Operations Management

HOW  FORD SEE THE SUPPLY CHAIN

Introduction

             Ford is known as one of the pioneer of mass production particularly in the automobile industry.  Undoubtedly, his achievements at Ford and impacts to American culture in the first decades of the 20th century should be remembered.  Presented in this paper is a confirmation of his contributions in operations management which can be considered as machine- and mechanical-based approach rather human capital priority.  Although his influences to supply chain management could largely be appreciated by learning from his human resource management loopholes, his public-centered idea and industrialization philosophy should be approached in a conventional manner.  Also included is the relevance or irrelevance of  Ford’s supply chain model in the 21st century disclaiming any threats of war, absence of information technology, and simplicity and localization of competition.       

 

The Influence of Ford’s Value to Supply Chain

            Even though Chevrolet models in the mid-1920s (Forbes Greatest Business Stories) caused the mere demise of Model T due to its superior amenities against the stereotype-driven T form,  Ford undoubtedly installed value to his product through price leadership strategy.  The company curbed the costs of distribution channels and marketing campaigns through focusing its production in one car model.  In fact, the cited readings about the company did not mention significant distributors and dealers of Ford products while marketing () was noted as minimal.  As an offset to absence of sales representatives and considerable publicity, the roads and traffics of the country had unintentionally shouldered such tasks as a certain point in time came when half of the American car owner used Model T.

            The intentional single model production had been the core object for the legacy of Henry to transform the automobile possession from luxury to necessity.  Such had not only offered affordability, but also gave customers light, durable, efficient () and other characteristics, particularly on performance, other dearer priced and imported cars have.  Since  insisted to manufacture the same model until 1927 (), marketing-based savings had mutated to include production and supplier savings.  When company discovered that producing black-colored models required less drying (), and ultimately, more production, it maneuvered to ignore colored models.  With the objective consistently fixed at price reduction, as  would not bother to dwell business models rather intuition () and perhaps legacy, Model T improvements remained stagnant.

            If there is one big fish that  Ford did not caught, not because he was dumb or did not have the fishing tools rather he ought not to do so, it was innovation.  This was boldly showed off with  violent and myopic tearing down of every model () his engineers had eagerly developed.  Because of this, there came a point in time when his successor son,  had conflict with him due to his T-model mediocrity that  cultured to maintain and further achieve price superiority.  Even though he had the majority ownership at the company (), the autocratic rule of Henry and innovation-averse thinking demoralized the capabilities of skilled engineers that later had adversely affect the competitiveness of the company.

            The advantages of supply chain efficiency due both forward and backward familiarity and mastery had provided an unpopular customer savings instead of corporate one.  The value of the product was transmitted from the diminishing relative physical value of the T-model to largely customer-driven approach.  The idea, however, was too much for the culturally stagnant company internal stakeholders.  They were dismayed by the public-based  Ford that profit margin, which should be brought inside the company and reward the employees and shareholders, were unorthodoxly went the opposite.  This resulted shareholders to charge Henry and employees to resort turn-over () to reflect their respective revolution in aspects of shared decision-making, career development and mutual gains (at best, between them and  Ford “The Emperor”).          

            The lesson for exclusivity of product lines, to feed the then transforming taste of some Americans in view of value other than price (), had brought supply chain management to another level.  Control of supply chain was undoubtedly resulted Ford to maintain its price leadership.  There was minimal supplier coordination (because raw materials were not diverse but rather similar), absence of middlemen (because warehousing need not be conducted as demand exceeded supply) and customers can ride their car on the spot to drive them home assured that the prices were pure and at the least.  But product value was not exclusively confined in price, as the law of supply and demand suggests, the more the cheaper while fewer the dearer. 

This situation could be observed with two facts: the T-model was competing with enormous number of car manufacturers (increasing substitutes) and Americans had seen and used enough of the model (decreasing physical value; dear became obsolete; price factor was the only platform for value).  Consequently, a family member would opted to buy a new color to express oneself apart from the father and the family’s neighbor may select comfortableness to distinguished own values or perhaps social status.  The absence of business planning at Ford Company threw away the importance of market segmentation, that is, the failure to classify different markets for their specific needs other than price concerns.

The company should had been more riskier to despise some supply chain savings, not necessarily incur inefficient one, to experiment and innovate its product features for long-term gains other than customer price loyalty.  Research and development would had kept, what  Ford treasured as T-life or T-legacy car model, longer and more profitable in the market with modifications and enhancements.  However,  strict and deaf leadership due to his personal legacies swallowed the entire innovative feats— A culture that merely ended his company forever.  Not until the 6-month closure of his plant in 1927 that he realized and accepted the potential of innovation (he might bent down his knees for this) through the introduction of Model A (), which was the first company-wide acknowledged model significantly apart from facets of the twenty-year old Model T.       

 

The Influence of Ford’s Production to Supply Chain   

            The economies of scale brought by increasing volume ( 2000) demanded by the market, especially in the early years of operation, thoroughly pulled the company towards mass production.  Consequently,Avenue base needed expansion to give rise to what Rockefeller termed as “the industrial miracle of the age” () Highland Park Factory.  By the move, 1910 onwards accelerated plant productivity at a minimum of 100% annually ().  But  was not contented.  He insisted the quest for continuous improvement each assembly day until supplier’s bargaining power was eclipsed by the construction of the world’s first efficient plant at Roudge.

            The Ford’s plant expansion proved the automobile manufacturing industry that they can live with fewer suppliers under their heels that could distract growth or get a big share of it.  With this, not only lean management and the absence of “dam” or storage house ( 2002) were emphasized but also the enthusiasm to integrate manufacturing activities that discourage backward dependence to suppliers.  The company was not contented in the acquisition of huge factory sites in order to ovoid clogging of the production stages due to stored purchase supplies and finished products.  It tried to monopolize the manufacturing process by converting raw materials into finished cars.   Ford believed that such move can minimized semi-finished material costs and transaction complexity with suppliers that was compatible decision to the intention of the company to produce a homogenous model and ultimately realizing savings.

            The establishment of Roudge seemed a near-end to semi-finished supplier relationships.  Supply chain was indicative exclusive within the company operations.  Being endowed with power and fabricating capabilities (), Ford was able to create raw materials into semi-finished products until the parts were installed in the assembly line.  The supplier partnership slack was aggravated by the added capability of the Roudge plants to make use raw materials, energy and disposable in an efficient and optimum manner.  Apparently, the limits of Ford’s plants were unstoppable that deepened the pushing through of efficient mass production and supplier independence.

This Ford’s model evidenced a hybrid of bow-tied and diamond supply chain management approaches ( 2001).  It placed the supplier in risky position as it cannot rely to Ford’s venture in the long-term due to the internal improvement of the company and the latter’s hesitance to keep the communications open as to avoid fear from the former that the they can stand on their own after the internal improvements materialized.  In contrast, the diamond seemed to surface when such improvement minimized the breadth of supplier based, thus, coordination was somehow focused but limited.

However, physical assets and machineries’ silence to pressure of expansion, integration and standardization for maximum productivity and efficiency was in extreme opposite human capital can bear.  They basically became “non-thinking laborers” due to too much formality and specialized day-to-day tasks aggravated by the introduction of conveyor belts and “man high” line () wherein movements became unnecessary and timing turned very crucial.  Such drowsy and unchallenging environment was the primary cause of high turnover in 1913 () and the company needed to increase spending in retention projects just for the sake of supplier independence on top of production efficiency.

What  Ford overlooked in his feat to eradicate supplier relations was the limitation of the human capital in a very formal and suffocating working mode.  Coordination, being the part of management, was minimal between  and the employees particularly the unskilled foreign ones which probably not use to Henry’s unusual efficiency plans, and more importantly, unaccustomed to the objective of those.  A  working environment where what you can only see is the color black and specific car parts for a long time that can reach nine hours () aggravated by unfair compensation would likely make one resist and rebel unless outside sanity.  The proliferation of efficiency engineers in the core front of Ford’s departments undermines the possible human resource leverage to resistance and obscurity at work like job sharing, flexi-time, and productivity based incentive programs. 

Another, the pressure of Ford to claim profit at one side, that is, minimizing costs, served as impediment to place some rest for his employees and physical assets’ fatigue for company-wide efficiency.  To give a chance for sales and marketing to divert the company focus towards maximizing profits was undermined, untapped and unwisely skipped.  If any, simple print advertisement was resorted at times when sales went bursting off the peak.  Supply chain was totally broken by Henry ideals both at back and forward activities.

Lessons, however, melted at the face of  with implications in supply chain management.  First, to be able to dismantle the presence of suppliers in the corner’s of Ford’s company, huge financial capability accompanied by total shouldering of operation vulnerability for demand fluctuations was the initial requirement wherein Ford had accomplished including the stability of demand to go up.  In a contrast, it did not end there.  Maintaining independence in the long-run necessitated production efficiency to beat the cost of supplier’s material price, and therefore, incur a breakeven, or better, surplus to be able to place rationale to such objective.  Such efficiency was illustrated not only plant and machinery capabilities, but most importantly, keen participation from the human resources.  Motivation was crucial and the move of  to bribe workers by exponentially increasing their wages seemingly minimized the significance of cost savings harvested through supplier independence.              

Secondly, to be able to discard the significance of distribution channels and marketing strategies, innovation should not be tolerated and intensive cost minimization is required.  A paradigm  Ford had lived for twenty years with Model T merely caused the demise of his company in 1927.  With the lack of innovation, mass production was the most compatible operations management for the company.  But such limited their option to realize profit as they resorted to Henry’s frugality and flat management instead of hard-earned revenues in constructing efficient plants like Roudge and spending labor retention and profit-sharing costs just to fill the gap of imbalance source of returns.  Consequently, “doing things better” () concept was frequently resisted because workers knew that there was another employee-friendly way to raise profits through distribution channels and marketing to increase sales, but then again,  Ford did not listen. 

 

The 21st Century Non-Manufacturing Relevance

            At one point, the Velocity Management (VM) applied in United States Army logistics ( 2000) seemed to agree for the disciplined and formal culture instituted by  Ford for his company.  However, this logistics transformational procedure varied in its approach by seeing the infusion of the new method as a cultural change.  In the past, Army logistics of its ammunitions and equipments was “stockpiled” that caused inefficiency and unnecessary costs ( 2000) probably due to the wear and tear their inventories experienced when kept and unused for a long time.  Such made the project into inception unlike that of Ford where the efficiency endeavors seemingly not intended to address a problem but to create one for itself.

            Ford’s model of value stemmed at price leadership and zero innovation.  On the other hand, the VM project, although had the cost reduction as its ultimate goal, did not hamper the additional expense needed to bring out the best ideas the Army can offer.  It had provided incentives for the Logistics heads, commanders and other Army leaders ( 2000), who were called managers, based on their performance and adherence to the objectives of the VM project.  Undoubtedly, Ford had the money, but being a price leader, frugality was a major driver.  And in contrast to a dearer treatment of Ford when it comes to infrastructure development than human resources, VM project put people in front making individual decision-making possible, group accountability indispensable and conceptual thinking manageable at all levels.    

            As the VM project observed the Define-Measure-Improve methodology ( 2000),  Ford had myopically defined, hardly measured and relentlessly adhered to improvement resulted to imbalance between corporate intentions and individual goals.  Since VM was guided by analysis, driven by the top and made by teams, soldiers were assured that objectives that needed their participation were something they cared about or had positive impacts to their welfare either monetarily or largely job satisfaction.  As an individual who is subject to die any minute, instilling the value of organizing inventory and logistics of ammunitions and equipments is fairly hard to develop except for the concerned logistics division or a corpse commander.         

            Apart from the costs incurred by Ford to construct River Roudge to conduct efficient operations, VM model merely needed to maximize its existing resources like trucks and systematize its equipment ordering and shipping processes (2000).  To argue that Ford aimed at mass production level could be counter-argue by emphasizing the international scope of Army operations.  The obvious difference was that Army solved a problem to properly enhance and inform inefficient processes and unknowing soldiers while Henry remained a wanderer as to answer a corporate, public or personal one.  .

            If there would be a close relevance of Ford efficiency system to VM project, it will be a general cue.  Both had exemplified the means of attaining efficiency from within internal operations.  That is no supplier or distribution channel can have revolutionary and long-term effects to cost savings and effectiveness than fusing the concept into the corners of the company infrastructure (what emphasized) and into the heart of the corporate culture (what US Army underlined).    

            Further, at the healthcare sector, Ford’s model of internal efficiency was likely to coincide than that of Army.  The healthcare sector, which is projected to be one of the fastest growing industries (  2001), needs not to be fancy and innovative but rather maintain customer service satisfaction under affordable prices.  Henry Ford built strong customer relationship when he implemented price leadership which is crucial to the healthcare sector particularly customer loyalty.  If not, patients may be forced to resort traditional and ancient approach to illness like rituals and austerely herbal medicines due to expensive healthcare service.

            As diseases are competent to mutate and inflict devastating effects in the future, technology and breakthrough within the sector is required.  Another departure to innovative-averse Ford model, healthcare should emulate continuous improvement in treatment and prevention apparatus, medicines and techniques that would not result to luxury prices.  As  believed that unnecessary movements were detrimental to efficiency within the company operations, healthcare sector could look at a bigger picture and indulge its direction to provide basic or “skin-deep” rather lavish or “skin-surfaced” operations.  And like  legacy to democratize automobile ownership, healthcare sector is expected to place greater emphasis to health security or else be mocked by descendants citing its dexterity wherein a private enterprise could promote greater public welfare than the traditionally known public institution.          

            Crucial to provide service at least costs, healthcare infrastructure must emulate the economies of scale epitomized in Ford’s plants including the Roudge efficiency that saw paper and wood vital to cost reduction.  Employees, however, should be given the independence and be accountable to their decisions and actions.  A wrong impression of people to call nurse and doctors calm approach to a 50-50 patient as disregard should be informed and coordinated to the public that would serve as one step to empower the decision-making of hospital personnel to conceive an urgent and non-urgent situation.  If Henry would be a hospital president, however, he would argue that every “waste” move could save hundred lives.

           

Conclusion

            Ford should have been a public servant to relate his price sensitivity for customers or a Japanese anti-cultural imperialism minister to signify his attempt to free his company from the shackles of supplier and distribution channels that could ultimately reduce efficiency and stole cost savings.  He had ignored supply chain relationships, at the periphery, but lived to foster its infusion into the mainstream of corporate operations— a historical ideal that patent a tough crack to monopolize the supply chain system.  However, 21st century environment had provided the technology like E-commerce while most successful CEOs followed business theories and concepts, at least a part, to lead their Fortune 500 companies.  Such present- and future- looking events discounted the obvious intention of Ford to integrate supply chain in its sole operation.  But modern firms will not hesitate to hear the then “deaf leadership” of Henry to decide and apply whether or not backward and forward integration fit a situation.  If there is the intent, capability and what  undermined, long-term profitability, a replica of  model might just be around the corner.            

 

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