Managing the supply chain of the Ford Motor Company, one of the world's premier industrial giants ($171 billion revenues in 2004) ranks among the most difficult challenges in global manufacturing. Ford manufactures and distributes automobiles in 200 markets across six continents (besides Ford, Lincoln and Mercury, brands include Aston Martin, Land Rover, Mazda and Volvo). North American operations alone involves keeping a network of 19 assembly plants, eight stamping plants, 10 power-train plants and five forging/casting plants supplied with parts and materials.

Grant E. Belanger, 44, is the man in charge of keeping the machine running as Executive Director of Material Planning and Logistics (MP&L). He has never worked anywhere but Ford since his undergraduate days at the University of Arizona and receiving an MBA in Operations Management from the University of Syracuse. This year marks his 20th anniversary with the company, all of it spent in some aspect of purchasing and supply chain activity (including 3 years in Brazil as the Director of Purchasing for Ford's South American Operations). In 1999, he was brought to headquarters to participate in the revolutionary re-engineering of a supply chain operation that had been essentially unchanged for some four decades.

The magnitude of this undertaking-implementing centralized logistics processes in place of a convoluted spider-web of destination-based supply chains running directly to each individual plant-cannot be overestimated. To do it in two and one-half years, saving 17 percent in costs and improving the reliability of the new network to near 6.0 sigma performance level, is impressive. But, to have accomplished it while still maintaining on-going operations-without ever having the option to shut down a plant or assembly line, is nothing short of monumental.

Nearly from its inception, Ford has been a leader in supply chain practices as part of its innovative assembly line. In the time of Henry Ford, the company directly controlled key material sourcing operations, all the way to mining its own iron ore to ship in its own boats to be rolled into steel in its own mills; meanwhile tire suppliers and the like had their factories nearby.

The company's supply chain of 2005 bears scant resemblance to Henry Ford's. "The days of being 100 percent self-sufficient and capable in today's world of high technology and engineering are gone," Belanger observes.

Stark, unremitting global competitiveness has made it imperative that organizations constantly evaluate their use of resources. It is no longer an option to have less-than-optimally productive capital on the books. This has directed pressures, notably at Ford and elsewhere, to streamline the logistics process. Beginning in 1999, when Belanger arrived, the mandate was rationalize a system where it was not uncommon on any day to have 22 different trucks arriving at the same part source to make pick-ups for 22 different locations. Carriers with half-empty trucks would often cross paths with each other en route to the same plant. "It was very inefficient," Belanger recalls. "What we wanted were fright efficiencies and to improve inventory performance."

To accomplish these objectives, supply chain and logistic processes needed an overhaul. "We knew we had to make some critical changes. MP&L was charged with helping the company improve its time-to-delivery, lean manufacturing and global sourcing goals."

The sheer volume of required support rendered the industry's historic model of self-sufficiency untenable. "It's absolutely necessary to leverage expertise across an organization and with external service providers," says Belanger.

To start, the task of supporting plants was split into two networks, one focusing on vehicle assembly plants and the other on power-train plants. "We contracted with two different proven logistics providers with two very different technological approaches," recounts Belanger. "Each worked hard to redesign and manage our networks. With their help, we changed our approach from a destination-based network to an origin-based network with increased visibility."

After a year of critical evaluations, realizing that the commitment required needed to be channeled through a single entity, Ford designated Penske Logistics as its Lead Logistics Provider for all of North America. "By doing so, we were able to achieve a significant improvement in inventory runs, cube utilization, and visibility of material flow. Meanwhile, we gained access to competitive logistics and supply chain technology through our relationship with Penske."

"It's been a most productive partnership," agrees Ed Cumbo, Penske Senior Vice President for Operations/Automotive. As Penske began looking at the situation, they found a system where parts were being released once a week on small lot systems. "This system worked well 40 years ago," observed Cumbo, "but it had to change. Nobody wants to say 'I have a bloated process,' but Ford's willingness to drive out waste and non-value added steps-and to actually take the steps necessary to make it happen-have been impressive." What's the system now? "Materials are released on a daily basis, we could potentially make pick-ups hourly if necessary, and managed to the needs of the production line."

This radical overhaul began with a series of what Belanger calls "transformational projects" directed toward developing a centralized, 'origin-based' solution, but, as Belanger is quick to note, "when you get down to it, logistics for material into manufacturing operations isn't rocket science. It's a lot of getting back to the basics of what you're trying to do with your freight, with your providers and your customers in terms of adding value."

Fundamental to the proposed solution was consolidating distribution into what were, in the first iteration of the plan, nine Order Dispatching Centers (ODC). A work in progress, the location and number of the ODCs would change based on where materials come from and where the opportunities are.

Originally, for example, an ODC was located in Dallas. Why there? "Part of the reason was timing, we wanted to get the system up. Part of the reason was facility availability." But, as NAFTA kicked in, there was lots of material flowing north from Mexico. "Texas is a big state," notes Belanger. "It's an awful long way to drive a partial trailer from somewhere in the middle of Mexico up across the border and to Dallas." The solution was to move the ODC to Laredo, at the border, to significantly reduce the amount of miles traveled by milk runs and LTLs.

As lead logistics provider, Penske managed the process of placing increasingly stringent requirements on carriers, who were ultimately required to meet established route pick-up and delivery windows within 15 minutes of scheduled time. The carriers were required to have on board 2 way communications and provide status updates via EDI.

The impact of 9/11

The events of 9/11 brought into sharp focus at the highest levels of Ford the expanding role MP&L was playing within the corporation. As air corridors were shut down and borders closed, the reality of how fragile the new reality of global supply chains are to uncontrollable disruption hit home. "The only operation that had an emergency response plan in place at Ford and ready to bring out was MP&L," recalls Belanger. When top leadership in the company needed to know the status of material flows, MP&L had the information. The questions were tough and, prior to the re-engineered supply chain, not readily answerable: How do we take the plants down in an orderly fashion? How do we protect enough materials to float through for an orderly start-up (which requires at least four hours of materials)? How do we prioritize? What is the communication process to get the directives out there?

In the 9/11 aftermath, Ford's MP&L established on-going procedures to integrate supply chain concerns into much broader decision making, including marketing, sales, manufacturing and purchasing areas. One example: "We review constraints and concerns on production plans and sales programs to make sure there aren't impediments to meeting the requirements."

The Holy Grail

Cross-functional collaboration points the way to Belanger's ultimate goal-using information as a buffer to the variations in production instead of inventory. The task remains challenging, in part because of limitations in the current ability of information systems to support cross-functional decision-making. But, work is on-going to remedy this.

Being able to forecast is very difficult. "We have about 80,000 active part numbers in our system and produce somewhere in the neighborhood of four million vehicles a year." The problem isn't managing the magnitude of this data (the single largest computer application at Ford is the material management system), but rather the "complexity associated with the number of build combinations you can get and the number of permutations you can get with the delivery of materials."

Deploying information as the buffer requires synchronized information flows that see potential disruptions far enough in advance so "you understand what you need before you need it." In the old days, the safety valve was having giant warehouses full of inventory, but Ford's approach now is just the opposite as it takes real estate off the books.

How much visibility will be required? "The goal is to manage the entire inventory pipeline." In terms of internal flows to production facilities, the top levels of inventory are reasonably well mapped. "We have good visibility with Tier 1 suppliers who deliver the product that actually gets assembled," notes Belanger. "We know where the product is in the delivery cycle and where the inventory is in the marketplace. But, we really haven't been able to get beyond Tier 1."

While there are cost-benefit points where the return on the cost of obtaining additional information isn't justified, Belanger notes that, "there are those who say you need full visibility throughout the entire supply chain." He cites the current shortages in steel availability due to China's consumption, which caused problems for one of the Japanese manufacturers, as an example of the kind of up-stream situation that you'd want to know about long in advance. "If you have that visibility in your supply chain, you might be able to spot a short-fall before somebody else does and be able to take precautions to mitigate the impact to your business of those tightening constraints."

Of more obvious cost benefit-and the Holy Grail being universally pursued-is the second part of 'total inventory management,' the order-to-delivery cycle. "At this stage of the game, if you have your customer order-to-delivery cycle faster, you'll then be able to wring out more efficiencies and capabilities in the supply chain." But, obtaining the information to manage this critical measure of customer satisfaction poses a difficult dilemma. The challenge is building the business case, and particularly the metrics to prove it, that would justify the investment required.

"We all believe if we could improve supply chain efficiency, effectiveness and visibility-including the order fulfillment aspect of actually fulfilling customer desires-we will have more than just a financial impact." In addition to cost structure, things like quality reputation and brand equity will all be enhanced. Such softer measures turn into higher product demand that increases equity via a strengthened relationship with the customer. The problem is that these factors have a very long gestation period.

Still, the order-to-delivery cycle is considered such a critical piece of the supply chain puzzle that development projects to generate needed information are on-going, jointly reporting to the Group Vice President for Manufacturing (Grant's ultimate boss) and the Group Vice President for Marketing and Sales. "At Ford, we're in the process of putting more flexible assembly processes in place so you can change your production processes to better match demand input without incurring huge changes over costs or delays. It's all part of the order fulfillment drive to reduce the amount of time required to take a customer demand signal and deliver the product."

Global integration

Although the progress made has been significant, major advances await. "We have a huge opportunity at Ford in the next five to seven years," predicts Belanger, "to making significant inroads into how we manage the supply chain as an integral part of delivering value to shareholder and customer. We are spending an awful lot of time and energy working through our processes on the manufacturing side of the business, our relationships with service providers and suppliers and dealers, and also our intellectual property and IT infrastructure to support a more real-time view of our value chain."

Part of this advance is likely to include more global integration of different processes. The worldwide launch of a single material management system has just been completed, meaning every brand (with several small exceptions) is now covered on a common materials management system globally. "It was a huge undertaking that took a long period of time but it's been very successful without disruptions of supply or IT breakdowns."

The significance? "It provides us with a foundation and opportunity to move as a single entity when you go to the next change because you're all on the same platform. You don't have to manage different speeds of growth or change because of variations in systems and IT infrastructure. You now have a platform to commonize where it makes sense."

A reporter comes away with deep respect for the forces at play at Ford. A finely honed supply chain plays a central role in the company's future. Still, there is a kind of poetic resonance to Belanger's observation that, the more things change the more they remain the same. "When you think about it," he concludes, "what we're doing now is just a more sophisticated treatment of Henry Ford's idea. We're still in the business of turning 'dirt into dollars,' of converting raw materials into automobiles and selling them. The difference now is that we're distributing the supply chain and the value chain across independent third-party service providers."