Penske’s Ford Nirvana

Dearborn, MI

September 11, 2001

By

Richard Armstrong

Cost savings through SIX Sigma process improvements are the backbone of Penske’s lead logistics provider success for Ford Motor. Currently, Penske’s management of Ford’s inbound vehicle operating parts and stamping suppliers saves Ford tens of millions of dollars per year in inventory costs.

To get the savings, Penske manages over 20,000 moves a week using 32 logistics engineers. These LE’s are assigned to teams for nine cross-dock distribution centers. In addition to handling material flow from suppliers to the distribution centers, the logistics engineers route truckload and expedited (premium) traffic.

The logistics engineers’ primary tool for executing supply chain management is Penske’s Logistics Management System (LMS) software. The LMS is a proprietary mainframe system which tracks orders and inventory to the SKU level. It coordinates with a web-tracking module, route development and a trailer cube subroutine. It is integrated to Ford’s inventory and order systems.

Data feeds are primarily from EDI for orders; Qualcomm for truck locations; PDA scanners for pickup/delivery activity and radio frequency scanners at cross docks.

Quality control information is continuously updated and available at the Project Nirvana website. Performance measurement is done through score cards for suppliers, carriers, plants, regions and Penske teams. The performance measurement feeds a series of summary dashboards complete with graphs and diagrams used for controlling each process segment at the SIX Sigma level. Penske’s quality control process is now tight enough so that the 3PL can make recommendations to Ford for plant process improvements. This capability is analogous to other mature 3PL partnerships we have seen. That is, once the 3PL is trusted and relied on as a true partner it can assist its customer in areas which go beyond the basic logistics collaboration.

It has taken Penske and Ford five years to reach the current complex business collaboration. Penske’s first assignment was a pilot project for Ford’s Norfolk Assembly Plant in 1996. In 1997 Penske took over four additional plants. In 1998 Ford removed Ryder as Inbound Supply Chain Manager. Starting in September, 2000, Penske was given five more locations to run and started these operations up in five months. FedEx Logistics (Caliber) still manages Ford’s power train inbound SCM. However, FedEx continues to realign its logistics operations focus. As it gets more out of focus, it would be logical for Ford to move its power train SCM business to Penske.

Penske’s Nirvana leader is Michael O’Donnell. He’s a solid operating manager with a good support cast of over 200 managerial and administrative employees.