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Ford’s Build-to-Order Strategy

Almost every automobile manufacturer has been forced to shutdown production during the pandemic for a variety of reasons. One of the biggest problems has been caused by a chip shortage, as shared in the OM in the News post, Chip Shortage Puts the Brakes on Automakers.

Automakers are rethinking how they run their business. Most are looking at their supply chain, and ensuring the availability of parts. Many are looking at the future with electric vehicles (EVs), and designing their future supply chains to avoid shortages of parts. However, Ford is looking to change how customers buy their automobiles.

In the US, customers have traditionally gone to the Ford dealership, and selected an automobile that is currently on the dealer’s lot. This results in a built-to-stock operation. Ford’s intent is to move to a build-to-order approach, where customers order the car.

Ford is also hoping to move some of the ordering of their cars to online. They have released Ford Express for ordering online. You can accomplish all of the purchase steps online, including getting a loan through Ford Credit. Vehicles intended for the build-to-order program include the Mustang Mach-e, the Maverick, and the F-150 Lightning.

Video Spotlight:  

This post is based on the Car and Driver article, Ford Moving Toward Build-to-Order, Away from Packed Dealer Lots, by Sebastian Blanco, July 31, 2021; The Drive article, Ford Would Rather Build-to-Order Than Pack Dealer Lots, by James Gilboy, August 3, 2021; the Forbes article, Build-To-Order May Not Be Built To Last, by Ed Garsten, November 17, 2021; and the YouTube videos in the Spotlight. Image source: sergeytikhomirov/123RF.

Discussion Questions:

1. What advantages does build-to-order provide for Ford?

Guidance: The biggest advantage is that it removes a substantial amount of inventory from the dealers’ lots. Many dealers carried a variety of models with various options on the lot to be able to match customers’ desires. Larger dealers would have almost all combinations of models, option levels, and colors. With build-to-order, the customer can order exactly what they want, and the dealership will not need to carry as many automobiles. This will save the dealerships substantially in term of inventory carried, and its associated cost. It also reduces problems with the dealers’ or Ford’s forecast that could result in the wrong mix of automobiles on the dealer’s lot, which can decrease the need for incentives to move any overstocked vehicles. As long as Ford can deliver the cars quickly, the customer can benefit by being able to purchase the exact car of their choice.

2. What are the drawbacks to build-to-order?

Guidance: The most likely hurdle is the customer. US customers are used to walking into the dealership, and driving away with the car of their choice that day. Ordering will involve some delay in the car’s delivery. During the COVID-19 pandemic, the trend of ordering online had already gained momentum, so it may not be as radical as initially thought.

As Ford intends to reduce the need for incentives, this may also present a problem for customers that are used to looking for sales on new cars.

3. How will dealerships be impacted?

Guidance: It will be interesting to see how the dealerships’ role changes in the new ordering and fulfillment process. It may be that the dealership and their sales force will become more of a facilitator, helping customers order their vehicle. It will reduce the number of cars that they keep on their lot, as well as the type that they keep. They may carry cars that have all of the options, so customers can stop by to see what they are ordering. Obviously, their role of providing repair service will remain.

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