Ford says the chip shortage has permanently changed its business model © Scott Olson/Getty Images
Ford says the chip shortage has permanently changed its business model © Scott Olson/Getty Images

Ford shakes up supply chain to modernise sales

18 August 2021

Carmaker Ford has shaken up its supply chain to enable a build-to-order sales model.

The company said it was “modernising its go-to-market strategy” with a greater emphasis on build-to-order sales, with customers configuring and buying vehicles online. It said constraints on the supply of semiconductors had led to permanent changes to its business model.

Ford president and CEO Jim Farley said the move would give the company better visibility of demand, lower inventories and reduce costs.

Speaking during the company’s second quarter earnings call, Farley said the company had made significant changes to its supply chain. This included no longer relying heavily on a tiered procurement structure, to improve transparency, and engaging directly with manufacturers of semiconductors and other critical electronic components.

“With closer relationships and more transparent exchange of information such as technology road maps, we can integrate their know-how into our designs to better align supply and demand,” Farley said.

The company was also making longer-term forecasts and mitigating risk by stockpiling critical parts, dual sourcing and ensuring design interchangeability in the case of single sources.

“These changes are all being applied to new technologies as well, including batteries, which are rapidly becoming a larger portion of our bill of material at Ford,” Farley said.

A pending joint venture with SK Innovation would help secure supplies of electric vehicle (EV) batteries at competitive cost and performance levels as Ford looks to boost EV production and sales.

“We’re placing a greater emphasis on build-to-order sales bank, not just low stocks,” Farley said. “We have learned that, yes, operating with fewer vehicles on lots is not only possible but it’s better for customers, dealers and Ford.

“This allows us to lower inventories, simplify our incentives and reduce our order complexity and the industrial systems cost.”

Ford said the company was seeing improvement in the supply of semiconductor chips in the third quarter but the situation remained “fluid”.

“Overall, after effectively managing through the first half, we are now spring-loaded for growth in the second half and beyond because of those red-hot products, pent-up demand and improving chip supply,” said Farley.

Ford reported second quarter revenue of $26.8bn and earnings before tax of $1.1bn. It also raised its anticipated full-year 2021 earnings to between $9bn and $10bn.

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