Ford’s supply chain issues made the automaker halt production because of a shortage of chips needed for the production of its vehicle. This supply chain problem was widespread and many automobile manufacturers were affected as well. Only a few vehicle manufacturers like Tesla which is vertically integrated, were able to resolve the problem quickly with minimal effect on its supply chain.
Ford’s Supply Chain Issues
- Shortage of components
- Quality Issues
- Suppliers issues
- Stiff Competition
- Issues with Customers’ Receptiveness to Electric Vehicles
Ford’s Supply Chain Issues Relating to Shortages of Components
- Chip shortage
- Shortages with the oval badges for vehicles
The car chip shortage is a major contributor to Ford’s supply chain issues. It is so significant that it halted the production of Ford vehicles. Starting in 2020. The microchip shortage caused a global supply chain crisis in the automobile, computer, and game industries.
The chip issues in Ford’s supply chain began in March 2020 following the COVID-19 pandemic. Due to the restrictions of movements and lockdown of the economy and factories, automotive manufacturers forecasted fewer sales and therefore canceled microchip orders.
The pandemic worsened Ford’s supply chain issue because of global shipping delays caused by the restrictions on movement as well.
However, after the restrictions were lifted, the demand for cars increased but the few factories that produce these semiconductors for Ford and other automakers could not meet demand which led to the scarcity of the microchips.
Also, modern cars, home electronics, computers, and game manufacturers rely heavily on these microchips for improved safety and performance, and many technologies added to these items. As a result of increased usage leading to high demand for them, the chips became scarce.
The chip shortage disrupted Ford’s supply chain and affected the company’s revenue, decreasing its revenue in October 2022 by more than 10%.
Ford Production Problems due to shortage of Oval Badges
Another Ford supply chain issue causing production problems is the shortage of vehicle badges for the F-Series pickup trucks. The shortage of these blue oval badges halted the sale of more than 40,000 trucks as of September 2022.
This Ford supply chain problem was caused by the supplier, Tribar, halting production. Tribar Technologies is a Michigan-based company that has historically produced these badges for Ford vehicles; however, Tribar had to limit its operations in August 2022 after disclosing chemical discharges into a local sewer system—although there was no official confirmation if the incident was directly caused by the badge shortage at Ford plants.
Many issues in the Ford supply chain arose as a result of quality issues that led to many vehicles being recalled.
For example, Ford is currently recalling 169,277 vehicles produced between 2018 and 2023 due to a rear-view camera issue.
The recall includes:
- The 2020-2023 Aviator,
- The 2018-2021 Navigator
- The 2022-2023 Transit
- The 2021 Bronco
These forms of quality issues can impact customer trust especially when it becomes frequent. However, in order to mitigate risks and gain the trust of customers, most manufacturers recall the products to fix them, and customers who have paid to fix the issues themselves are offered reimbursements.
To resolve this Ford supply chain issue, the company will begin notifying owners of affected vehicles by mail on October 2, 2023. When the affected components are available, the affected owners will be asked to bring their vehicles to authorized dealers to replace the cameras. For those who have already paid to fix the problem, Ford offers reimbursement until June 30, 2024.
There are several other quality issues that have affected the Ford supply chain, some of which include the 125,000 SUVs and trucks recalled this year (June 2023) because of engine failures that may cause a fire. This quality issue is severe enough to cause the engine to fail prematurely which in turn may cause the engine oil or fuel vapor to be released, thereby increasing the risk of fire and injury.
Other Ford supply chain issues are supplier-related. Anything that affects the major Ford suppliers can affect the company as well. For example, in October 2020, there was a fire incident in the Asahi Kasei semiconductor plant in Japan and this affected the supply of Analog-to-Digital Converter (ADC) and Digital-to-Analog Converter (DAC) components.
Other supplier-related issues affecting Ford’s supply chain are unforeseen natural occurrences. For example, in March 2021, a major Japanese supplier, Renesas Electronics, had a fire incident that affected production for over 3 months. This factory supplies about 30% of the global chips used in the manufacture of cars.
Also, in January 2022, a fire incident affected the Berlin plant of the ASML factory, halting the manufacture of photolithography machines that are used to produce microchips.
In June 2022, CFO John Lawler gave reasons for the cause of the rise in Electric Vehicle prices. His reasons were the corresponding rise in commodity costs that wiped out the profit that Ford initially expected to make on its electric Mustang Mach-E. While the vehicle was profitable when it was first launched in late 2020, the CFO said that it is no longer the case, and had no choice but to increase the price for buyers as well.
The increase in prices of electric vehicles affecting the supply chain of Ford is felt by many other competitors as well. For example, General Motors hiked the price of its electric Hummer by $6,250 in 2022. Other electric vehicle manufacturers such as Tesla, Rivian, and Lucid had previously announced significant increases in the starting costs of their Electric Vehicles as well.
The price increase was caused by an increase from the suppliers of some parts/components, technology, and also on logistics.
For example, in March 2020, the average price of raw materials needed for the production of an electric vehicle totaled $3,381 per vehicle. But this increased to $8,255 per vehicle as of May 2022 because of the increase the raw materials such as cobalt, nickel, and lithium; which are essential for the production of batteries used to power electric cars.
One of Ford’s supply chain issues especially in the electric vehicle niche is competition from Tesla which has vertically integrated almost all of its production process.
Ford relies on many suppliers to get the components needed for the production of its vehicles. As a result, many supply chain issues may arise such as:
- Delays from suppliers,
- Defects and quality issues (as discussed above),
- Inflationary pressures, arising from suppliers increasing their prices, which in turn will drive the prices of vehicles up.
On the other hand, Tesla over the years has successfully built gigafactories capable of producing most of the parts needed for its electric vehicles. This gives Tesla a competitive advantage over Ford and because of this, Tesla’s electric vehicles are generally cheaper compared to similar models of Ford.
To resolve this Ford supply chain issue, the company has tried, several times, to reduce the price of some of its electric vehicles; for example, it slashed the price of the electric Mustang Mach-E SUV by up to $4,000.
This shows in order to get ahead of the competitors, and also increase its market share in the electric vehicle niche, Ford must be vertically integrated as much as Tesla and other competitors and it must be more efficient.
Issues with Customers’ Receptiveness to Electric Vehicles
Other Ford supply chain issues include the receptiveness of customers to electric vehicles (EVs). Ford has ventured into the electric vehicle niche but is currently facing issues that are not restricted to Ford alone but to any other EV manufacturer.
Ford Motor has delayed its electric vehicle production schedule and expressed caution regarding customer demand in the short term, stating that it may be “slightly slower than originally anticipated.” This cautious approach highlights the significance of this major undertaking in the automotive industry.
During discussions of the company’s latest earnings report, the CEO, Jim Farley announced that they now anticipate achieving a production rate of 600,000 electric vehicles annually at some point in 2024. This marks a shift from their previous projection of reaching this milestone by the end of 2023.
Despite electric vehicles accounting for 7 to 8 percent of new vehicle sales per month in the United States, Farley pointed out that more than 30% of consumers express an intention to purchase one. Nevertheless, he acknowledged that pricing remains a significant barrier for some potential buyers.
According to Farley, “There is a substantial customer base, but the issue lies in the price they are willing to pay, which has experienced fluctuations and inconsistencies across different market segments.”
Ford Supply Chain Management
Managing supply chain issues is crucial for any company, and Ford’s approach to addressing these challenges, as outlined below demonstrates its commitment to ensuring the quality and safety of its vehicles while maintaining customer trust.
Ford, in 2021 ensured that its suppliers adhere to its Supplier Code of Conduct. These rules make sure that suppliers follow important principles about human rights, the environment, and good business practices.
The company also wants to use raw materials that have been made responsibly; this can be seen in its biggest recycling program created in 2015 to handle the recycling of metal scraps and other components for environmental sustainability.
Other Ford’s supply chain management strategies include ensuring transparency, compliance, and improvement in subsequent models.
Transparency in Ford’s supply chain management
Ford’s commitment to transparency is a fundamental aspect of its supply chain management strategy. This is evident in the company reporting any quality issue even when it has not been reported by customers yet.
This means that any defects or potential safety concerns in their vehicles can be quickly identified and addressed. This transparency extends to both internal employees and external stakeholders, such as suppliers and customers.
Ford Motor adheres to regulatory requirements related to quality and safety standards. By doing so, they not only ensure compliance but also demonstrate their commitment to ethical and responsible supply chain management.
This compliance is demonstrated in Ford’s willingness to recall and fix issues affecting its vehicles. This sends a strong message to customers that their safety and satisfaction are paramount and so builds and maintains trust in the brand.
Addressing any of Ford’s supply chain issues promptly and at their own expense helps mitigate the risk of costly legal actions and damage to their reputation.
Improvement in Subsequent Models
Continuous improvement is a hallmark of effective supply chain management, and Ford has shown commitment to this.
When issues arise in one model, Ford takes the opportunity to learn from these mistakes. They use data and insights gained from recalls and customer feedback to make design and manufacturing improvements in subsequent models. This iterative process helps prevent similar issues from recurring.
Other management strategies employed by Ford to solve its supply chain issues include investing in innovation and R&D.
Ford invests in research and development to incorporate the latest technologies, materials, and manufacturing processes. This not only improves product quality but also helps it stay competitive in the automotive market.Last Updated on September 10, 2023 by Nansel Nanzip Bongdap