1.

BACKGROUND INFORMATION
2. SUMMARY OF KEY FACTS
3. STRATEGIC ISSUES & PROBLEM STATEMENT AND
CAUSES OF THE PROBLEM
The major problems/issues faced by Ford are as follows:
I.

Excess capacity problem: Excess capacity is one of the critical structural

problems that the World Automobile Industry is facing. Since the 1980s, the
growth of production capacity had surpassed the growth in the demand for
cars. It was observed that in North America, Europe, and China, the demand
grew by almost 50% annually between 2002 and 2011 but the growth of
capacity surpassed growth of demand (Ford and the World Automobile
Industry in 2012, 8th Edition Cases).
Actual production of automobiles is significantly lower than what the

II.

firm is capable of producing.

Dramatic fall in production capacity utilization.
Reducing excess capacity limitations: Considering the current problems with
the excess capacity, the American, European as well as Chinese companies
should cut capacity and boost productivity. On account of tough labor laws
and government stakes in some firms it has become a challenge (Ford and
the World Automobile Industry in 2012, 8th Edition Cases).
Resistance of National governments
Continual investment in New Plant

5. STRATEGIC ANALYSIS USING PORTERS 5 FORCES

MODEL
Based on Porters 5 forces model, the automotive industry has been analyzed
through Michael Porters Five Forces Analysis model. There five different areas that
influence an industry: (1) threat of substitutes; (2) barriers to entry, (3) supplier
power, (4) buyer power; and (5) degree of rivalry
Threat of Substitute Products
In the automotive market we can see a lot of substitute products and when the
price of one vehicle increases then the demand for a substitute will also increase.
Considering the example when the price of gas increases people have a tendency to
to buy cars which have a reduced amount of gas consumption or even they change
their transportation habits.

The most common forms of substitutes are planes,

trains, buses, walking, or riding bike.

Barriers to Entry
In the automotive industry the threat of new entrants is fairly mild. Since the
industry is very mature so it has reached economies of scale. It is very essential for
a manufacturer in automobile industry to achieve economies of scale. For this to
happen the manufacturers need to produce the automobiles that are affordable to
the consumer. Moreover the capital requirement to manufacture the automobiles as
well as for research and development activities for the innovative products is very
high. Considering the distribution channels as well as government backing, it is
clear that there is high barrier of entry to the auto industry (Ford and the World
Automobile Industry in 2012, 8th Edition Cases).
Supplier Power

Considering the kind of relationship between the automotive industry and its
suppliers, the power is preferred for the automobile industry. The industry comprises
of powerful buyers who are able to direct their terms and conditions to their
suppliers. Since the industry is facing a strong restructuring process accompanied
with ongoing out-sourcing process of car manufacturer there seems to impose new
challenges for the supplier. Since the industry is very dynamic the future suppliers
need to understand the buyers needs (Ford and the World Automobile Industry in
2012, 8th Edition Cases).
Buyer Power
Considering the automobile industry we see that the bargaining power of the buyers
is moderately high. The buyers are the end consumers of the industries output. In
the auto industry it has been observed that there are two significant buyers. Firstly
private consumers, who buy cars for themselves and secondly rental companies,
who offer cars for leasing are the major buyers. Buyers are well aware as they surf
the internet and they are able to find the best car for them. Presently we see that
the car buyers have negotiating power. Since the buyers are aware of the fact that
they know how much automakers want to keep sales up in tough times so that the
buyers can negotiate the term of monthly payment as well as they can buy last
years model with a depreciated price (Ford and the World Automobile Industry in
2012, 8th Edition Cases)
Degree of Rivalry
Since the cost of competition is high in the highly competitive industries so the
expected returns are low. The auto industry is oligopolistic in nature and thereby it
aids to curtail the effects of price-based competition. The automakers are aware

that price-based competition does not essentially lead to increase in the size of the
marketplace. In the past automakers have tried to avoid price-based competition,
but recently the competition has been intensified with different mechanism like
rebates, preferred financing and long-term warranties in order to lure the
customers. Apart from the Big 3 (GM, Ford, and Daimler Chrysler) companies there
are lot of global companies such as Toyota and Nissan who have started their
operations in U.S. The companies are trying to globalize themselves and create their
own niche in other countries (Ford and the World Automobile Industry in 2012, 8th
Edition Cases).

6. STATEMENT OF CONCLUSION
In the economically challenging times it is very much essential for the industry to
cater to highly price sensitive and demanding customers since the industry is
suffering from excess capacity. Moreover huge investments have been made in
manufacturing

and

assembly

line

inventories. Due

to

excess

capacity

it

recommended to benefit from lean optimization in the supply chain.

A. Automotive Value Chain with horizontal coverage
It is very much essential to have an Automotive Value Chain so as to optimize the
operational activities starting from the core processes to product lifecycle
management

(PLM),

manufacturing

execution

systems

(MES),

supply

chain

management (SCM).There is a strong need for the industry to be agile and that is
achievable by aligning their business operations with the existing market needs. In
order to achieve this there has to be an inclusive value chain strategy and it should
be based on customer pull strategy (Automotive Value Chain, 2014).

B. Shop Floor to Top Floor Integration

There is a need for a Global manufacturing strategy and it can be achieved with the
integration of Operational Processes with the Enterprise Resource Planning .In the
present day it is very much essential to have real time information for management
decision making. It can be achieved by integrating the supply chain along with the
manufacturing Key Performance Indicators (Automotive Value Chain, 2014).
The three main recommendations have been listed down so as to resolve the
problem of over-capacity in the Automobile Industry:
Enable demand-driven production
Understand real demand and provide the appropriate service
Information visibility & integration

7. DETAILED RECOMMENDATIONS AND JUSTIFICATION

The following recommendations have been listed down with the implementation
process:
1. Enable demand-driven production: There has to be tactical decision making
starting from the operational order scheduling, daily scheduling processes to order
booking so as to minimize the order-to delivery times and thereby reducing the
inventory level.
2. Understand real demand and provide the appropriate service: The real
challenge lies in understanding the current demand structures as well as to
understand and manage customer expectations. Product differentiation in order
treatment is highly essential even if heavily resisted by the manufacturers.
3. Information visibility & integration: Build-to-order is only possible when
there exists vertical integration of both suppliers and logistics providers. In both the

cases the appropriate demand visibility is crucial, hence an online access to the
demand order pool would be the logical thing to do.