Question

Two questions that deserve answers. Often, it’s a business’s research and development activities that provide answers to the above questions (and many more) that can literally determine if a company is a success or a failure. Take the case of Ford. Never has the automobile industry been more competitive than it is today. Ford competes with GeneralMotors, Toyota, Chrysler, Nissan, Honda, Testla, and other automobile companies. While there are competitors, most people recognize the name Ford and the Ford emblem on the front of the automobiles they manufacture. And some car enthusiasts may be so familiar with the brand that they recognize and are able to name the different Ford models. What few people don’t realize is how much planning goes into developing and manufacturing each and every Ford vehicle to make sure that it appeals to customers of all ages. That’s where research and development can help a company like Ford plan for the future.

Sheryl Connelly, Ford’s manager of global consumer trends—the company’s chief trend-watcher—has been studying consumer behavior worldwide, with an eye toward determining what consumers will want and need long before they know. By surveying consumers, and analyzing emerging social trends, technological developments, political issues, environmental concerns, and economic changes, Connelly provides Ford with insights that shape and refine the company’s future automobiles. This same information helps the automobile manufacturer plan for production of new models in its manufacturing plants.

For example, when Connelly looked at technological trends, she found that medical advances are allowing seniors to lead active lifestyles far longer than ever before. Yet as they age, drivers will need vehicles with features that help them adapt to changes in their physical and mental capabilities. Based on Connelly’s conclusions, Ford is already adding features such as automated parking assistance systems and ergonomic seats that enable drivers—old and young—to stay safe and comfortable behind the wheel.

Another trend Connelly recently identified is growing demand for automobiles that are “more anticipatory and self-sufficient” in fulfilling consumers’ needs. Self-driving cars will do this by steering themselves and maintaining a safe distance between other vehicles, freeing drivers from having to concentrate on the road as they travel. The company is already planning for mass production of a self-driving car that will be available within a few years at a price people can afford. Ford is also working on a voice-command system that will allow drivers to handle specific tasks such as opening a garage door simply by speaking, instead of using their hands.

In addition, Connelly has noticed how many consumers are interested in environmental issues, such as conserving natural resources. Showcasing its sustainability initiatives, Ford looks carefully at its impact from raw materials to finished products and beyond. For example, the manufacturer is experimenting with ways to incorporate recycled materials as car parts.

Finally, Connelly’s research has revealed that buyers place a high value on product quality, versatility, and durability. Research shows that 76 percent of U.S. adults expect to keep and drive the same car for a decade or longer. As a result, Ford must be sure its cars, sport-utility vehicles, vans, and pickup trucks will deliver dependable transportation for years and years to first-time buyers, adults with families, seniors, and other consumer segments.

The information discovered by Ford’s research and development activities will determine the automobile of the future. And yet, it’s not enough to just know what customers will want when they purchase their next car. A successful automobile company like Ford must be able to transform innovative ideas into reality. It must also be able to design automobiles for future customers and then plan the manufacturing process that will produce automobiles that will make customers want to buy Ford instead of automobiles produced by other companies.

1.) Assume you are part of a Ford focus group. The interviewers are interested in your comments about what features you would like in your next automobile. Describe three features that you think they should incorporate in their future automobiles.

2.) Great ideas don’t automatically become a reality! Ideas must be transformed into actual products. How will the information discovered by Ford’s research and development activities affect Ford’s planning for production?

3.) Research indicates that customers are driving their cars longer and expect higher quality than ever before. What steps can Ford take to increase quality in its automobiles?

Answer 1

1)

• THEY’LL BE AUTONOMOUS (SELF-DRIVING)

The first major prediction to be made of your future car 30 years from now is a fairly simple one. Every major car manufacturer in the world today are aiming their sights towards autonomous vehicles. In fact, I believe it’s prudent to mention that all automotive-based industries around the world will likely be using autonomous vehicles by the 2020s.

Just a few months ago Tesla Motors surprised all owners of a Model S with a brand new update – AutoPilot! What this essentially did was give every owner of a Model S semi-autonomous capabilities (with certain limitations), which will help drivers ease their way towards a very near future of fully autonomous vehicles. As companies like Google and Apple push their way towards perfecting their autonomous vehicle projects, expect every other automotive company to follow suit.

• THEY’LL SOLELY RELY ON RENEWABLE ENERGIES

The era of gasoline-reliant vehicles is slowly coming to an end. In its place will likely follow that of Tesla’s model of energy reliance – electricity. Of course, electricity is mostly acquired via coal, which is in no way a renewable energy. Which is why Tesla’s CEO Elon Musk has been increasingly emphasizing on solar energy technologies, to which he’s even co-founded a company that is helping push solar energy forward in a revolutionary way – SolarCity.

Subsequently, Tesla had unveiled last year their latest new product (which wasn’t a vehicle) called the Powerwall, which is a solar-based battery that is capable of producing an abundant amount of energy for your home, including the charging power station for your electric car. It then shouldn’t come as a big surprise to hear that, as a result of their recent emissions scandal, Volkswagen has announced they’ll be transforming their vehicles into becoming electric as well.

To top it all off, during last year’s World Solar Challenge in Australia, Dutch students from Eindhoven University of Technology had competed their solar-powered vehicle – the “energy positive” four-seater Stella Lux – during a 3,000km race from Darwin to Adelaide. Needless to say, in 30 year’s time, every vehicle will be based on today’s efforts by several different automotive manufacturers who are increasingly abandoning gasoline and instead are looking towards the sun.

• THEY’LL BE 3D PRINTED

  When it comes to exponentially growing technologies, there’s only a few that come to mind which even outmatches the exponential growth of 3D printing. What started off as a slow-riding technology, which could barely print out small objects half the size of someone’s fist, 3D printing has taken the world by storm with its more recent extreme acceleration in efficiency and affordability. Today 3D printing is being used in the medical industry, architecture, food, and, yes, even automotive manufacturing.

  Just a couple of years ago automotive manufacturer Local Motors made a surprising announcement when they unveiled the world’s first 3D printed car – the Strati! Other than its motor, battery, and wiring, the entire car was 3D printed and it only took the company 44 hours to print. The company says they’re now aiming for 24 hours and are offering reservations for anyone who’d like to purchase their own personal 3D printed vehicle sometime in the near future. Given the rate of growth of 3D printing, expect mass production of 3D printed vehicles sometime between 2020-2030.

2) Decline in industry sales volume, particularly in the United States, Europe, or China, due to financial crisis, recession, geopolitical events, or other factors. Because we, like other manufacturers, have a high proportion of relatively fixed structural costs, relatively small changes in industry sales volume can have a substantial effect on our cash flow and profitability. If industry vehicle sales were to decline to levels significantly below our planning assumption, particularly in the United States, Europe, or China, due to financial crisis, recession, geopolitical events, or other factors, such as occurred during 2008 and 2009, our financial condition and results of operations would be substantially adversely affected. For discussion of economic trends, see the “Overview” section of Item 7. Decline in Ford’s market share or failure to achieve growth. To maintain competitive economies of scale and grow our global market share, we must grow our market share in fast-growing newly developed and emerging markets, particularly in our Asia Pacific region and our Middle East & Africa region, as well as maintain or grow market share in mature markets. Our market share in certain growing markets, such as China, is lower than it is in our mature markets. A significant decline in our market share in mature markets or failure to achieve growth in newly developing or emerging markets, whether due to capacity constraints, competitive pressures, protectionist trade policies, or other factors, could have a substantial adverse effect on our financial condition and results of operations. Lower-than-anticipated market acceptance of Ford’s new or existing products or services. Although we conduct extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside our control affect the success of new or existing products and services in the marketplace. Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of price, quality, styling, safety, overall value, fuel efficiency, or other attributes) can exacerbate these risks. The success of Ford Smart Mobility, our plan for connectivity, mobility, autonomous vehicles, the customer experience, and data and analytics, likewise depends on many factors, including the amount of capital we invest, advancements in technology, regulatory changes, and other factors that are difficult to predict that may significantly affect the future of mobility. With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility, or other key attributes can negatively impact our reputation or market acceptance of our products or services, even where such allegations prove to be inaccurate or unfounded. Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning assumption, particularly in the United States. A shift in consumer preferences away from larger, more profitable vehicles at levels beyond our current planning assumption could result in an immediate and substantial adverse impact on our financial condition and results of operations. Although we have a balanced portfolio of small, medium, and large cars, utilities, and trucks with competitive fuel efficiency, a shift in consumer preferences away from sales of larger, more profitable vehicles at levels greater than our current planning assumption—whether because of spiking fuel prices, a decline in the construction industry, government actions or incentives, or other reasons—still could have a substantial adverse effect on our financial condition and results of operations. An increase in or continued volatility of fuel prices, or reduced availability of fuel. An increase in fuel prices, continued price volatility, or reduced availability of fuel, particularly in the United States, could result in weakening of demand for relatively more-profitable large cars, utilities, and trucks, while increasing demand for relatively lessprofitable small vehicles. Continuation or acceleration of such a trend beyond our current planning assumption, or volatility in demand across segments, could have a substantial adverse effect on our financial condition and results of operations.

Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or other factors. The global automotive industry is intensely competitive, with manufacturing capacity far exceeding current demand. According to the December 2015 report issued by IHS Automotive, the global automotive industry is estimated to have had excess capacity of about 31 million units in 2015. Industry overcapacity has resulted in many manufacturers offering marketing incentives on vehicles in an attempt to maintain and grow market share; these incentives historically have included a combination of subsidized financing or leasing programs, price rebates, and other incentives. As a result, we are not necessarily able to set our prices to offset higher costs of marketing incentives, commodity or other cost increases, or the impact of adverse currency fluctuations, including pricing advantages foreign competitors may have because of their weaker home market currencies. Continuation of or increased excess capacity could have a substantial adverse effect on our financial condition and results of operations. Fluctuations in foreign currency exchange rates, commodity prices, and interest rates. As a resourceintensive manufacturing operation, we are exposed to a variety of market and asset risks, including the effects of changes in foreign currency exchange rates, commodity prices, and interest rates. These risks affect our Automotive and Financial Services sectors. We monitor and manage these exposures as an integral part of our overall risk management program, which recognizes the unpredictability of markets and seeks to reduce potentially adverse effects on our business. Nevertheless, changes in currency exchange rates, commodity prices, and interest rates cannot always be predicted or hedged. In addition, because of intense price competition and our high level of fixed costs, we may not be able to address such changes even if foreseeable. As a result, substantial unfavorable changes in foreign currency exchange rates, commodity prices, or interest rates could have a substantial adverse effect on our financial condition and results of operations. See “Overview” to Item 7 and Item 7A for additional discussion of currency, commodity price, and interest rate risks. Adverse effects resulting from economic, geopolitical, or other events. With the increasing interconnectedness of global economic and financial systems, a financial crisis, natural disaster, geopolitical crisis, or other significant event in one area of the world can have an immediate and devastating impact on markets around the world. For example, the financial crisis that began in the United States in 2008 quickly spread to other markets; natural disasters in Japan and Thailand during 2011 caused production interruptions and delays not just in Asia Pacific but other regions around the world; and episodes of increased geopolitical tensions or acts of terrorism have at times caused adverse reactions that may spread to economies around the globe.

Concerns persist regarding the sustainability of the European currency area (“euro area”) and of the larger European Union, which includes the United Kingdom. The pending decision by the U.K. electorate on whether to remain in the European Union has exacerbated concerns regarding the overall stability of the European Union, given the diverse economic and political circumstances of individual euro area countries. If a country within the euro area were to default on its debt or withdraw from the euro currency, or—in a more extreme circumstance—the euro currency were to be dissolved entirely, the impact on markets around the world, and on Ford’s global business, could be immediate and significant. The exit of the United Kingdom from the European Union would have less extreme but still significant implications. Such scenarios—or the perception that such developments are imminent—could adversely affect the value of our euro- and pound-denominated assets and obligations. In addition, such developments could cause financial and capital markets within and outside Europe to constrict, thereby negatively impacting our ability to finance our business, and also could cause a substantial dip in consumer confidence and spending that could negatively impact sales of vehicles. Any one of these impacts could have a substantial adverse effect on our financial condition and results of operations. In addition, we have operations in various markets with volatile economic or political environments and are pursuing growth opportunities in a number of newly developed and emerging markets. These investments may expose us to heightened risks of economic, geopolitical, or other events, including governmental takeover (i.e., nationalization) of our manufacturing facilities or intellectual property, restrictive exchange or import controls, disruption of operations as a result of systemic political or economic instability, outbreak of war or expansion of hostilities, and acts of terrorism, each of which could have a substantial adverse effect on our financial condition and results of operations. Further, the U.S. government, other governments and international organizations could impose additional sanctions that could restrict us from doing business directly or indirectly in or with certain countries or parties, which could include affiliates.

Economic distress of suppliers that may require Ford to provide substantial financial support or take other measures to ensure supplies of components or materials and could increase costs, affect liquidity, or cause production constraints or disruptions. The automotive industry supply base experienced increased economic distress due to the sudden and substantial drop in industry sales volumes beginning in 2008. Dramatically lower industry sales volume made existing debt obligations and fixed cost levels difficult for many suppliers to manage, increasing pressure on the supply base. As a result, suppliers not only were less willing to reduce prices, but some requested direct or indirect price increases as well as new and shorter payment terms. At times, we have had to provide financial assistance to key suppliers to ensure an uninterrupted supply of materials and components. In addition, suppliers may continue to exit certain lines of business or close facilities due to economic concerns, management turnover, or other reasons. In such cases, we generally experience additional costs associated with transitioning to new suppliers. Each of these factors could have a substantial adverse effect on our financial condition and results of operations. Work stoppages at Ford or supplier facilities or other limitations on production (whether as a result of labor disputes, natural or man-made disasters, tight credit markets or other financial distress, production constraints or difficulties, or other factors). A work stoppage or other limitation on production could occur at Ford or supplier facilities for any number of reasons, including as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements, or as a result of supplier financial distress or other production constraints or difficulties, or for other reasons. Recent examples of situations that have affected industry production to varying degrees include: supplier financial distress due to reduced production volumes during the economic downturn in 2008–2009; capacity constraints as suppliers that restructured or downsized during the downturn work to satisfy growing industry volumes; short-term constraints on production as consumer preferences shift more fluidly across vehicle segments and features; and the impact on certain suppliers of natural disasters during 2011. As indicated, a work stoppage or other limitations on production at Ford or supplier facilities for any reason (including but not limited to labor disputes, natural or man-made disasters, tight credit markets or other financial distress, or production constraints or difficulties) could have a substantial adverse effect on our financial condition and results of operations. Single-source supply of components or materials. Many components used in our vehicles are available only from a single supplier and cannot be re-sourced quickly or inexpensively to another supplier (due to long lead times, new contractual commitments that may be required by another supplier before ramping up to provide the components or materials, etc.). In addition to the general risks described above regarding interruption of supplies, which are exacerbated in the case of single-source suppliers, the exclusive supplier of a key component potentially could exert significant bargaining power over price, quality, warranty claims, or other terms relating to a component. Labor or other constraints on Ford’s ability to maintain competitive cost structure. Substantially all of the hourly employees in our Automotive operations in the United States and Canada are represented by unions and covered by collective bargaining agreements. We negotiated a four-year agreement with the UAW in 2015 and will negotiate a new agreement with Unifor (formerly the Canadian Auto Workers Union) in 2016. Although we have negotiated transformational agreements in recent years, these agreements provide guaranteed wage and benefit levels throughout the contract term and some degree of income security, subject to certain conditions. As a practical matter, these agreements may restrict our ability to close plants and divest businesses. A substantial number of our employees in other regions are represented by unions or government councils, and legislation or custom promoting retention of manufacturing or other employment in the state, country, or region may constrain as a practical matter our ability to sell or close manufacturing or other facilities. Substantial pension and postretirement health care and life insurance liabilities impairing liquidity or financial condition. We have defined benefit retirement plans in the United States that cover many of our hourly and salaried employees. We also provide pension benefits to non-U.S. employees and retirees, primarily in Europe. In addition, we and certain of our subsidiaries sponsor plans to provide other postretirement benefits (“OPEB”) for retired employees (primarily health care and life insurance benefits). See Note 12 of the Notes to the Financial Statements for more information about these plans. These benefit plans impose significant liabilities on us that are not fully funded and will require additional cash contributions, which could impair our liquidity.

3)

1. Create a culture of quality. Abnormalities in parts or inefficiencies in manufacturing processes exist on any plant floor, but operators may hesitate to point them out for fear it will reflect poorly on the quality of their work. Instead, quality departments and executive management should create a culture where suggestions for improvements—large or small—are welcomed and praised. This will not only encourage employees to offer suggestions, but also ultimately lead to improved manufacturing and quality, based on the recommendations.

2. Work with suppliers. Relationships between OEM manufacturers and their suppliers have continued to change drastically, shifting from one manufacturer juggling multiple suppliers to a single supplier supporting multiple manufacturers. Even though this is a more efficient business model for manufacturers, it creates a scenario where issues with a single supplier affect multiple manufacturers and multiple part lines. Working closely with suppliers enables manufacturers to understand the supplier’s internal processes and offer ways to improve the quality of the component parts so they meet the manufacturer’s quality standards.

3. Use technology to connect the supply chain. With a global supply chain, it becomes increasingly difficult to know what is happening at each facility or supplier. Utilizing leading technologies, such as the cloud or mobile devices, helps to connect the supply chain, making it possible for operators and inspectors within a manufacturer’s facility or the relevant supplier to input data from anywhere, using any mobile device. The data populate a centralized database for personnel to review and analyze, while sending real-time notifications to management, even when they are off-site.

4. Demand more than an inspection report. Traditionally, manufacturers had to rely on a paper report and the word of their suppliers that the parts received met the OEM’s high quality standards. Today, it’s not enough to trust this process. Manufacturers must have visibility into supplier operations to understand what’s occurring within the manufacturing processes, ensuring appropriate testing is being conducted and confirming the results meet the OEM’s high quality standards. Real-time visibility created through cloud-based quality systems offers a complete view of supplier operations, removing the need to re-inspect incoming parts.

5. Leverage manufacturing intelligence. Data gathered in-process offer a second tier of information, or manufacturing intelligence, that can be used to increase efficiency and quality across the enterprise and supply chain. Utilizing advanced data analysis software, it’s possible to compare site to site or supplier to supplier, identifying areas for improvement. If one facility is running an identical process significantly more efficiently than another, the information could be shared with the second site to enable process improvement. Extending this learning opportunity across a manufacturing environment helps to increase overall effectiveness and improve variation across operations.

6. Drill down through data to reduce warranty claims and recalls. Manufacturing intelligence enables the enterprise to drill down through manufacturing data from within the OEM business and the supply chain to identify when, where, and how defective parts were made. If a product was returned within the warranty period because of a defective part, quality software can be used to identify whether the return was due to a supplier or material inconsistency. With the source of the issue identified, enterprises can put measures in place to prevent the same issue in the future.