Ford Motor Co. is not one of SAP’s signature customers—like a Colgate-Palmolive or Valero, which run most everything SAP sells. Most of Ford’s core business applications are, in fact, proudly developed in-house.
One of the global automaker’s most important suite of systems has always been the one that supports service parts management (SPM): a trusty home-grown set of systems that enables the flow of auto parts throughout Ford’s vast supply chain—from the thousands of Ford’s suppliers to its network of dealers and customer-service providers.
By 2001, though, Ford supply chain execs knew the aging systems, which contained some 40 applications in the United States alone (and another 130-plus in Europe), would soon need a refresh. Since various regions across the globe maintained their own SPM systems, Ford supply chain leaders wanted to standardize on common software, beginning with U.S. and European operations. The goal: to gain real-time visibility into its service parts business; improve parts planning, inventory and forecasting; and get parts to their dealers faster.
The scale of Ford’s service parts business is immense: In the U.S. today, Ford works with 1,500 suppliers, which have 230,000 part numbers and 1.5 million SKUs that need to move from Ford’s 26 depots to the 3,800 dealerships that service its vehicles. In Europe, another 1,500 suppliers have 250,000 part numbers that need to get from seven depots to the 2,500 dealerships.
Ford execs knew they didn’t have one in-house solution that would work globally, so they sought to buy something new. “We quickly found that there wasn’t such a solution that existed,” recalls Carrie Thompson, program manager for the SAP service parts management implementation.
Ford’s penchant for building applications led it to a unique co-development alliance with SAP and the logistics arm of heavy-equipment manufacturer Caterpillar. (Ford and Caterpillar had an existing business relationship, Thompson says, and both were looking for an SPM provider and had been running into similar challenges.)
The three companies announced in 2002 their plans (with the eventual SI assistance of Deloitte and Westernacher) to co-develop a next-gen SPM offering for parts planning and procurement, and extended warehouse management. Notes the announcement: “System capability also includes complete visibility to all points in the supply chain, from point of demand to the source of supply.”
The intertwined operations, global logistics, forecasting demands, warehousing needs, supplier connections and IT requirements of the $120 billion automaker’s service parts supply chain can be hard to wrap your head around, much less bring together on two continents with new processes and software—which was the aim of the SPM overhaul.
Nearly four years after the announcement, in 2006, the trio had finished development of the SAP Service Parts Planning for Automotive package. Thompson says the development project had a higher objective that influenced the work. “We didn’t want to just create an IT solution that fit all our different business processes,” she says. “We were trying to design a product that would be usable industry wide.”
Now that the software was built and tested, Ford faced its next challenge: Making it work for both U.S. and European operations, which had entrenched processes and, in some cases, very different ways of doing business.
Sacrifices for Standardization
Seemingly as old as the “buy versus build” software debate is this: The merits of adapting a business’s processes to that of the software, or customizing the software to fit the business’s existing processes.
Ford faced this at several times during what Thompson calls the “Global Template” piece of the overall project. In working with SAP, which built its name on best-run processes, Ford was forced to take a hard look at some of its internal assumptions on processes, she says: “If the rest of the industry doesn’t need it, then why do we?” On the other hand, SAP received an eye-opening look into Ford’s world. “We have a lot of complexity and worked with supply chain volumes that SAP hadn’t seen yet, and we already had some proven best-in-class processes,” Thompson says.
Then there was the global push for common processes. Groups from the U.S. and Europe (where the SPM tool would first be rolled out) gathered in Germany every other month during the throes of the development project to identify which processes to standardize on, and which to ditch.
“We had a lot of emotional discussions,” Thompson says. “There were 19 different countries in Europe, plus the United States, that had to be represented, and we sometimes found that there were 20 different ways of doing things.”
The regional Ford teams couldn’t forget that the overarching mission of the SPM project was as much global standardization as possible. “We wanted to be at least 80 percent common at the process level,” Thompson adds, “and there were sacrifices to be made.” The only differences in business processes that would be allowed were those for legal or financial-reporting reasons.
The business process changes would have significant effects on Ford’s physical world: for example, the consolidation of regional warehouses and parts depots Ford had long maintained. During the mid-2000s, Ford had overhauled its U.S. parts operations. It revamped its eight large service-parts depots into 26 smaller warehouses that offered faster supply to Ford’s dealers. Ford’s European network, however, has not gone through that same optimization, or “harmonization,” as Thompson terms it.
That U.S. redesign made some of the process adoption easier since the U.S. depots were all the same. In order to implement the new process in a European depot, allowances had to be made for the unique legacy world that we were moving from. In turn, she says, both regions challenged the other in an effort to drive to the best overall process.
Ford didn’t go whole hog with SAP, which is unlike most enterprise-class customers that purchase SAP. “A lot of companies put SAP in, and it becomes center of their universe,” Thompson says. “For us, it’s just a small but important piece of the corporate world. We’re still tying back to a lot of legacy systems.”
What Are the Benefits?
At this point it’s relevant to note that the several-hundred million-dollar, multiphase project, which first kicked off in 2001, is still ongoing in 2011 and will continue into 2015. There are three modules under the SPM umbrella: service parts planning and procurement, extended warehouse management, and a related CRM system. When fully completed, the project will have retired more than 40 legacy applications in the United States and more than 130 legacy systems in Europe, which illustrates both the complexity of the task and why it’s taken so long.
The service parts planning (SPP) implementation began in 2007 in Europe. That module has been live since mid-2009. The new extended warehouse management module is also deployed in one European depot, with another to follow in the fourth quarter of 2011. “We are launching service parts planning and a warehouse in the United States,” Thompson says in early 2011. The final module required to complete the SPM suite is CRM, and that project will begin in fourth quarter 2011 with an initial implementation in Europe in 2013.
Thompson notes several benefits that Ford’s European operations have realized so far. Those include: a 20 percent improvement in forecasting accuracy of parts and a related 15 percent reduction in inventory levels; an increase in the timeliness of parts delivery to dealers; and a 10 percent reduction in both obsolescence and referral costs.
In addition, Ford’s achieved greater visibility into the collaboration processes with suppliers that allow Ford to “respond more quickly to changes,” Thompson says. For example, online collaboration between the merchandiser and the supplier enables real-time visibility into fluctuations in demand and other metrics. Now, when Ford needs to make a change to a release to a supplier, the supplier can see the change and associated impact earlier than they could have with Ford’s previous system, and vice versa, Thompson notes.
Ford, like its fellow U.S. auto manufacturers, weathered a terrible economic climate in 2008 and into 2009. But, Thompson says, Ford executives’ commitment to the project didn’t waver. “We [Parts Supply and Logistics] are very small [compared to the rest of the company], but we have a big influence on Ford’s bottom line,” she says. “We’ve got great visibility with the senior management, and this [project] is seen as the future of Ford’s parts supply chain and logistics.”
How to Not Curb the Enthusiasm
Thompson and her peer project leaders have also spent time ensuring that enthusiasm and interest among Ford’s employees for the 10-plus year project remains high. “It’s been one of our worries,” she says.
Project leaders try to attract the “best and brightest” by highlighting the career development opportunities that it offers—for instance, the opportunity to grow both IT and business skills. What better place to be, Thompson says, than on the ground floor of the future global solution when you are trying to develop and position yourself as a future leader within the company? “The individuals engaged in this project will be the experts on the new system that will be running our business,” she says. “They will be seen as the teachers and innovators as we use the new tools to continuously improve our business.”
In addition, while it’s always important to keep the team’s focus on the overarching mission of a five-year implementation, it’s equally important to give them short-term, reachable goals, “to chunk it up,” Thompson says. “You need to give them something to drive for, something that’s right in front of them, versus saying: ‘Three years from now, we’re going to go live with this warehouse system.’”
Looking back on the overall project, Thompson is asked whether she, and Ford, would do it again the same way—co-developing the software with Caterpillar and SAP?
“Several times we have asked ourselves: Are we sure we can’t do this cheaper and faster in house?” Thompson recalls. “But we always came back to the same answer, which is to follow the path we are on today.”