Supply Chain Monitoring Ford Parts Supply Logistics

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

Ford Parts Supply & Logistics (PS&L) Business Overview • PS&L operates a network consisting of: > > 198 K unique part numbers, over 1 M 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 SUPPLIERS PACKAGERS REDISTRIB. CENTER REGIONAL DISTRIBUTION DEALERS

Ford PS&L … Gearing Up for Change • Acquired and centralized relevant data sources • New systems forecasting, inventory planning, DRP, electronic supplier communication and management • Implemented Supplier Performance Monitoring • Reduced inventory by two thirds • Record customer service levels • Record turn rates

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

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 Highly Reactive focus on backorders and blame assessment Increasing complex supply chain including external partners and sources as well as non traditional channels * Voluminous reports - both paper and electronic * Labor-intensive to collect Different cultures, processes and practices at each node Material expedited by teams of people at headquarters Metrics not aligned - Data not common Little ability to prioritize which actions are critical to the business requirements Forecast accuracy and safety stock management

Ford’s Requirements • Culture Change • Model-based analytics • Closed-loop issue management • Comprehensive visibility • Support segmentation > 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 > 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 > Support analysis of current operating business systems > Manage variability in real time w/ feedback to analysts / source systems > Manage approval process for recommended changes > Identify segments and processes with biggest problems > Locate specific material throughout the supply chain > Assess historical performance

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

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

Solution Example Ford’s Three-Pronged Solution

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 FORD SUPPLY CHAIN EXAMPLE: PS&L Operation Demand SUPPLIERS (Count: 2, 000) CUSTOMERS PACKAGERS (Count: 7) REDISTRIB. CENTER (Count: 1) REGIONAL DISTRIBUTION (Count: 10) DEALERS (Count: 5, 900) • Detailed analysis of segment or aggregate performance by time, yield, capacity, constraints, ……. • Model management at segment levels include: o Segment lead time o Yield o Split/merge/path selection • Long term highly accurate forecasts not required • Track and tune standards over time REDISTRIBUTION CENTER Allocation Segment INTERVALS Ship to In-Yard REGIONAL DISTRIBUTION In-Yard to Receipt to Stock-Keep

Critical Alerts – In Yard

Critical Alerts – In Yard

Over Standard Alerts

Inventory Visibility

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

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

The current model does take average segment variability into account. Now actual 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

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.

Ford: Growth in User Base

Ford – ROI Benefits: n • 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 n n Improved Customer Service levels Less overtime, expediting, and special handling Higher margins No new data sources required Results: n n • All members of the network now perform as a synchronized team! Reduced Inventories n n 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.

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