Ford’s E-Business Strategy
Jacques Nasser, Ford Motor Company president and chief executive officer announced a new vision for the firm in the fall of 1999: to become the “world’s leading consumer company providing automotive products and services.” Key to that dream was the transformation of the business using Web technologies.Brian P.
Kelly (Kelly), Ford’s e-business vice president, described Ford’s plan to rebuild itself as a move to “consumer-centric” from “dealer-centric,” and stated that Ford would transform itself from being a “manufacturer to dealers” into a “marketer to consumers. Kelly explained that the main objectives of Ford’s e-business strategy were to bring speed, convenience, and information to customers rather than just focusing on cost cutting. The strategy was based around the principle “The consumer is King” and using the net, customer orders would be sent directly to factories and suppliers which will eventually allow Ford to deliver cars to consumers within days of ordering. Some of the e-business initiatives that Ford put in place to transform the company into an e-commerce company is mentioned below.
Improving Efficiency in Supply Chain: 1. Ford believed that using the internet improved the efficiency of its supply chain, so in mid-1999, the company along with Oracle, created AutoXchange that allowed online B2B transactions with its suppliers. This e-commerce tool helped Ford and its suppliers swap information and bids on goods and services worth nearly USD 300 billion. The company expected to reduce its purchasing bill by 10% through the use of AutoXchange. 2. Until February 2000, the company followed the ‘push’ operations model, but by collaborating with GM and DaimlerChrysler, Ford set up an online marketplace cum private exchange – ‘Covisint’. This substantially reduced the operating costs and brought efficiency to the business. ‘Covisint’ followed the ‘pull’ model which allowed Ford to first take the order from a customer and then manufacture the car according to the customer’s specifications, thus the traditional supply chain became a demand chain. 3. To optimally utilize the features of Covisint, Ford launched the Ford Supplier Network (FSN).
FSN was used to share information with its suppliers over the web. By increasing the flow of information between suppliers and Ford, it reduced the vehicle delivery time. Focusing on the Demand Chain: 1. In partnership with Microsoft, Ford developed CarPoint an auto buying website in 1999. Retail customers could order cars through this website. In addition to developing this website, Ford also got into alliances with reputed portals like Yahoo. com, iVillage. com and bolt. com. These alliances gave Ford insight into the preferences and buying habits of various segments of the society. . In late 1999 Ford realized that customers’ queries should be resolved quickly to get closer to those who use the net and for this it established a new e-CRM company ‘Percepta’ a joint venture with TeleTech holdings. 3. In continuation with the e-CRM strategy, Ford in 2000 launched another e-commerce initiative to supplement CarPoint. com and Ford. com; it was called ‘Ford Internet Retail System’ (FIRST). FIRST was aimed at facilitating communication of leads and orders between the company and its dealer network.
This system gave customers capability and options for buying a car like never before, right from research to financing options. 4. Another e-commerce tool – MyFord. com launched in February 2002, offered personalized service information like the maintenance schedules to owners All the above initiatives helped Ford to gain competitive advantage and they achieved the vision of the Build-to-Order (BTO) system that was conceived before the launch of e-commerce initiatives. It was estimated that a Web-enabled, BTO system could reduce distribution costs by almost USD 2,600 per vehicle.
About USD 1,400 of these savings would be in physical costs such as freight, sales commissions, and advertising. The balance would be in “phantom” costs associated with the current “push” vehicle distribution/sales system, such as price discounts and stockout costs. Adding together all the supply-chain savings thus identified(back-end, on-line direct sales, and build-to-order) would produce an estimated total potential cost reduction of about USD 3,643 per vehicle, amounting to 14 percent of total vehicle cost. Source: GS Research Analysis) With the means of e-business websites, Ford established a direct connection with its customers. Now when customers came to FordDirect. com they had the ability of choosing the features of the car they wanted to buy.
This reduced the role of the middlemen and so dealers felt that they were being gradually excluded from the value chain. To avoid channel conflicts arising out of online retailing Ford began a number of initiatives. One of the main initiatives was to share the ownership of FordDirect. om with its 4200 dealers in the US. Ford also facilitated the communication of leads and orders between the company and its hugh dealer network through Ford Internet Retail System (FIRST). In addition to this, using MyFord. com the company enabled Ford dealers to inform vehicle owners about recommended maintenance, remind them of oil change and provide information about tyre care, safety, insurance, loans and leases. It also provided dealers a vehicle locator tool to help them find a vehicle on another dealer’s stock.