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Ford CEO Jim Farley Says Build To Order Paradigm Is Company’s Future


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https://fordauthority.com/2021/07/ford-ceo-jim-farley-says-build-to-order-paradigm-is-companys-future/

 



“We are really committed to going to an order-based system and keeping inventories at 50 to 60 days’ supply,” Farley said during Ford’s Q2 2021 earnings call with investors. “I know we are wasting money on incentives.”

 

This should be interesting how this plays out...lots of people can't even figure out what they want for dinner the next day or plan for anything and I think some people might balk at having to wait for a vehicle to be delivered to them.

 

Personally I've ordered every single new car I've bought...so doesn't matter to me. 

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27 minutes ago, silvrsvt said:

This should be interesting how this plays out

 

It is great news for Ford, Ford dealers, and Ford customers. For too long, Ford has struggled with production and inventory planning, its dealers had floor plan expenses that could have been avoided, and customers often bought Ford vehicles for the "deal" rather than for the merits of the product. This led to a vicious cycle where the quantity of sales overrode the quality of sales.

 

With good online tools for configuring, ordering, and tracking new vehicles by customers and dealers, Farley's build to order paradigm should bring Ford into the "new world" of the automotive industry that Jim Hackett talked about a few years ago.

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21 minutes ago, fordmantpw said:

Now, if only they could deliver it to my door so I could skip the dealer.

 

While you won't be able to skip the dealer completely due to laws for new car sales in the U.S., many dealerships are doing home delivery for their customers nowadays. The Ford dealer I do business with, Autonation Ford Fort Worth, has this service. Store-to-Door Car Delivery | AutoNation

 

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BTO has a lot of advantages and is the way I'd preferred to buy. But can Ford and more so the dealers overcome decades of doing it the "old way" to make BTO work? Maybe, but the stories I'm hearing of Ford prioritizing more profitable orders and dealers faking customer orders to get vehicles for stock, I'm not so sure. Compare this to the great experience I had buying a BTO laptop from Apple, with regular updates and even switching the delivery point from my home in Minnesota to an Apple Store in Florida after my credit card company refused the charge and Apple built me another at the same Black Friday price! 

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9 minutes ago, GearheadGrrrl said:

BTO has a lot of advantages and is the way I'd preferred to buy. But can Ford and more so the dealers overcome decades of doing it the "old way" to make BTO work?

 

It can be done, but will require firm commitment from both Ford and its dealers. Both parties should recognize that the BTO approach is beneficial to them, and apply organizational change management to make it succeed. That also means no tolerance for shenanigans like faking customer orders or changing order prioritization at a whim.

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CEO Farley isn't the first CEO to talk about better inventory management and a shorter OTD (Order to Delivery) timeline. Years ago, there was a stated objective for a 15-day OTD but instead the OTD continued to get longer. The quickest I've ever seen was 3 weeks. The 1986 Thunderbird was in "Balance Out" scheduling and the regional office called us, being one of the top 10 Thunderbird dealerships, asking if we wanted 50 extra Thunderbirds. We agreed to take the extra 50 units, placed the orders within an hour or so, and sent the order information to the regional office. The orders were scheduled within 24 hours, in production within a week, and delivered within 3 weeks. The only other time I've seen anything similar was a vehicle that the regional office asked us to order for a friend of Mark Fields when he was the Ford CEO. That vehicle was scheduled an hour later and delivered to the dealership in 3-4 weeks. 

 

Ford's real customers are the dealerships which buy the inventory and allocation that the Ford Zone Managers sell and help keep the plant schedules busy and the product flowing. Ford gets paid for the vehicles (Stock, Retail or Fleet) when they're shipped or delivered to the dealerships and in the majority of cases dealerships then finance that inventory with a wholesale credit line through Ford Credit. 

 

Ford and much of the industry has worked with excessive inventory stock for years and it's become imbedded in the operational model in order to be competitive. As difficult as the market situation has been the past year due to the pandemic, microchip shortage and other factors, manufacturers have had to develop better inventory management procedures in order to maintain both sales and profit objectives. One of the major benefits has been the elimination of most incentives, greatly improving profits to both Ford and its Dealers. And in the process, Ford has started the COVP (Customer Order Verification Program) providing incentives to the customers placing factory orders along with expedited retail order scheduling using incremental allocation. 

 

What remains to be seen is how much Ford has learned and how much its committed to their inventory management plans going forward. It's not going to happen overnight and certainly not until production schedules are back to something even close to normal or at least predictable. There's a big risk taht dealerships are going to take every bit of allocation and production they can get to rebuild their stock inventory and end up back with the bloated inventory they've worked with, and accepted as normal, for decades. And should that happen, Ford and its competitors will be back in the incentives game again. 

 

Success hides a multitude of sins and both Ford and its Dealers are going to have to exercise a lot of discipline and commitment in order to make a new inventory management plan succeed. If they do, both Ford and its dealerships can substantially reduce expenses and dramatically improve profitability. The risk at the corporate level is that some Ford executive in Dearborn is going to make decisions making the process more involved and complicated than necessary making it so much more difficult to achieve the desired objective. At the same time, the problem exists with those weak and/or mismanaged dealerships that won't admit or realize the benefits of changing their inventory management at the dealership level. It actually takes more time and effort to manage reduced inventory as there's a smaller margin of error in stocking the right inventory mix to meet customer demand. 

 

The other major factor to be dealt with is improved supplier relations and delivery to reduce the commodity restraints impacting order scheduling and production. 

 

Al of these matters will take time to implement, along with the processes to make them work. And part of the process in achieving the objective has to a better working relationship with Dealers. 

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17 minutes ago, GearheadGrrrl said:

BTO has a lot of advantages and is the way I'd preferred to buy. But can Ford and more so the dealers overcome decades of doing it the "old way" to make BTO work? Maybe, but the stories I'm hearing of Ford prioritizing more profitable orders and dealers faking customer orders to get vehicles for stock, I'm not so sure. Compare this to the great experience I had buying a BTO laptop from Apple, with regular updates and even switching the delivery point from my home in Minnesota to an Apple Store in Florida after my credit card company refused the charge and Apple built me another at the same Black Friday price! 

 

Ford monitors retail orders, keeps track of retail orders that aren't delivered within 30 days of arrival at the dealership, and can severely penalize dealerships that are submitting fraudulent retail orders.  

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ice-capades, thanks for an enlightening education on how the system is supposed to work. it worked that way back in '97 when I ordered a Ranger through Boyer Ford in Minneapolis, was quoted a competitive price right from the start, they promised a realistic delivery time of 6-8 weeks and it came in half that, got exactly the truck I wanted and got an unexpected small rebate when it was delivered. Now I'm shopping for a Transit Connect wagon and besides the production uncertainties, the local Ford dealers haven't really earned my trust and I'm not sure if Ford lets Boyer sell wagons. So it's hard for me to put down a deposit on that Transit Connect when the dealer personnel may not even know how to submit an order and schedule it, who knows when it gets built, the current Transit Connect may go out of production before it's built, Ford may give my order a "back of the line" priority, and even if it gets built the dealer may sell it to another customer who'll pay more.

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1 hour ago, Gurgeh said:

Does this mean that I would finally be able to order and buy a top trim Lincoln without the rough-riding and easily-damaged oversized wheels and low-profile tires? ?

 

Unfortunately, probably not. The system that Jim Farley spoke about aims to reduce days inventory of dealer new vehicle stock by encouraging potential customers to do a sold retail order for their new Ford or Lincoln vehicle purchase. From what I can tell, this system does not allow customers or dealers to bypass restrictions in the order guide for a particular vehicle. 

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Well they have access to raw data that clearly showing them that retail orders are overwhelming more demanding that stock orders. But on the other hand how many people want to wait for their vehicle? Unless they plan on having blank shells sitting on shelves ready to go they’re gonna have to do a lot better planing 

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34 minutes ago, Dewbs said:

Well they have access to raw data that clearly showing them that retail orders are overwhelming more demanding that stock orders. But on the other hand how many people want to wait for their vehicle? Unless they plan on having blank shells sitting on shelves ready to go they’re gonna have to do a lot better planing 


Huh?  There is zero difference in building a retail vs stock order.  If you’re referring to consumer demand, when dealer inventory is normal only 5%-10% choose to order.  Vast majority buy off the lot.  Dealers prefer lot sales because they get the cash immediately and it’s easier for them to close a sale with the vehicle sitting there.

 

Simplifying the options would help a lot.  They tried to do that with Bronco but need to do it across the lineup.

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16 minutes ago, akirby said:


Huh?  There is zero difference in building a retail vs stock order.  If you’re referring to consumer demand, when dealer inventory is normal only 5%-10% choose to order.  Vast majority buy off the lot.  Dealers prefer lot sales because they get the cash immediately and it’s easier for them to close a sale with the vehicle sitting there.

 

Simplifying the options would help a lot.  They tried to do that with Bronco but need to do it across the lineup.

 

I haven't ordered a specific new vehicle since 1985 Bronco ll. I did originally order a 2020 Escape Hybrid, but fortunately Ford shut the plant for Covid. I say fortunately because the Escape on lot that I bought had premium package that I would have missed if my ordered Escape was built. 

 

So I wish Farley luck in executing his plan. I've never had a problem buying vehicle I wanted off lot and drive off next day. If it's a high volume dealer like Bill Brown or Mullinax, chances are your vehicle is waiting for you on lot. And 1st time buyers don't want to wait 6-12 weeks+ for vehicle to arrive..

 

I even had no problem buying Crosstrek that I wanted off Subaru lot, and they have tight inventory as norm. I was going to order one, but dealer already had one on lot. So no 8 week wait. 

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As much as I always enjoyed ordering a vehicle, ever since Al Gore invented the internet, and Ford gave us customers the online "search inventory" option, I've been able to find the vehicle I want and go get it.  In the future, if inventory levels are minimized, I'll just go back to ordering.  I'm "cheap", so I won't pay for options I don't want or need.

 

HRG

Edited by HotRunrGuy
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1 hour ago, akirby said:


 

Simplifying the options would help a lot.  They tried to do that with Bronco but need to do it across the lineup.

 

Spot on.....They won't get there if they don't simplify their packages.

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4 hours ago, GearheadGrrrl said:

Now I'm shopping for a Transit Connect wagon and besides the production uncertainties, the local Ford dealers haven't really earned my trust and I'm not sure if Ford lets Boyer sell wagons. So it's hard for me to put down a deposit on that Transit Connect when the dealer personnel may not even know how to submit an order and schedule it, who knows when it gets built, the current Transit Connect may go out of production before it's built, Ford may give my order a "back of the line" priority, and even if it gets built the dealer may sell it to another customer who'll pay more.

 

You're barking up the wrong tree and I'm not buying what you're selling. You always know best, the Dealers can't be trusted, you can never get the vehicle you want at the price you want, equipped as you want, when you want and if you order it, you're afraid they'll sell the vehicle to someone else when it arrives. I've heard this song from you too many times before. You don't know what you're talking about! Period. 

Edited by ice-capades
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Remember how Jim Hackett was going to change the manufacturing process to prioritise customer orders?

The reason it died is because Ford insists on locking suppliers into longer term parts delivery profiles,

adding  in the variability of more unplanned build profiles (customer orders) tends to throw curve balls

to planning the monthly JIT supplies which affects the Quarterly planned build parts profile.

 I admire Farley revisiting the issue but it’s not an easy commitment to keep.

 

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As someone with a 22 SD on order I would prefer it stay the “old” way with plenty of trucks on the lots (via dealer trade) to choose from as that always worked pretty well for me.

Also they still are not prioritizing retail orders (there are multiple 22’s in Transit very similar to mine as dealer stock within a 100 miles of me) while mine is still not built which makes me very unlikely to order (not buy) another truck from Ford.

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