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Principles of Supply Chain Management

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Business problem

Mismanagement of inventory underlies the major business problem.  Resolving the issue requires better management procedures for controlling inventory with efficient and effective use of the existing resources.  This will eliminate inventory waste, production delays, and extra cost of storage and disposal.Resolving these kinds of inventory management challenges will lead to positive competitiveness and ultimately result in higher profit.  

Company Background

Founded by Henry Ford in 1903, Ford Motor Company is currently based Dearborn Michigan (Ford, 2006). In 2010, Fortune 500 ranked Ford eighth in the Fortune 500 list, since it had revenues of about $118.3 billion in the year 2009 (Ford, 2012). Furthermore, in the same year, it was the fifth largest automaker in the whole Europe. It has about 90 plants with around 213,000 employees. It offers a wide range of automobiles under the brand of Ford that include Ford L7000 and Ford F-650. In addition to this, it produces buses, such as E-Series, F-650 and B700 (Ford, 2006), and manufactures tractors. Ford supplied engines to racing teams, such as Lotus and McLaren, for Formula 1 cars from 1967 to 2004. Most people like Ford cars, since they are environmental friendly.  It has manufactured Ford E85 Flexible Fuel Vehicle that uses fuel containing 85% ethanol and 15% gasoline. It introduced a hybrid-electric Escape in 2005 that consumes less fuel.  In the year 2009, it started manufacturing Ford Fusion Hybrid and Mercury Milan Hybrid that use advanced technology and consume less fuel (Ford, 2012). It has shown great interest in producing hydrogen-fueled internal combustion engines.

1. Executive Management Team

The President and Chief Executive Officer of Ford company is Allan Mulally. William Clay Ford Jr. is the company’s Executive Chairman. Members of the board include Kimberly Casaino, Allan Mulally, Ellen Marram, Richard Gephardt, Edsel Ford 11, Jorma Ollila, Edsel Ford II and William Clay Ford Sr (Ford, 2012). The Chief Financial Officer and Executive Vice President of Ford Company is Donat Leclair. Paul Mascarnas is the Vice President of Engineering.

2. Financial Results first Quarter 2012

Ford made a profit of about $2.3 billion in the first quarter of 2012, a decrease of $544 million from its first quarter profit in 2011. The net income of this company was about $1.4 billion, a decrease of $1.2 billion compared to 2011 (Ford, 2012). Financial analysts claim that the decrease was caused by high tax expenses and increased special charges. The profits before tax in North America stood at $2.1 billion, an increase of about $289 million from the first quarter in 2011. This company recorded revenues of about $32.4 billion that represented a decrease of about $700 million compared to the first quarter of 2011.

Discussion of Business Issue

Ford Company wants to produce a new model known as 2012 Ford Explorer. It has set itself a target of producing 1,100 cars each day for the first eight weeks. However, it faces several constraints that threaten to prevent it from attaining this target. The material handling costs that it would incur are high due to the huge amount of raw materials required in the production of these cars. Furthermore, it required a lot of time to assemble these cars, and this threatened the company’s objective of meeting its production target (Sulivan, 2005). It also faces challenges in inbound logistics. Moreover, it previously received its supplies from various suppliers who had to manufacture all the components required for the production of this model, load them into containers and later schedule them for delivery. This process of inventory management model is not efficient, since humans do most of the handling of materials and thus the quality of these components is low (Sulivan, 2005). Furthermore, most of the components become damaged when the production department retrieves them for usage, since most of them are delicate and fragile, especially airbags and electrical wiring systems. The management team knew that they faced a huge risk if they did not change their inventory management system, since they faced the risk of not attaining their production targets. The management team proposed to introduce Just in Time system of inventory management in an attempt to improve their methods of production. In this system, Ford will adopt direct automated delivery whereby the suppliers only deliver components right on time and when the company requires them. In addition to this, this system integrates manufacturing equipment and delivered components are installed in manufactured cars right after they reach the company’s factory. It also incorporates electronic data interchange in order to improve the sharing of information with different suppliers.

Benefits of Solving the Problem

If the company solves the problem of inventory management, it will achieve several benefits. It will reduce the costs involved in production of this car model. Furthermore, it will reduce the time required to reach the full production capacity of these cars. Moreover, it will succeed in outsourcing its viable production activities to firms that manage these activities at a lower cost (Sulivan, 2005). In addition to this, it will succeed in reducing the transportation costs, since automatic delivery systems will reduce the amount of money the company pays to its suppliers. This system also allows for the automation of activities using the latest technological equipment, and thus instances of errors and frauds will decrease. These systems also allows for the automation of battery placement and seats installation.

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Initial Business/Technical Approach of Solving the Problem

Ford Company wants to incorporate JIT system in its inventory management in order to improve the quality of all its products and reduce production lead times. It aims to use aerial tunnels in an attempt of connecting with more suppliers in towns such as Valencia. These systems will help the company in its activities of transporting fuel tanks and seats that are usually too heavy. By using this system, the company projects to spend about $6 million in an attempt to improve its delivery trucks. Furthermore, it aims to achieve automation of about 80 percent in order to reduce wastages, breakages and frauds in all its production systems (Sulivan, 2005). It also wants to reduce the number of damages caused by poor packaging, handling and delivery systems. In addition to this, it will outsource production of small car components to companies that specialize in manufacturing these components. This will help it concentrate more on assembling these components in order to develop this model. Using this system, it will reduce the number of weeks required to achieve its full production capacity (Sulivan, 2005). The management of Ford proposed an initiative of introducing direct automated delivery in this system. It will introduce electronic data interchange to deliver advance shipment notices to all its suppliers. Furthermore, it will install bar codes in all its warehouses, thus increasing the speed of handling this stock by the delivery personnel. Suppliers will also be able to receive their payment at the point of sale, and this will enable the supply of components to the company at any time.

Solution

Ford should consider several factors before it implements JIT system in its inventory system. It should first find out whether the employees support the change in inventory management. This is because the key to having a successful Just In Time system is that the entire business process can operate without any interruptions and without the organization incurring time costs that do not add value to the organization (Hirano, 2009). Most manufacturing companies in the US fail to implement this system, since the culture and environment of these firms do not permit drastic changes in their operation. Implementation of Just In Tme systems requires an organization to spend huge amount of funds on purchasing the latest equipment that will ensure that the whole system runs more effectively (Sulivan, 2005). Due to this fact, most organizations fail to adopt Just In Time systems, since they are scared of taking risks and having no guaranteed returns. Just In Time system concentrates on long-term profitability of a firm rather than on short-term profitability. It is important for Ford to change its goals and objectives to concentrate on long-term profitability in order to reap the benefits of Just In Time systems.

Employees may resist the change of Ford’s inventory systems from its current model. Employees responsible for handling materials received from suppliers may feel that they are not able to understand the new technology, such as increased emphasis on bar code scanners for recording stock (Lai & Cheng, 2009). The management of Ford should train its employees on how to operate the new equipment introduced by this system. Furthermore, purchasing managers may feel that they may lose their control, since they would not be making the decisions on when to produce goods or seek more supplies from suppliers. In addition to this, this system suffers major supply shocks, since the suppliers may not have an adequate stock of components when Ford requires them (Sulivan, 2005). In order to implement this system, it should create a good relationship between suppliers and production managers, so that the suppliers inform production managers if they are faced with shortages in stock level. Production managers will, therefore, look for extra sources of purchasing the components.

To design the system, Ford should involve the employees in designing the flow process. It should then ensure that it implements total quality control strategy for all its processes. After ensuring total quality control, it should stabilize all its schedules and adopt Kanban pull system (Wisner, 2011). Ford should also ensure that it closely works with vendors in order to reduce lead time. After it achieves this, it should consider reducing its current inventory levels and further improve its product design.

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