International Trade and Logistics of Ford Motor Company

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Table of Contents

Introduction
Challenges that have been handled
Problems yet to be solved
Solutions
Future solutions or recommendations
Lessons learnt
Conclusion
References

Introduction

The company under analysis is Ford Motor Company. It is renowned for its pioneering role in Just in Time logistics; however, the model has brought a lot of challenges that the organisation needed to deal with in order to stay competitive.

Ford has an international presence in over 200 countries. The organisation’s ability to surmount global logistical issues serves as an example to other businesses that are yet to consolidate their networks.

Challenges that have been handled

Ford Motor Company invented assembly line production and was a pioneer in lean manufacture. Its Just-in-time model was an exceptional way of making automobiles in the first and second half of the twentieth century. Despite these achievements, a number of logistical problems emerged as the company continued its operations in the last half of the twentieth century as well as the 2000s.

First, since the company used the JIT model, it always had a small amount of inventory inside its plants. Consequently, mistakes made in the supply chain reverberated in production and this slowed down efficiency.

The firm had the option of paying for inventory in order to curb delays in production. However, this would undermine the essence of the company‘s success, and would also lead to increases in operational costs (Patridge 2011).

A second problem that the firm had was to coordinate its supplier network. Prior to organisational change, the firm would merely focus on certain component suppliers or vendors that could provide maximum value to the firm’s supply chain. Optimisation efforts were isolated and scarcely linked to each other. It was clear that the business was not taking advantage of the many sources of tradeoffs.

However, consolidating these efforts was not going to be an easy task. One Ford automobile normally passes through three plants and may consist of over 2000 components from hundreds of suppliers. Therefore, the organisation needed to consider lead times for all their components. It also needed to account for the shipment capabilities of its vendors as well as its own transporters.

Sometimes, carriers would be involved in the process, so their lead times also needed to be incorporated into optimisation efforts. Ford needed to consider costs as well as the operational characteristics of its supply chain partners. These complexities could either be addressed holistically or on the basis of each variable; Ford decided to use both approaches.

Ford also had a wide choice of suppliers that could sell its component parts. Therefore, the organisation had the problem of deciding which ones were the most cost effective and efficient ones. Issues of proximity as well as geographical location of the suppliers needed to be taken into consideration.

All the challenges confronted by Ford revolved around two major concepts: cost containment and timely delivery.

Nordas et. al. (2006) explain that “the time it takes to handle one’s logistics has an adverse effect on whether one can export time-sensitive products or whether a firm can stay competitive”. Das and Handfield (1997) add that in the global supply chain more logistical problems are likely to arise when firms manage their logistic through JIT.

Problems yet to be solved

While most of the concerns in Ford revolve around sourcing of parts, it is still essential to consider the other aspect of global logistics management, which is customer demand. A firm’s supply chain has an enormous effect on a company’s ability to meet customer demand. Most of Ford’ initiatives meet their own production demands but they are yet to integrate global consumers’ needs.

Currently, Ford has been outpaced by several automakers in the market; chief among these is Toyota. Some analysts say that Toyota perfected Ford’s lean system, so its philosophy is responsible for its success.

Others believe that a lot of logistical efficiencies stem from having the Toyota’s production in Asia. Whatever the reason may be, Ford ought to think of insightful ways of superseding its competitors’ performance, and logistics is one route.

Solutions

One of the strategies that the company used in order to revamp its logistics is the technological route. Ford partnered with an IT firm called SAP, which specialises in the provision of logistics services to manufacturers. The vendor placed Ford’s inbound variables in their software program.

The automaker’s supplier locations, transport times, target inventories in manufacturing plants, material costs, dock schedules, and container sizes were all recorded and analysed for tradeoffs. Ford was able to forecast logistics costs with an accuracy of – or + 2%. With this technological approach, the company was also able to assess the effects of any new developments in its supply network.

As a result, the company now responds quickly to logistics changes among the suppliers. The main figures that have now been quantified include delivery frequencies, load configurations, outbound routes, inbound routes and quantities of parts per load. Now Ford has managed to reduce time wastage in air freight. It makes a lot of savings in inbound logistics too (Patridge 2011).

Aside from holistically working on its supply chain, the company decided to take full control of its freight networks rather than allow a supplier to optimise it for the company. This has caused the firm to work on delivery and collection across all channels. In this approach, the company made its routes efficient so that outbound and inbound goods could be effectively transported.

First, the organisation established regional distribution centres where deliveries from vendors were coordinated. If several vehicles intended on going to the same supplier in order to deliver their products to multiple assembly plants, then the regional centres would detect this problem immediately. They would reduce the number of trucks so that only the bare minimum was used.

Additionally, the company has established collection points where one truck visits all the major supply routes and then brings the parts to Ford’s premises. Not only does this strategy reduce the number of trips made, but it also saves on money and time used to collect supplies.

Since the organisation also relied on freight providers, it needed to establish mechanisms for making the model effective. Ford got into contracts with its carriers in order to allow them to carry freight from third parties in their return journeys. This allowed Ford to negotiate lower prices.

Many forwarders often charge their primary consumers more money if their trucks have to come back empty. The firm has also worked on improving the load density for most of its finished automobiles in each conveyance. This has ascertained that few conveyances are used and that the company remains successful.

Road transport is not the only method that has been optimised by this organisation. It has also worked on other alternatives. First, the company uses rail and sea transport in order to avoid time wastage that comes with the use of road transport alone.

However, because rail transport often works in conjunction with road transport, then the organisation has instated the use of SWAP bodies. These are containers that workers can carry from a railway system into a truck. Easy transition saves time and contributes towards maintenance of the just in time model (Patridge 2011).

Concerning the issue of sourcing manufacturers for the company’s products, Ford has solved the problem by dealing with supplier parks. These are manufacturers in the Southern American region. The United States has a Free Trade Agreement with Mexico. Consequently, auto parts can flow freely between these two nations without payment of tariffs.

By selecting a supplier that is in close proximity to most of Ford’s assembly plants, the organisation has ascertained that most of its components arrive on time. Therefore, the problem of maintaining its just-in-time production model has been addressed. Another reason for the sourcing of parts from Mexico and other regions in close proximity to Ford’s major plants is the nature of the components themselves.

Most automobile parts are quite fragile yet they are still heavy and occupy plenty of space. Examples of such parts include car engines, seats, panels and many more. Any cargo that requires special transport arrangements owing to its unique traits is likely to be expensive.

Therefore, if an automaker can find suppliers in close proximity to it, such as Mexico and North America, then it can save on plenty of transportation costs. This was true for the North American branch of the organisation. The same is also true for the Ford Taiwan; since the branch is in close proximity to several component manufacturers in China, then it opted to source for parts from China rather than other parts of the world.

Regardless of the increased level of regional clustering between Ford and its suppliers, certain parts still come from industry leaders. For instance, electronic items are usually sourced from Europe and Asia. Ford opted to use Asian suppliers because electronic components do not require unique transport arrangements like certain car parts.

Therefore, the organisation uses air freight to ensure that its Just-in-time models are sustained. Some of the common products that Ford gets from Japan include exterior lights, semiconductors and injection moulds.

In order to ensure that maximum benefit is derived from the organisation’s supply chain, Ford has decided to organise its assembly plants along major markets. In the past, production largely centred on the US. However, now that Asia’s economy is growing, it only makes sense to work with individuals in this group. Therefore, regional manufacturing revolves around key areas such as India, the US and Japan.

The company’s global supply chain is a result of trade offs between global integration and separate supply chains. To some extent, the company has a global supply chain as seen through its centralised management, the use of suppliers from different parts of the world, and implementation of IT systems throughout the company. Conversely, Ford still has separate supply chains because it realises that one size does not fit all.

Business units and assembly plants have their specific needs that can be met effectively through the use of a customised approach. The main priorities for Ford are increasing the visibility of its supply chain as well as optimising it.

In selecting such a mixed model, Ford has had to forego certain benefits of having one system. Currently, the organisation is not enjoying standardisation advantages. It has also forfeited pricing rules to regional centres.

Future solutions or recommendations

The organisation ought to work with its major distributors in order to ensure that they have enough stock to accommodate Ford customers’ needs. If stock levels are below the expected level, then air freight should be considered. The organisation could have safety stock that would protect it from interruption.

Perhaps another radical approach to production in Ford would be to move away from the supplier-oriented push system to the pull system among consumers. Current supply chains are not flexible and it is difficult to assess inventory until it reaches it destination. If Ford altered its distribution system by creating warehouses in key markets, then it will have changed to a pull system.

The warehouses could be controlled by third party logistic providers and they can consolidate transport between the centres and key global markets (Diederichs & Leopoldseder 2008).

Ford should also be aware of the fact that buyers in developing or underdeveloped nations operate under very different circumstances. Therefore, its distributors may struggle to deliver on time. Developing nations have numerous logistics companies, most of which are briefcase corporations. Additionally, carriers and transporters do not abide by the law.

Many of them will overload trucks in order to make as much as possible from a certain trip. It is essential for Ford to realise that customers who import vehicles directly from the plants are likely to experience these problems.

Therefore, the organisation should warn first-time buyers about it. It should also encourage consumers to use its authorised partners or distributors. When distributors get to such countries, they ought to set the standard for excellence by following the law.

Organisations that operate in low-cost regions may sometimes ignore the cost savings that emanate from carrying out production in those sectors. Inefficiency may not be evident in labour but it affects Ford through delays and higher supply chain costs.

The company has established mechanisms for reduction of lead times inside North America. Now it should consider reduction of lead times for products sourced from different parts of the World, such as Asia. It should start by reducing it by half and then move from there.

Lessons learnt

The case study has provided a series of lessons in international trade logistics. First, the organisation has shown that not all supply chain solutions should be applied to the entire global market. Different markets require different service levels, so companies do not have choose between integrated or separate global supply chains; they can opt for both options.

Second, the just in time model requires a thorough orientation of logistics management. Organisations should not give up control of their transportation needs to third parties. Ford decided to take it upon itself to look for loopholes and areas of improvement. Proximity to one’s suppliers is a good idea, especially if the goods involved require special transport arrangements or are too delicate.

Nonetheless, one must still be open to distant vendors if the cost and quality advantages supersede the ones available near home. The case study also proves that information technology is crucial in international supply chain management. Not only does the approach increase logistical visibility, but it also facilitates in-depth analysis of potential cost-saving areas.

Global businesses should be ready to use local resources or talent when the need arises. Ford established assembly plants in Asia after realising that it could make plenty of cost savings. Consequently, organisations should move supply chains close to new markets even if this differs from their initial strategy.

This organisation’s failures also serve as lessons for stakeholders in the logistics industry. Initially, Ford was a logistics leader whose methods were respected and revered in the auto industry. However, the company became complacent and let other competitors surpass its supply chain innovativeness.

Companies must not be rigid in their approach to logistics management. They should also anticipate change and look for new ways of improving product delivery. Sometimes organisations should be willing to reorient their entire supply chain when the time is right. Ford needs a dramatic turnaround from the push system in order to place the consumer at the heart of production.

Conclusion

Ford was confronted with time-related problems in supply chain management. As a result, the company chose to adopt technological approaches, clustered-regional supply chain management, and sourcing of components from efficient manufacturers in Asia. It also took control of transportation of its supplies instead of its leaving it to vendors. However, the company is yet to compete with successful organisations like Toyota.

It also has challenges in orienting its supply chains to meet customer needs. These problems may be solved by changing to a customer-oriented pull system. Additionally, it needs to plan for inefficiencies in logistics challenges in developing countries.

References

Das, A & Handfield, R 1997, ‘Just-in-time and logistics in global outsourcing: an empirical study’, International Journal of Physical Distribution & Logistics Management, vol. 27 no. 3, pp. 244-259.

Diederichs, R & Leopoldseder, M 2008, It’s still a big world: A global supply chain problem. Web.

Nordas, H, Pinali, E & Grosso, M 2006, Logistics and time as a trade barrier. Web.

Patridge, A 2011, Auto logistics: Revving up service parts logistics operations. Web.

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