to procure the desired materials and inventories on time and produce the desired amount of the products to meet the customers’ requirements (Toensmeier, 2013).

Concerning, this research paper is based on the explanation of procurement and inventory strategy in the context of Ford Motor Company. It evaluates the practices of the company in procurement and inventory management and suggests better practices to meet the requirements of the customers on time by making the supply chain more efficient and effective.

Aims and Objectives of Research & Company Background

The main aim of this research is to evaluate the supply chain management strategies used in Ford Motor Company in perspective of inventory and procurement. The following objectives will be accomplished in this research:

• To discuss past practices, current practice and future direction of the company in supply chain management
• To evaluate the company’s performance as compared to its competitors
• To determine the pros and cons of the strategy used in the company as compared to other strategies
• To recommend better practices to improve the procurement and inventory management

Ford Motor Company is one of the leading automobile companies in the world. It operates its business with the help of thousands of suppliers to provide materials, parts, and services in manufacturing its vehicles. There are 10 tiers of suppliers and sub-suppliers between Ford and original sources of raw materials.

The company has 67 manufacturing sites and spends more than $100 bn on operations. It has more than 4400 suppliers’ sites and approx 1000 indirect supplier companies in over 60 countries to procure and manage the facilities, equipment, materials, and services (Ford, 2017). It procures more than 500 commodities from the suppliers to manufacture its vehicles.

Past Practices, Current Practice, and Future Direction

The company organized the Ford 2000 projects, in which it focused on two key initiatives named as the Ford Production System (FPS) and Order to Delivery (OTD).

The FPS project helped to make the operations leaner and efficient by assuring the continuous flow of required materials through vehicle in-process storage units and proper assembly order sequence (Wiengarten, et al., 2013). The OTD project was aimed to reduce the order time from 60+ days down to 15.

In the past, Ford did not focus on technology while procuring the required materials and inventories (Kumaraswamy, et al., 2012). It also decreased its supplier base to make the closer relationship with the existing suppliers like Tier 1 suppliers.

In current purchasing practices, the company allows the purchasing department to make the decisions at own level and purchasing department has a strong dominance in price negotiations to save the costs (Martínez-Jurado, & Moyano-Fuentes, 2014).

Also, it follows the aggressive logistic transition program by focusing on network design optimization, carrier and premium freight management, information technology system integration and finance management.

All these current practices are useful for the company to make the procurement process more effective and efficient and manage the inventory (Ford, 2017). In future, the company is oriented to make the procurement process more efficient through advanced data analytics.

Also, it is also likely to integrate the technologies like social media, cloud, big data and mobile technologies to meet the challenges in the supply chain in future (Heizer & Barry, 2013).

Company’s Performance as Compared to Its Competitors

In perspective of procurement and inventory, Ford is better than other competitors like GM and Chrysler, etc. Its timely acquisition of capital makes it more financially sound to procure the required materials on time and meet the market demand (Schaltegger & Burritt, 2014).

Apart from this, reduction in number of suppliers has also helped the firm to make the better relationship with the suppliers that leads to the on-time supply of the required inventories (Ford, 2015).

But, company’s limited network of production also reduces its competitive advantage as compared to its competitor namely Toyota, which has the expansive global network for procurement and inventory management (Rushton, Croucher & Baker, 2014).

Pros and Cons of the Strategy

Ford uses the Aligned Business Framework (ABF) to promote its communication with the OEM and global suppliers regarding technology developments that helps it to make significant product differentiation from the competitors.

With the help of this, the company selects the best suppliers and makes a good relationship with the suppliers to make the procurement and inventory more efficient (Ford, 2017).

It also provides advantages of collaboration in product development and developing trust and relationship with suppliers and vendors. But, this strategy causes some cons for the company as it reduces the flexibility of the firm to change the suppliers to match the capabilities with demand.

Apart from this, it increases the dependency of the company on some suppliers that may affect the ability of the firm to control the cost of materials and production (de Leeuw, Holweg & Williams, 2011). It results in the limited network of production due to reducing the number of suppliers at the consistent level.

Findings & Recommendations

From the analysis of supply chain of Ford, it is found that the company is performing well in procurement and inventory management. It has adopted effective practices in past and currently to make the procurement process more efficient and effective.

But at the same time, it needs to adopt capability-based procurement that allows for reserving the capacity for specific capabilities like welding, molding, etc.

Through this, the company can issue new requirements to the vendors who are capable of consuming the capacity (Bowman, 2012). This approach can be beneficial for the firm to adopt flexibility in shifting the suppliers and reduce the cost of materials and production (Beske, Land & Seuring, 2014).

Conclusion

On the basis of the above discussion, it can be concluded that Ford adopts effective procurement and inventory strategy by reducing the number of suppliers and developing the better relationship with them.

The strong relationship with the suppliers and inclusion of technologies are effective for the company to ensure the continuous flow of the required supplies to the production department to meet the market demand.

But at the same time, it reduces the flexibility to shift the suppliers and increases the supplier dependency as there is the need for the company to follow capability based procurement to meet the demand of materials and inventories as per the available capacity and demand.

References

Beske, P., Land, A., & Seuring, S. (2014) Sustainable supply chain management practices and dynamic capabilities in the food industry: A critical analysis of the literature. International Journal of Production Economics, 152, pp.131-143.

Bowman, R.J. (2012) How Ford’s Supply Chain Put the Company Back in the Driver’s Seat. [Online]. Available at:  http://www.supplychainbrain.com/content/nc/general-scm/single-article-page/article/how-fords-supply-chain-put-the-company-back-in-the-drivers-seat/ (Accessed: 21 June 2017)

de Leeuw, S., Holweg, M., & Williams, G. (2011) The impact of decentralised control on firm-level inventory: evidence from the automotive industry. International Journal of Physical Distribution & Logistics Management, 41(5), pp.435-456.

Ford (2015) Sustainability Report 2015-16. [Online]. Available at:  http://corporate.ford.com/microsites/sustainability-report-2015-16/doc/sr15-supply.pdf (Accessed: 21 June 2017)

Ford (2017) Our Supply Chain Strategy. [Online]. Available at:  http://corporate.ford.com/microsites/sustainability-report-2015-16/supply-strategy.html (Accessed: 21 June 2017)

Ford (2017) Purchasing. [Online]. Available at:  https://corporate.ford.com/careers/departments/purchasing.html (Accessed: 21 June 2017)

Heizer, R., & Barry, R. (2013) Operation Management, Sustainability and Supply Chain management (Vol. 11). UK: Pearson, UK.

Kumaraswamy, A., Mudambi, R., Saranga, H., & Tripathy, A. (2012) Catch-up strategies in the Indian auto components industry: Domestic firms’ responses to market liberalization. Journal of International Business Studies, 43(4), pp.368-395.

Martínez-Jurado, P. J., & Moyano-Fuentes, J. (2014) Lean management, supply chain management and sustainability: a literature review. Journal of Cleaner Production, 85, pp.134-150.

Rushton, A., Croucher, P., & Baker, P. (2014) The handbook of logistics and distribution management: Understanding the supply chain. UK: Kogan Page Publishers.

Schaltegger, S., & Burritt, R. (2014) Measuring and managing sustainability performance of supply chains: Review and sustainability supply chain management framework. Supply Chain Management: An International Journal, 19(3), pp.232-241.

Toensmeier, P. (2013) How Ford Keeps Its Global Suppliers Close. [Online]. Available at:  http://news.thomasnet.com/procurement/2013/08/16/how-ford-keeps-its-global-suppliers-close (Accessed: 21 June 2017)

Wiengarten, F., Humphreys, P., McKittrick, A., & Fynes, B. (2013) Investigating the impact of e-business applications on supply chain collaboration in the German automotive industry. International Journal of Operations & Production Management, 33(1), pp.25-48.