Expanding in Asia Pacific Africa, Ford is growing the smart way with a push toward stronger electronic communication across its supply chain here, including the rollout of its European order-to-delivery system, Vista.
As Ford puts its global house in order, moving closer to profitability in North America and building on strength in South America and Europe, it has been playing catch up in Asia. Despite sales growth of nearly 50% in the fourth quarter of 2009 across the OEM’s Asia Pacific Africa (APA) region, as well as an 83% jump in China for the first two months of 2010 to nearly 50,000 units, Ford has been sprinting to stand still. Whereas market share has risen to recent highs in Europe and North America, it has remained constant in China below 3%, and around 2% across APA.
“We’ve got to step it up here,” acknowledges Rick DeMuro, director of material, planning and logistics (MP&L) for APA. “We need to raise our market share in China and India to 6-8% to meet our goal of profitable growth. It will mean bringing in and producing more vehicles based on global platforms and recruiting fresh talent as well as getting some help from our partners.”
And the push is on, with plans to treble production capacity across APA over the next two years. “It is going to be one heckuva ride,” DeMuro says, with a grin many in the industry will recognise from his nearly 33 years with Ford. A self-proclaimed “crafty old veteran”, DeMuro is lively and outgoing, quick with a joke or an anecdote to animate his vast experience in MP&L. Explaining that he was part of the original Ford team, for example, that coined the term ‘lead logistics provider’, he reveals that the joke at the time was LLP should really stand for ‘limited liability partner’.
DeMuro cut his teeth at Ford’s Cleveland engine plant at a time when it produced 6,000 engines daily, an amount Ford barely produces in one week in Asia. But that is set to change with production starting at a new AutoAlliance Thailand (ATT) plant–Ford’s JV with Mazda in Thailand–building B-cars, and a new engine facility in Chennai, India, where Ford is also ramping up volume for the Figo, a small car for the Indian market destined for export as well. Ford also plans a third assembly plant in China together with Mazda and Changan for 2012, as well as a plant at an unconfirmed location in Asia for the next generation Focus.
But this expansion will not just be about bashing metal. Based on CEO Alan Mulally’s “One Ford” mantra, the company’s production strategy is now rooted in rationalising the supply base across global platforms, with its B and C segments particularly important in Asia. It is an approach that reduces parts variation and uses more global components and technology; it also requires a commitment from suppliers and logistics providers in multiple parts of the globe.
To move forward, Ford is importing both its global manufacturing and logistics processes, as well as its best IT systems to the region. Most notably, the company is in the process of rolling of its European order-to-delivery system, Vista, in the major markets of APA, including India, Australia, South Africa and eventually China.
Ford has also recently changed top brass in the region, bringing in Joe Hinrichs as president of Asia Pacific and Africa. Hinrichs, most recently Ford’s head of manufacturing and labour affairs, has also been the executive director of MP&L. DeMuro rates Hinrichs highly, and believes his time at MP&L has given him a macro understanding of the supply chain. “The good and the bad is that Joe knows everything about MP&L,” DeMuro says, again with that trademark grin. “He understands the budget, and you can’t make excuses when the guy used to have your job.”
In a move reflecting Ford’s future emphasis, the company also moved its APA headquarters from Bangkok to Shanghai at the end of 2009. India is also an increasingly important location, not only for the planned production growth, but where Ford decided to create the ‘Regional MP&L Center of Excellence,’ which provides services for pre-production management, supply chain management, packaging and material flow engineering, and vehicle scheduling.
MP&L underpins Ford’s expansion in APA in several important ways. Firstly, DeMuro believes that Ford now has a better handle on forecasting freight and duty within a project’s ‘total landed cost’ equation.
When DeMuro first arrived in Asia in 2006, he admits Ford lacked a cohesive MP&L organisation and there was little reckoning for total cost beyond plant or country levels. For example, there was a vehicle programme that was being produced in five different locations, and its largest cost was not material but freight and duty. An analysis of the import and export duties and freight costs in the ASEAN [Association of South East Asian Nations] region revealed that it made more sense to change to regional production rather than to keep five assembly locations.
Today, Ford’s policy in APA is to have a team calculate landed cost upfront for the selected inputs including the top 100 commodities, as well as the ocean freight; for China, land transport is calculated as well (since the plant is in Chongqinq, far inland from the port). “We do not allow an individual programme to go forward without the signatures of myself and my counterpart in finance and purchasing regarding freight and duty,” DeMuro says.
DeMuro believes the global platform strategy is showing positive results, with landed cost studies reinforcing local sourcing. But with the variation of duty and regulations across Asia and Africa, the supply chains that emerge are extraordinarily complex. Australia is using more imported parts while India will be producing engines for the B cars. Should certain duties be reduced between ASEAN, China and Japan there is also likely to be more trade and exchange between these regions.
While DeMuro welcomes supply chain complexity, he acknowledges that Ford has had to look more carefully at supply chain risk in forecasts. The carmaker had an expensive “incident” in the fourth quarter of 2009 about which he provides no specifics. “But based on that situation we have re-evaluated a new level of risk assessment,” he says. “In some situations where there is a choice between having one or two locations for a supplier, the new risk table might very well lead you to choose two.”
Flexible manufacturing and supply
Ford’s Asian expansion is being geared toward flexible manufacturing, where the same line produces multiple models or products without building in batches. In India, the Chennai engine plant makes diesel and petrol engines in this way–a first for Ford–to contend with the rapid fluctuations in demand for both engine types in India.
To help achieve this flexibility, Ford has reengineered material flow to reduce complexity on the line, including borrowing Mazda’s ‘kit supply’ approach, according to DeMuro. Ford consolidates non-sequenced parts in a box, which are then delivered directly to operators on the line, eliminating up to three or four workstations and reducing considerable movement by workers. Nearly 52% of the parts, including those for the engine, piston, rings and connecting rods, are being kitted prior to installation.
DeMuro is also pressing to eliminate cardboard in the trim chassis final assembly area, with all the parts unpackaged and put onto racks or moveable objects before they arrive at the line–a significant adjustment considering the amount of expendable packaging for imported parts. “I want the operator to be 100% adding value, and that means no waste on the line,” he says. “Cardboard can hurt people, it can require more walking to pick the parts, and I don’t want our people having to take one extra wasted step!”
Being the first to build-to-order vehicles in Asia
Building across continents promises more complicated logistics scenarios, especially with global platforms and new model launches (which often lead to higher instances of premium freight during start-up and test phases). But Ford hopes to better manage the global flow of inventory with the introduction of Vista. It will use the system to switch from a build-to-stock (BTS) to a build-to-order (BTO) production and sales model.
According to DeMuro, the system is live in Australia, New Zealand and India, with rollout planned next for South Africa. There are eventual plans for China as well. DeMuro sees the transition as revolutionary for these markets as it will help lower vehicle inventory and better balance production and transport capacity.
Ford has already lowered vehicle inventory in the APA region by 38% in 2009, but DeMuro admits it was not always easy to see the wisdom of reducing the vehicle yard stock and the dealer inventory, forcing the company to sell on lower supply. “This can be a dangerous approach in a buildto- stock environment, and it took a brave pill to do it,” he says. “In the past it was always ‘build it, and customers will come’. But not anymore, customers have many choices and we need to have the ‘right’ vehicles available to our customers. To be honest we could have perhaps even built a bit more and sold a few more in China with the regional government’s stimulus incentives in 2009.”
DeMuro credits the discipline of the team in lowering inventory successfully as well as John Parker, Ford’s former executive vice president in APA. “He did a great job, leading the entire APA organisation to focus on the targets, and he was clear at the monthly meeting on this objective,” he says.
While DeMuro believes Ford should remain vigilant and manage on low stocks, he welcomes the change to BTO, where the system builds exactly what dealers order. He foresees benefits right down to final delivery to dealers, where more accurate dispatches of vehicles can be shipped.
“No OEM in China or India is building to order that I know of, however we are going to make that change happen,” he says. “Ford should not be an inventory giant.” The change will be significant, particularly for India where Ford expects production of the Figo to raise annual output from about 30,000 up to 100,000 units in the short term. Ford will eventually export Figos to markets such as South Africa, so these orders too will be automatically calculated into the scheduling system.
Supply chain IT: champagne taste, a beer budget
The shift requires discipline not only from dealers and plants, but also from logistics providers that will need to provide more time-critical deliveries. It also demands improved communication and IT throughout the supply chain.
Such an IT push will not be unfamiliar to DeMuro. He had an early appreciation for the power of networks and communication long before such systems were ubiquitous. He recounts how in 1982 he and a colleague discovered the Apple basic software in an Apple 2 computer to produce schedules for the engine plants, reducing a handwritten job that required 12 people to just four with the ability to create more scenarios.
Soon after he was part of a team in the engine group that convinced Ford to use electronic communications in the days before the internet, using BT Telecom as an interface. The system allowed suppliers to see Ford’s data and requirements electronically for the first time, and reduced the number of supply chain management people by more than 500.
As the systems advanced, DeMuro became something of an evangelist for the power of supply chain IT, and was appointed the powertrain launch manager for CMMS (Ford’s ERP system). The system has many benefits for MP&L–as soon as the schedule is approved, automated part releases are sent weekly for six months and daily for two weeks. Ford also broadcasts the sequence vehicle schedule for suppliers that ship in actual sequence.
Later, DeMuro had his first taste of Asia while working on Ford’s ‘Supplier Capacity Planning’, which allows the carmaker to understand suppliers’ weekly production capability. “This system is essential for managing the logistics across global platforms,” he says. “It helps you understand where you need to add tools or not.”
But surveying the electronic links in the supply chain across APA, DeMuro sees gaps, particularly below the tier one level. He is adamant that the communication between suppliers must be automated, because “smoke signals”–such as email or fax–won’t do anymore. “I don’t have the luxury of looking into the tier two level, so I must rely on the tier one. But if that supplier says to me, ‘oh god, [the tier two] didn’t get our email with our requirements’, then I am not a forgiving person.
“Without those systems, a tier two can knock you down as soon as you can say ‘oops’,” he says. He cites examples in India where suppliers were unable to keep up, leaving Ford the option of stopping the line or using premium freight. It is an area that he is currently working on closely with his operations managers in the country.
While DeMuro admits there are certain “IT specialities”, he is confident Ford will get order-to-delivery implemented in the region. He looks back to his earlier days of rolling out CMMS, when he learned that change could only come by pushing hard, no matter the resources. “I’ll always remember one of the executives I worked for, when I proposed to him my plan for implementation, saying to me: ‘You know, Rick, you have champagne taste but you have a beer budget. So here is your money and go get it done.’”
DeMuro laughs, admitting it’s a phrase he has borrowed for himself several times as a director. It seems to apply now for rolling out the order-to-delivery system. “It’s crazy to just linger on and say ‘we need more resources’. Let’s define what we need and get on with it.”
Ford wants to grow with its LSPs
The BTO transition means it will be necessary to work with providers to develop more crossdocks and milkruns. While some of these processes are already in place in Thailand, they will be expanded for Ford in China and India.
DeMuro is not completely satisfied with the services of Ford’s global logistics partners. “I’m finding out that these companies are completely different in India, China or the US,” he says. “At one point I believed that they were global but now that I am listening and hearing, I see that they have the same brand name, but not the same brand service.”
DeMuro recognises, of course, that these issues are mirrored in carmakers as well, and that Ford too had been a collection of independent entities. The relationship will have to build from both sides and as difficult as it will be to improve service in the region, DeMuro is nothing but positive about what the future holds. “Those who choose to be with us here in the long run are going to be very happy,” he says. “If [providers] give us the right opportunities they are going to grow with us.”
As APA adapts Vista, the company is already deep into the development of Vista 2, which will become Ford’s global ordering system, with the motto: ‘Build Anywhere and Sell Anywhere’. The system will provide dealers more comprehensive information on the production and delivery timings for the vehicles that dealers order.
As Ford adds volume, it is looking ahead to other markets in the region. Indonesia, with its 300m population, has potential, where Ford has won important government orders and where the Focus also won Indonesia’s Car of the Year award.
To keep up with future growth, DeMuro points out that rail delivery for vehicles is a must, particularly for China and India. “We have to work with the governments to realise that it is not in the best interest of the people to crowd the roads with trucks hauling vehicles from the plants to the dealers,” he says.
Finally, beyond the obvious growth forecasts in Asia, DeMuro sees the APA region as a growing technological centre, and one that will build and export parts and systems for a global market, and will depend on a strong group of suppliers and logistics providers. “From my perspective, Ford and MP&L have a tremendous amount of work to do here in Asia Pacific and Africa, including adding resources,” DeMuro says. “But I believe that once we’ve identified what we have to do, we will also be able to provide additional services to the ‘One Ford’ team.”
