Automakers spend millions on the design and promotion of snazzy new vehicles. Yet all their efforts can be nullified by the lack of a critical service part.
Ford Motor Co. knows how important it is to minimize the time a customer spends at the dealer for repairs or maintenance. That's why the company has undertaken a far-reaching program to overhaul its service-parts supply chain. Now, the final piece of that puzzle - new software to manage the entire process - is well under way.
The world's second-largest automotive manufacturer has a correspondingly large and complex aftermarket parts operation. It has 600,000 part numbers in inventory, drawing on 5,000 suppliers and serving 15,000 dealers worldwide, including 5,400 dealers in the U.S. The company generates 120 million order lines per year through 63 distribution centers, 21 of them in the U.S. now, and 24 by the middle of this year.
The current network repair job dates back to 1998, when Ford's top management vowed to improve customer service at the dealership. Back then, a given service part could spend up to 87 days in the aftermarket supply chain, moving from supplier through packager, warehouse, dealer and on to the customer, says Steve McKelvey, Ford's business technology renewal manager in Lavonia, Mich. What's more, the assignment of inventory to various distribution centers didn't take into account the special characteristics of each part - where it was needed, how fast it typically moved, how critical was its nature. Most importantly, customers were waiting too long for the parts needed to fix or maintain their cars.
All of which prompted Ford to launch its ambitious Daily Parts Advantage (DPA) network for getting spares to dealers. In the process, it would increase from 10 to 21 the number of distribution centers in the U.S., with the most critical parts located closer to dealers and inventories better geared toward actual need. Parts would be restocked on a daily basis, and delivery times drastically shortened. Emergency order cut-off times would be extended to 9:00 p.m. Eastern, up to five hours later than before.
Ford targeted several key areas for improvement, including supplier lead time, packager and throughput time, warehouse receipt and item availability time, and transportation. In addition, the company sought better visibility of its parts shipments, especially in the hand-off between links of the chain.
According to McKelvey, Ford envisioned the whole system as a three-legged stool, with customer satisfaction the "seat" and the legs consisting of business processes, the parts supply network and information technology.
With the help of consultant Cap Gemini Ernst & Young, the first two parts of the project were put into place fairly quickly, yielding early results. They included:
• a reduction in the supply-chain cycle to 37 days as of 2003 (with an ultimate goal of 21 days);
• a 40-percent decline in inventory levels in the U.S. over six years, with a commensurate drop in U.S. and European inventory value to $838m from more than $1bn;
• a rise in customer fill rates to 98 percent from 93 percent in the U.S., and to 96.8 percent from 93.6 percent in Europe; and
• an 85-percent reduction in customer back-order lines to 15 percent of a day's business in the U.S., and 60-percent reduction to less than 40 percent of the day in Europe.
Part of the project's success was due to the segmenting of parts according to volume, velocity and dimension. Ford created three distinct types of warehouses: high-velocity, for small, high-volume parts moving on a daily basis (at 19 locations); low volume/low-cube, for small, slow-moving parts available within 24 hours (one location); and high-cube, for larger, bulkier items that could be shipped in one to two days (three locations). In general, says McKelvey, the fastest-moving items have been placed closest to the largest number of dealers. The result has been a repair order fill rate at the dealers of better than 95 percent.
On the supplier side, Ford set up a series of metrics, coupled with report cards, through which it could measure and monitor supplier performance. The effort has yielded steady improvements in the receiving process, with Ford continually raising the bar even as it expands the program across its global supply chain. Some 60 percent of the U.S. service parts network is now functioning under the new processes, says McKelvey. (Distribution facilities in Detroit; Hartford, Conn.; New Jersey and Washington, D.C. have yet to be launched; they should be on line in the first part of this year.)
|"The stated goal was to create a next-generation service parts-management software solution."|
- Barb Hodel of CAT Logistics
|Three Partners at a Glance|
|The manufacturer: Ford Motor Co. |
Headquarters: Dearborn, Mich.
Sales: more than $164bn in 2003.
Employees: approximately 350,000 worldwide.
Aftermarket parts supply chain: 600,000 part numbers, 5,000 suppliers, 63 distribution centers and 15,000 dealers around the world.
Service parts inventory value: approximately $838m.
The third-party logistics provider: Caterpillar Logistics Services, Inc., a subsidiary of Caterpillar Inc., maker of construction and agricultural equipment. Provides services to Caterpillar plus approximately 50 other clients.
Service network: more than 95 facilities in 25 countries. Collaborating with Ford on specifications and guidelines for software to manage the automaker's spare-parts supply chain.
The software vendor: SAP AG. Seller of software for financial systems, supply-chain management, customer relationship management and other business processes. Will develop and market new supply-chain software for Ford's spare-parts operation, then incorporate the enhancements into generally available systems.
Headquarters: Walldorf, Germany.
Sales: $8.7bn in 2003.
Employees: approximately 29,000.
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