Apllication of Just in Time System in Ford

Business problem

The business problem to be solved is how to reduce inventory management costs of Ford Company, improve suppliers and customer satisfaction and attain production target of producing 1100 Ford KA cars each day.

Company Background

Ford Motor Company was founded by Henry ford in 1903. It is based Dearborn Michigan. In the year 2010, Fortune 500 ranked Ford eighth in the Fortune 500 list since it had revenues of about $ 118.3 billion dollars 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 213000 employees. It offers a wide range of automobiles under the Ford Brand that include Ford L7000 and Ford F-650. In addition to this, it produces buses such as E-Series, F-650 and B700. It also manufactures Fordson tractors. Ford supplied engines to racing teams such Team 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 Hybrid-Electric Escape in 2005 that consumes less fuel.  In the year 2009, it started manufacturing Ford Fusion Hybrid and Mercury Milan Hybrid that uses advanced technology and consumes 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 this company is Allan Mulally. William Clay Ford Jr. is the Executive Chairman of this company. The members of the board are 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 the Executive Vice President of this 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 dollars in the first quarter of 2012. This was, however, a decrease $544 million dollars compared to its first quarter profit of 2011. The net income of this company was about $1.4 billion, which was a decrease of $1.2 billion compared to 2011 (Ford, 2012). Financial analysts claim that this decrease was caused by high tax expenses and increased special charges. The profits before tax in North America were $ 2.1 billion, which was an increase of about $289 million compared to 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.

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Ford Company wants to produce a new model of small Ford Cars known as 2012 Ford Explorer. It had set a target of producing 1100 cars each day for the first eight weeks. However, it faces several constraints that threatened 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 its objective of meeting its production targets (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 human beings 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 of improving their methods of production. In this system, Ford will adopt direct automated delivery where the suppliers only deliver components right on time when the company requires them. In addition, this system integrates the manufacturing equipment and the delivered components are installed in manufactured cars right after they reach the factory of this company. It also incorporates electronic data interchange in order to improve the sharing of information with different suppliers.

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Benefits of Solving the Problem

If the company solved the problem of inventory management, it will achieve several benefits.  It will reduce the costs required for 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 doing 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 it pays to its suppliers. This system also allows the automation of activities using latest technological equipment and, thus, the levels of errors and frauds will decrease. These systems also allow fthe automation of the installation of battery placement and seats.

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 at using aerial tunnels in an attempt of connecting with more suppliers in towns such as Valencia. These systems will help this company in its activities of transporting fuel tanks and seats that are usually too heavy. Using this system, the company proposes to spend about $ 6 million in an attempt of improving its delivery trucks. Furthermore, it aims at achieving an 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 packing, handling and delivery systems. In addition to this, it will outsource the production of small car components to companies that specialized in the manufacturing of these components. This will help it concentrate more on the assembling of these components in order to develop this model. Using this system, the company will reduce the number of weeks that are 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 and this increased the speed that the delivery personnel handled this stock. Suppliers were also received their payment at the point of sale and, thus, this enabled the supply of components to this company at any time whether it was during the day or at night.

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After ford implements JIT in its inventory control, it was able to solve several problems that include:

1.Reduction in wastages

By using just in time system, this company will eliminate the waste of overproduction of cars. This is because this company will only produce cars when customers demanded them. Furthermore, it will reduce the transportation costs since it will only order components from suppliers when it requires them and the automation of this system will reduce the wages paid to the drivers involved in the delivery process (Sulivan, 2005). It will also reduce waste arising from the production of defective cars. The automation of the system will help it reduce these defects since machines will be involved in fixing of seats and battery placements. This system will also reduce idle time since employees will be only involved in the production system when the demand for the production of this model of cars increases.

2.Value Added Production

By using just in time system, this company will improve value in its production system. This is because it will produce the cars when customers require them and, thus, shortages in supply will be reduced. Furthermore, it will also reduce the lead-time and thus increasing consumer satisfaction. It will also outsource some of the activities that can be produced by other companies at a faster rate and with minimum costs and, therefore, the quality of its products will improved (Sulivan, 2005). The automation of the whole system will ensure better coordination between different employees involved in the process of production. This automation will help to identify defects in the production and employees will eliminate these defects early enabling the production of quality goods. The company will also complete the production process at a faster rate since this process only requires 8 weeks for its successful completion.

3.Improved Supplier’s Satisfaction

Suppliers are interested in signing contracts for the supply of various components to this company. This is because the cost that the suppliers will incur in transporting components to the premises of this company will be minimal (Sulivan, 2005). In addition to this, it will allow point of sale payment systems due to electronic data interchange and thus the suppliers will received their payment immediately after they delivered components to this company.

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