Ford Motor Company РRINСIРLЕS ОF LОGISTIСS АND SUРРLY СHАIN МАNАGЕMЕNT
The questions to be addressed in your discussion section are:
1. Describe the challenges of Ford Motor Company in the context of logistics and supply chain management,
2. Describe and discuss the roles of logistics management in supply chain and operations management in this case study context and in general practice,
3. Discuss the essential trade-offs in meeting organisational performance goals while minimising total costs in this case study context and in general practice,
4. Explain and discuss the role of logistics management and Penseke’s solution in adding value to operations management of Ford Motor Company.
Ford Motor Company
Six Sigma initiatives streamline operations
Ford Motor Company, one of the world’s largest automotive
manufacturers, has worked with Penske on several Six Sigma
initiatives. As its lead logistics provider (LLP), Penske’s quality
team of associates are trained in Six Sigma practices and work
closely with Ford to streamline operations and create and
maintain a more centralized logistics network. Together, they
uncovered several areas for real cost savings as a result of
reducing inbound carrier discrepancies, eliminating unnecessary
premium costs and reducing shipment overages. Plus, Penske
implemented accountability procedures and advanced logistics
management technologies to gain more visibility of its overall
• To develop, implement and operate a centralized logistics
network for Ford
• To streamline supplier and carrier operations for improved
performance and accountability
• To provide Ford with real-time supply chain and financial
• Penske established 10 Order Dispatch Centers (ODCs) and
consolidated shipments to plants. Approximately 1,200 trailers
now ship to and from Ford’s ODCs per day, with most trucks
at 95 percent capacity. Penske has reduced plant inventory by
• Penske trained more than 1,500 suppliers on a uniform set
of procedures and logistics technologies. Stringent carrier
requirements and a Carrier Rating System were implemented
to measure carrier performance.
• Penske implemented strict accountability procedures and
advanced logistics management technologies to gain
real-time visibility of delivery status, routing schedules and
productivity. A new freight billing system was designed to
immediately capture logistics costs.
Today, Ford owns and produces automobiles under several
major brands: Ford, Lincoln, Mercury, Mazda, Land Rover,
Aston Martin and Volvo. They maintain one of the automotive
industry’s most complex manufacturing, transportation and
Penske Logistics began its relationship with Ford as lead
logistics provider (LLP) for Ford’s assembly plant in Norfolk,
Va. At the time, each of Ford’s 20 North American assembly
plants managed its own logistics operations. A decentralized
approach provided total control of logistics at the plant level,
but presented costly redundancies in materials handling and
Ford conducted studies to determine the benefits of
transitioning the company’s decentralized logistic operations
to a centralized approach. The decision was quickly apparent
– centralization of the company’s logistics operations would
increase both velocity and visibility throughout the network, as
well as reduce supply chain costs.
Shortly thereafter, Ford selected Penske as its North American
LLP. Under the contract, Penske would centralize and manage
all inbound materials handling for 19 assembly plants and seven
Consolidating Logistics Operations
Penske immediately developed an aggressive logistics
transition program with Ford. Penske would provide Ford with
a single point of contact for all logistics operations. By working
with individual plants and corporate management, Penske
established a baseline of current operations and outlined the
proposed solutions. The new logistics program would establish
a Penske Logistics Center that included the following core
Network Design Optimization – implement a more efficient
inbound materials strategy through order dispatching centers (ODC)
Carrier and Premium Freight Management – manage all carriers
and logistics companies, while reducing premium freight costs
Information Technology System Integration-achieve real-time visibility of supply chain shipments, schedules and orders
Finance Management – improve freight bill payment, claim
processing and resolution throughout the supply chain
Upon development of this new plan, the Penske/Ford team
began evaluating Ford’s existing network design. Under the
plant-centric approach, suppliers would make multiple deliveries
of the same parts to different plants. A supplier would pick up
a small load, deliver it to one plant, pick-up another small load
of the same parts and deliver it to another plant. Carriers with
half-empty trucks would often cross routes with each other en route
to the same plant. Aside from being highly inefficient, this design
allowed for excessive inventory and storage costs at the plant level.
To centralize transportation and distribution operations, Penske
implemented a new network design consisting of 10 new ODCs.
The ODCs would be a central delivery point for suppliers.
Different supplier shipments going to the same plant would
now be cross-docked into trailers at the ODC. Loads would be
consolidated and delivered on a scheduled basis to reduce the
amount of milk runs, less than truckload shipments (LTL) and
premium freight charges. To meet Penske’s new transportation
and distribution standards, more than 1,500 suppliers were
trained on new uniform procedures.
For carrier and premium freight management, Penske’s goal was
simply stated: maximize carrier service, minimize carrier costs.
Penske refined Ford’s carrier bidding process by placing more
stringent requirements on carrier partners. Carriers were now
required to meet specific safety, equipment and technological
specifications; provide experienced and certified drivers; and
show proven experience of on-time delivery/pickups.
Penske’s new procedures required carriers to meet established
route pick up and delivery windows within 15 minutes of the
scheduled time. Additionally, carriers would supervise loading
and unloading operations to verify order accuracy, adequate
packaging and labeling, and freight damage.
With new stringent carrier requirements in place, Penske closed
the accountability loop by implementing a Carrier Rating
System. All incidents would be recorded and reported. Carriers
would issue corrective action reports for actions that negatively
impacted Ford’s operations. If a carrier accumulated an excessive
amount of incidents on their “scorecard,” Penske would issue
a low carrier rating, thus jeopardizing the carrier’s ability to
participate in future bids.
Penske also implemented several information technology
solutions throughout the logistics network, including its
proprietary Logistics Management System and RouteAssist, an
advanced routing tool. Other programs included a Web-based
metric reporting system and order tracking software. Drivers
were provided with PDA scanners and an electronic driver log.
Carriers were now required to have satellite communications
and engine monitoring systems on all trucks for load tracking.
ODCs were provided with integrated RF cross-dock scanners that
tracked the delivery of individual parts.
Prior to implementing a centralized approach, Ford was unable
to gain a clear view of the financial status of logistics operations.
With approximately 1,500 suppliers handling more than
20,000 shipments per week, freight billing was complicated.
As part of its carrier management system, Penske would now
provide drivers with a single set of paperwork procedures to
ensure delivery documentation was collected and submitted to
accounting. Penske developed a new freight billing system that
would capture freight costs and allocate those costs by plant. As
a result, Ford could see which plants had the highest and lowest
freight costs and which carriers were most cost effective.
Penske and Ford: Entering a New Century of
In approximately 18 months, Penske had completely transitioned
Ford’s logistics operations to a centralized network design. More
than 700 inbound and 500 outbound trailers now move to and
from Ford’s ODCs per day, with most loads carrying at 95 percent
capacity. Shipments are consolidated at the ODC, and previously
unused cross-docking space is now in high demand. Fourteen
million pounds of freight are cross-docked each day, resulting in
an inventory reduction of 15 percent.
Suppliers and carriers currently operate under a single set of
transportation and distribution procedures, enabling better
service throughout the supply chain. The level of accountability
established with Penske’s Carrier Rating System has enabled
Ford to rid its distribution network of costly, ineffective carriers.
With uniform technologies, ODCs are able to monitor shipments,
identify inefficiencies and address materials handling issues in a
real-time environment. Furthermore, logistics costs now enter the
supply chain immediately. This allows Ford to see overall supply
chain costs and per plant allocations at any given point in time.
Penske met its logistics program objectives six months ahead of
schedule – a testament to the joint team approach established
between Penske and Ford. More importantly, as Ford continues
to evolve, the Penske Logistics Center provides Ford with a
single point of contact for all logistics operations.
“Having a single point of contact delivers more
than cost benefits. Penske allows us to clearly
understand how our logistics operations impact
the entire company. From the assembly line to
the end-consumer, the efficiencies provided
by Penske are realized at virtually every level
Grant Belanger, Director of Material Planning and Logistics,
Ford Motor Company
Penske continues to deliver significant cost savings to Ford
by continuous process improvement. And, to keep pace with
assembly plant requirements, Penske closed six of its ODCs due
to a change in shipping frequency strategy. With four ODCs
operating at full capacity, Penske once again streamlined its
logistics strategy to reduce costs for Ford. Ford has honored
Penske with several awards, including the Q1award, its highest
recognition of superior supplier quality. Today, with a century
of automotive achievement behind them, Ford and Penske
continue to redefine the highest standards for logistics and