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Ford Motor Company: Procurement
Ford Motor Company: Procurement
Procurement
• Background
• Business Process Redesign: Process, IT
• Results Obtained
• Implications: Process, IT
0%
1988 1989 1990 1991 1992
• Ford is the fourth-largest industrial corporation in the world; the second largest
producer of cars and trucks
Ford exhibits good revenue and profit potential with a much leaner
organization than in the past.
Approximately 17
a
1,500 Suppliers Production/Asse Dealers
mbly Plants
Fleet Managers
Government
Municipalities
Exports
Manual CE
PRI E
and redundant C
procedures PRI
Information
Exchange Same Part
TA
Suppliers
Suppliers for
are
Adversaries
Multiple
P.O. Original
Receiving Documentation
P.O.
No
Obtain
Invoice reconciliation
(Sometimes received
All Match ? information from
before the goods arrive) Purchasing and Receiving
Payment Yes
Goods
Goods and Shipping Receipt
Supplier
Accounts Payable alone employed more than 500 people. Receiving
Department
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FORD: BUSINESS PROCESS
• For a given order, Accounts Payable had to deal with three different
documents: purchase order, receiving document, and invoice:
- Accounts Payable had to match 14 data items among the three documents
• Ford’s Accounts Payable headcount was 400% higher than that of other
automakers
• Ford’s initial goal was to cut just 100 out of 500 provisioning jobs
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FORD: BUSINESS PROCESS
Special Cases
P.O.
P.O.
EFT P.O.
Receiving
EDI Payment
Authorization
Electronic Match
of Received Goods
EFT Yes vs. P.O. No
P.O.
Interactive Link
Goods
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FORD: BUSINESS PROCESS
• Multiple suppliers: suppliers are adversaries • Selected suppliers are “partners”—they share in the
success and failure
• Paper and labor intensive—high administrative • Electronic process with high IT utilization; matching
costs, excessive routing of documents, duplicate of purchase order with goods
documents, link documents, manual matching
• Payments to suppliers are made upon receipt of • Payment is made upon receipt of goods (in some
the invoice divisions, payment is made upon use of goods)
using “evaluated receipts” and EFT
• Increased workload on the authorizing department • Accounts Payable personnel concentrating their
(Accounts Payable)
efforts on special cases only
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FORD: BUSINESS PROCESS
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FORD: IT
• Ford now has improved its ability to trade computer-aided design and
manufacturing (CAD/CAM) files with suppliers through pioneering the use of
new EDI-based administrative processes
• In addition, Ford suppliers now have a seamless way to transfer data files
(e.g., spreadsheets) with the company
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FORD: RESULTS OBTAINED
• Accounts payable staff reduction of 75% • Overall product quality and cost
(over 375 individuals): improvements:
• Reduced inventories
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FORD: BEST PRACTICES
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Ford’s Organization Reinforces Satisfaction of Customer
and Supplier Needs
Ford’s Organization
People
Systems
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FORD: IMPLICATIONS
Key Lessons Learned . . . Technology by Itself Offers a Limited Advantage, but
When Leveraged by an IT-enabled Process Redesign, the Result Is a Winning
Execution
Pitfalls...
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