Ford Motor Company

Demystifying Ford’s exposure to supply chain disruptions:-

Problem 1:-

 The supplier’s production facility is disrupted for two weeks. 

Problem 2 :- 

The supplier’s tooling must be replaced, halting operations at its facility for eight weeks. 

Ford has a multitier supplier network with long lead times from some suppliers, a complex bill-of-materials structure, buffer inventory, and components that are shared across multiple product lines. Approximately 61% of the supplier sites would have no impact on Ford’s profits if they were disrupted. By contrast, about 2% of the supplier sites would, if disrupted, have a significant impact on Ford’s profits. The supplier sites whose disruption would cause the greatest damage are those from which Ford’s annual purchases are relatively small—a finding that surprised Ford managers. Indeed, many of those suppliers had not previously been identified by the company’s risk managers as high-exposure suppliers. (See the exhibit “Impact of Supplier Disruptions on Ford’s Profits” for an analysis of 1,000 Ford supplier sites.)

Impact of Supplier Disruptions on Ford’s Profits

Using the model, Ford was able to identify the supplier sites that required no special risk-management attention (those with short TTR and low financial impact) and those that warranted more-thorough disruption-mitigation plans. The results from the analysis allowed Ford to evaluate alternative steps it might take to defuse high-impact risks and to better prioritize its risk mitigation strategies. For example, managers learned that the risk-exposure-index scores associated with certain suppliers are highly sensitive to the amount of inventory the firm carries. For that reason, Ford put processes in place to monitor the inventory related to those suppliers on a daily basis.

In March 2012, the auto industry was rocked by a shortage of a specialty resin called nylon 12, used in the manufacture of fuel tanks, brake components, and seat fabrics. The key supplier, Evonik, had experienced a devastating explosion in its plant in Marl, Germany. It took Evonik six months to restart production, during which time the downstream production facilities of Ford and other major automakers were severely disrupted. Had Ford managers used our framework prior to this disruption, they would have detected the risk exposure and associated production bottleneck and proactively worked with Evonik to fast-track its plans to bring online a new plant in Singapore, currently slated to begin production in 2015.

Ford’s supply chain, like those of many other companies, has become increasingly globalized, complex, and extended. This has had the effect of introducing more potential points of failure that Ford must recognize and manage. Using our model, it can rapidly quantify its supply chain exposure and identify effective strategies to mitigate the impact should disruptions occur.Our approach to managing supply chain risks allows managers to avoid guessing the likelihood of infrequent, high-impact events and instead concentrate on evaluating their organization’s vulnerability to disruptions, regardless of their cause and where they strike. The method is quantitative, produces a risk exposure measure that is easy to understand, and supports a supplier segmentation process that results in supply networks that are much more resilient.