Supply Chain Monitoring Ford Parts Supply & Logistics Case Study

1. Supply Chain Monitoring Ford Parts Supply & Logistics Case Study Roger Merkle Former Manager, North American Inventory Planning Department STANFORD UNIVERSITY

2. Ford Parts Supply & Logistics (PS&L)Business Overview REDISTRIB.CENTER REGIONALDISTRIBUTION SUPPLIERS PACKAGERS DEALERS • PS&L operates a network consisting of: • 198K unique part numbers, over 1M SKUs (part/location) • Wide mix of velocity, size, and value • Vehicle base - 50 million vehicles on the road, 35 model years • Logistics network - 2,000 suppliers and 5,900 authorized dealerships • 18 HVCs, 3 HCCs, 1 LV/LC, 1 PRC, and 1 NPD • Service Parts - US, Canada, Mexico and direct global export • Complex logistics hubs, many containers, railcars, suppliers, packagers, sources/destinations, and paths • High degree of magnitude and complexity

3. Ford PS&L … Gearing Up for Change • Acquired and centralizedrelevant data sources • New systems for forecasting, inventory planning, DRP, electronic supplier communication and management • Implemented SupplierPerformance Monitoring • Reduced inventory bytwo thirds • Record customer servicelevels • Record turn rates

4. Ford - Lack of Integrated Data CUSTOMERFULFILLMENTVoice of the customer High Service Levels Managed inventories Managed safety stock Managed Costsexpediting, overtime CUSTOMERFULFILLMENTVoice of the customer (High inventories) (High safety stock) (High Costs)expediting, overtime DISTRIBUTION (Process-focused) Stable Fixed Costs Low inventory Stable Part Mix Stable Schedules Low Transportation Cost DISTRIBUTION High customerservice Stable Fixed Costs Low inventory Stable Part Mix Stable Schedules Low Transportation Cost PURCHASING Low purchase price (High Inventory) (Stable schedules) (Long lead times) PURCHASING Low purchase price Low Inventory Flexible schedules Short lead times SUPPLY Reliable Suppliers Low inventories Short lead times FlexibleTransportation SUPPLY Reliable Suppliers (High inventories) (Long lead times) FlexibleTransportation SELL Returns DELIVER SOURCE (MAKE) RETURN

5. Ford’s Business Challenges Analytical Data updated weekly, at best High levels of processing time variability + Forecast error over supply chain process = High safety stock levels Different cultures, processes and practices at each node Material expedited by teams of people at headquarters Highly Reactive - focus on backorders and blame assessment Increasing complex supply chain including external partners and sources as well as non traditional channels Metrics not aligned - Data not common Little ability to prioritize which actions are critical to the business requirements * Voluminous reports - both paper and electronic * Labor-intensive to collect Forecast accuracy and safety stock management

6. Culture Change Enable lean performance of existing systems No disruption to existing operations Prediction Support intelligent, proactive analysis vs. reactive Predict impact of current plan within lead time for resolution Prioritization Drive data to lowest actionable level in organization Identify high-impact opportunities Combine forecasted and actual demand levels Manage material velocity based upon any desired variable of prioritization Manage escalation Model-based analytics Adapt to any supply chain, any level of data availability Calculate metrics across “white spaces” where data availability is poor Combine varying sources of data Closed-loop issue management Support analysis of current operating business systems Manage variability in real time w/ feedback to analysts / source systems Manage approval process for recommended changes Comprehensive visibility Identify segments and processes with biggest problems Locate specific material throughout the supply chain Assess historical performance Support segmentation Ford’s Requirements

7. Build vs. Buy Decision • Why not custom? • Integrated solution (data acquisition, data model, analysis, prediction, ad-hoc OLAP capability, security, alerting, administration) • Investment in complex algorithm development • Speed of implementation (rapid ROI) • Proven business value • Teradata Supply Chain Intelligence (SCI) provides Standard KPIs, Reports & Alerts • SCI Based on Industry Standards & Best Practices • Technology Benefits • Scalable database architecture • Operational use of analytics • Expandable and configurable data model and analytics • Reduced Support Costs • Multiple database repository support • Developed Exception Management System(alerting, escalation, message broadcasting) Ford purchased Supply Chain Intelligence (SCI) from Teradata, a division of NCR

8. SCI Creates Actionable Information • Process the analytic results into actionable information in the format and level appropriate for the operation • Provide analytic results for 4 distinct audiences: • Management - personalized for responsibility • Performance metrics and trends for product, processes (including alerts themselves) and lines of business. • Analysts • Performance metrics identifying exceptions and outliers. • Predictive performance and opportunities based upon statistics. • Specific reports that address points of interest • Recalls, missing, new product, new processes, new facilities etc. • Operations • Reactive alerts (standards) – events that exceed standard • Proactive alerts (critical) – product to be re-prioritized to prevent an issue • Partners • Late shipment reports, trend analyses

9. Solution Example Ford’s Three-Pronged Solution

10. SCI Modeling & Segmentation • Supply Chain Modeling • Utilize daily product position and business requirements snapshot • Re-calculate projected quantities and time via models. Projected customer service levels via variability analysis • Comparison to expected aggregated Demand by family, SKU, path • Detailed analysis of segment or aggregate performance by time, yield, capacity, constraints, ……. • Model management at segment levels include: • Segment lead time • Yield • Split/merge/path selection • Long term highly accurate forecasts not required • Track and tune standards over time FORD SUPPLY CHAIN EXAMPLE: PS&L Operation Demand SUPPLIERS CUSTOMERS REDISTRIB.CENTER(Count: 1) REGIONALDISTRIBUTION(Count: 10) SUPPLIERS(Count: 2,000) PACKAGERS(Count: 7) DEALERS(Count: 5,900) REDISTRIBUTIONCENTER REGIONALDISTRIBUTION Segment Allocation Ship to In-Yard In-Yard toReceipt Receipt toStock-Keep INTERVALS

11. Critical Alerts – In Yard

12. Critical Alerts – In Yard

13. Over Standard Alerts

14. Inventory Visibility

15. SCI – From Two To Eight Opportunities To Avoid Back Orders Change Ship Date SUPPLIERS Change Ship Date None PACKAGERS 1. Receive 2.Process 1.Normal/ Critical REDISTRIB.CENTER 1.Receive 2.Stockkeep 3.Normal/ Critical None REGIONALDISTRIBUTION 1.Receive 2.Stockkeep DEALERS

16. Standards Management The actual cycle time for this O/D pair averages over 6 days, so the assumptions for segment cycle time are not modeled properly. Parameter Management scores actual cycle time vs. the current model parameter to detect segments with a poor fit. For the shipments through this segment, the average cycle time is compared to the standard.

17. The current model does take average segment variability into account. Nowactual variability can be incorporated into the model to drive accurate safety stock Drilling into the detailed data for each segment supports outlier identification and users can evaluate how well the model fits each segment within the supply chain. New model parameter evaluated for fit with actual shipment transaction cycle times

18. Histogram shows the distribution of shipment cycle times as a percentage of the total shipments All detailed data supporting the evaluation is available in the drill.

19. Ford: Growth in User Base

20. Ford – ROI Benefits: • Reduced Inventories • Improved Customer Service levels • Less overtime, expediting, and special handling • Higher margins • No new data sources required • The SCI Solution gives Ford the ability to predict and prevent potential back orders - not just react • Powerful Analysis of “Every SKU, Every Day” on hundreds of millions of dollars of inventory • Daily metrics and historical trending that allow reality-based planning to be linked with execution management • All members of the network now perform as a synchronized team! Results: • 10% One-Time and Recurring Reductions in Inventory • 20% Back Order Reduction • 25-30% Reduced “referrals” • 30% Cycle Time Reduction Savings in first 6 months alone was five times the cost of the system.

21. Thank You for your Attention Email: ramerkle@comcast.net