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The operation management of Primark and Atlas Honda

INTRODUCTION

The report describes the operation management of PRIMARK and the ATLAS HONDA LIMITED PAKISTAN which are two different companies in two different industries.

PRIMARK in garment industry is a big retailer in the high streets for the readymade cloths which is basically belongs to tertiary sector (service) in which it distribute/sell the manufactured goods(cloths)in his retail stores and the ATLAS HONDA is a joint venture which manufacture and sell automobiles which is in manufacturing industry.

This report is structured in a way that describe both companies

1: Competitive priority

2: Marketing strategy

and also compare and contrast their operations in their industries and report also include the analysis of their internal factors as capacity planning, inventory management, quality control and the external factors as environment, innovation.

After the report we will be able to understand the operating management of the two different industries which help us to gain knowledge to design one best operating model which help us in both industries.

Before forwarding to the report structure as discuss above we need to know about both companies to be familiar with their operations.

PRIMARK

PRIMARK is the subsidiary company within the ASSOCIATED BRITISH FOODS and one of the biggest retailer in UK who sell readymade clothes with stylish fashion, design and variety at affordable prices. It focus on womenwear, menwear, childrenwear and home products. In 1969 the first store opened in DUBLIN(IRELAND) in the name of first Penny’s store and till 1973 the number of stores reached at18 in all around the IRELAND, in the following year it expanded to GREAT BRITAIN and opened his first stores in DERBY and BRISTOL and in within next 10 years the number of stores become 22 in each.

After expansion to GREAT BRITAIN, in 1995 PRIMAK applies the acquisition policy in his expansion and acquire first BHS ONE-UP discount chain in UK 16 stores,then CO-OP with 11 stores, 11stores from retreat ion of A & C.

After 2005 PIMARK moved to Europe for more expansion and opened stores in SPAIN,PORTUGAL,HOLLAND,GERMANY,BELGIUM. Till September 2010 it has 150 stores in UK. Its competitors are NEXT, ZARA, GAP, RIVER ISLAND etc which compete in different bases of competitive advantage.

We take only UK market for the Primark business operation.

http://www.primark.co.uk/page.aspx?pointerid=eb44df4565934edca627dac6ec12145a Last access 10th march 2011

ATLAS HONDA LIMITED (AHL) PAKISTAN

ATLAS HONDA LIMITED PAKISTAN is a joint venture of ATLAS GROUP and HONDA MOTOR CO.LTD which manufacture and sell motorcycles. The company was created by the merger of Panjdayar LTD and Atlas Autos LTD, in 1988. AHL manufactures and markets Honda motorcycles in collaboration with Honda Motor Company. The Company also manufactures various hi-tech components in-house in collaboration with leading parts manufacturers like Showa Atsumitech, Nippon Denso and Toyo Denso. Honda motorcycles are by far the largest selling motorcycles in the country with an unmatched reputation for high quality, reliability and after-sales-service.

ATLAS HONDA manufactures four models of motorcycles

1: CD 70

2: CD 100

3: CG 125

4: CG 125 DELUXE

Company has two big inhouse manufacturing capability at Karachi (Sindh) which manufactures 300 units of CD 70 only and Sheikupura (Punjab) plants which manufactures all four models. A vast and growing network of over 1600 sales service and spare parts dealers has been established in all over the country.

Company has more than 60% of market share in Pakistan motorbike industry, it exports the products to Bangladesh and Afghanistan.

http://www.atlashonda.com.pk/company. Last access 10th of march 2011

COMPARISON/CONTRAST

OPERATIONS IN BOTH ENTITIES

In any organization the operation function is the part of organization which produces the products and services for that entity, it is not called with same name all the time but it is concerned with managing the core purpose of organization which produce some mix of products and services.

nigel slack, stuart chambers, robert johnston , alan betts (2009).operations and process management. 2nd ed. england: pearson education limited. 1-1.

In another words the operation is defined as the systematic design, direction and control of process that transform input into services and products for internal, as well as external.

Primark and Atlas Honda are two different companies in two different industries, one is a retailer in service industry and 2nd is in manufacturing industry. the service sector create value or add value to the product and manufacture industry produce the tangible product so some similarities and contrast appeared in their operations which can be analyzed and criticize on the basis of their marketing strategy and their competitive priority.

MARKETING STRATEGY

Market strategy is developed by the entities to fill the gap between current performance and the forecasted performance which is the objective/targets of the entity to achieve, so the company develop the marketing strategy for its product in target market for targeted customers to make them aware to the products and service it provides.

Cim,bpp, 76-77 2008

We can use the Ansoff’s growth model which is used to analyze the product and market of the company in its marketing strategy.

cim (2007). professional diploma in marketing. 3rd ed. london: BPP. 76-78.http://franteractive.net/resources/Ansoff-Matrix.GIF

We will use this model to define and criticize the marketing strategy of the Primark and Atlas Honda.

MARKETING STRATEGY

STRATEGY

PRIMARK

AHL

Market penetration

Y

N

Product development

Y

Y

Market development

Y

Y

Diversification

N

N

Primark has its objective of ‘DELIVERING VALUES AND TRADE ETHICALLY’

http://www.primark.co.uk/ethical/values last access 10th march 2011

Primark use the leaflets drop, ads on bus shelters, the London Underground and radio ads. university of wales, marketing, database source complete

Above marketing strategy used by Primark for his new stores in BRITAIN and it opened six more new stores one of which is in the oxford circus.

According to Ansoff model we can explain the marketing strategy of Primark as follows

Market development strategy which is in new market in existing product so the entry from Ireland and to Britain and other European countries is the example of entry in new market.

Product development is in new product in new market, so Primark products are women, men, child wears but it include homemade garments as well, product development strategy basically elicited the customers to come in the store for all his garment needs.

But the problem in market development strategy is the high distribution cost which Primark used to distribute his merchandise which it get form Asian countries and distribute them to his different stores which cost him high and reduce his profit.

http://www.businessweek.com/globalbiz/content/jun2009/gb20090616%5f4 498429.htm.

Market penetration is to enter in the market with the low price to compete in the market as the GILLETTE company sell his MACH 3 new product in the market on 60% of cost which is the best example of market penetration to enter in the market with low price, so the entrance of Primark in the BRITAIN garment industry is the market penetration in the presence of GAP,NEXT etc, with low cost strategy, but market penetration strategy has the main criticize is that it starts the price war in the market and through the small entities out of business

Diversification is to diversify from the industry to another industry which comes into unrelated diversification so the parent company of Primark ASSOCIATED BRITISH FOOD, who diversify from food to garment is the unrelated diversification. But Primark has it self not any diversified activity in any other industries.

ATLAS HONDA use mostly the electronic media for his products marketing as internet, television ads, salesmen etc.

For CD 70 and CD 100 Atlas Honda target middle income families and mostly these bikes used in villages due to the brand loyalty and durability.

CG 125 and CG125 DELUXE these both bikes target the special segment of market with the customers who want to pay more for high speed and beauty of the products.

DIVERSIFIATION is the Honda joints venture in Pakistan as Atlas Honda is his related diversification in motorbike industry. The problem with Atlas Honda in his joint venture is that it manufacturing units in Pakistan and the changing political parties and insecurity affecting its this diversified product making units which affect the motorbike production and the business as well.

Product Development is the four type of product CD 70, CD 100, CG125, CG125 DELUXE are the example in market for product development, the Atlas Honda believe in quality in return of high prices which opened the ways for his competitors with low cost and low price strategy like Chinese company STAR, SOHRAB, LIFAN etc. which affect the market share ( 63% in Pakistan) and the profit of the company.

Market Development strategy of ATLAS HONDA is it exporting the products to Bangladesh and Afghanistan is its market development in other countries, this means the distribution cost will be high for Atlas Honda and affect his sale and profit in the market.

COMPETITIVE PRIORITY

Competitive priority include low cost operations, top quality, consistent quality, delivery speed, on time delivery, development speed, customization, variety and volume flexibility, these are the competitive priorities which set a company aside and superior to the rest of the companies in the industries by the result of his operations, it is not necessary that a company acquire all of them to compete but it can get any mixture of them to perform well.

Under we show the similarity and contrast in the competitive priority of the PRIMAK and ATLAS HONDA LIMITED. It is need to be cleared that under the table the element of competitive priority is categorized in four broad concepts.

COMPETITVE PRIORITY

C.P

PRIMARK

ATLAS HONDA LTD

QUALITY

TOP QUALITY

N

Y

CONSISTANT QUALITY

Y

Y

COST

LOW COST OPERATIONS

Y

N

TIME

DELIVERY SPEED

N

Y

ONTIME DEIVERY

N

Y

DEVELOPMENT SPEED

Y

Y

FLEXIBILITY

CUTOMISATION

N

Y

VARIETY

Y

Y

VOLUME FLEXIBILITY

Y

Y

QUALITY

Quality is different for different customers, quality is simply defined as the completeness of features, value for money, conformance of specification, reputation.

Consistent quality In the case of Primark and the AHL both companies products have the similar feature of consistent quality as in the Primark in garment industry sell fashion cloths for men, women, children and homemade products and AHL in motorbike industry both meet their design and specifications on the continuous basis to maintain the consistent quality of their products

Top quality on the other hand the AHL is manufacturing and selling the top quality motorbikes in the motorbike industry of Pakistan that’s why AHL has 63% market share in the market but the Primark is selling low quality products in the garment industry of Britain against his major competitors GAP, NEXT, ZARA which is the major difference in both of companies.

COST

Cost feature include manufacturing cost, value added cost, running cost, service cost and selling price is included

Low cost operations: Primark is the strategy of low cost on which it sell its outsourced garment products to the customers by adding its services with its efficiently designed and operation process (appendix 2).so this strategy in the motorbike industry of AHL in Pakistan is applied by Star company and Titan company is the example of low cost operations. So in the Primark business the low cost operations credit goes to its supplies from its suppliers who operating their activities in low wage and other low production cost countries like Bangladesh.

But the AHL is differentiate strategy for its product so its premium charges for his products in the market and this example in the garment industry is the ZARA, NEXT, GAP etc in the garment industry of UK. AHL operations are in house system in which a efficient manufacturing process is undertaken with all new production and management techniques (JIT, MRP, TQM)and charge the highest price in the market. (appendix 1show the process of operation in both companies)

TIME

Time included the delivery time, manufacturing lead time, due date, frequency of delivery, rate of production of the entity.

AHL has its two manufacturing plants one is in Karachi and 2nd is in Shekhupura, AHL has Karachi plant produce 300 units of motorcycle per day. AHL has design its process efficiently to minimize the manufacturing lead time and fulfill the customers orders on time but again this internal efficiency depend on suppliers relation and efficient supply chain. The production example given 300 units for Karachi plant is the best example of manufacturing speed which is short and good for the company and this in return help on time delivery system where demand occur.

The Primark outsourced its garment products from ASIAN countries mainly from Bangladesh, so according to the nature of the business in its industry the Primark has face fast development speed in the products because its products become out of fashion very fast so Primark has need the good relationship with its supplier because of its fast changing industry nature so wants the continuous deliveries. AHL also used the product development in its manufacturing plants in KARACHI and SHEHUPURA for introduction of new products.

FLEXIBILITY

Flexibility include the customization, variety and the volume of the production.

The AHL production have all the customization, variety and volume features are included for example the four different products it produce is one feature of customization, variety and volume in production process is to support larger volume production and quickly manage within fluctuating demand which is again come in AHL production system in which it produce four type of customized motorbikes for targeted customers market with the production capacity of 600000 per year.

The variety and volume flexibility is also seen in the Primark retail stores in which large amount of fashion cloths for all men, women and children are on the shelf and in the warehouses but the customization is in the product is not inside its process because it sell the products TO general public in the market.

B: criticize

1: CAPACITY MANAGEMENT

Capacity information is used by the companies to analyze and maximize their output, understand the companies capacity cushion and use the information for long and short term decision for expansion strategies.

Capacity planning is a systematic approach to three issues pertaining to capacity,estimating the amount of capacity required, evaluating the alternative methods to augmenting the capacity and devising methods to use capacity effectively.

b.mahadeven (2007). operations management theory and practice. new delhi: dorling kindersley. 219-221.

The firm go through the situation of overcapacity, appropriate capacity and inappropriate capacity. The size, time and capacity become the constrains in the organizations.

The company use the expansion and see and wait policy to cope when they face the constrains for example the BRITISH AIRLINE use the seats as his capacity, PRIMARK floor space and the ATLAS HONDA use his machines or the process in the one constrain theory as a capacity which become the constrain at the time of demand.

In short time company use to manage itself within capacity but in long term it use to expand by acquisition or investment in the operation process.

The capacity management take long time to manage if it applied by expansion policy with the large investment in operations to cope with demand but in short term lose the increased demand.

Capacity planning included the judgment with based on the experience and the capacity planning used to get the economy of scale but after an specific point this benefit turns into the marginal increased unit cost which start to reducing the profit.

b.mahadeven (2007). operations management theory and practice. new delhi: dorling kindersley. 219-235.

Inventory management.

Inventory management can be defined as Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status.

The companies use the different inventory methods for managing inventories

1: Just in time (JIT) In the JIT method the company use the pull strategy according to which it place orders when it requires for production or demand by customer. CIMA P7, CIMA PUBLISHER,2005

2: Economic Order Quantity(EOQ) The EOQ system is a quantitative method for inventory management , which minimize the inventory holding cost and ordering cost by use of a formula :

√2*A*CP/CH

3: SAFETY STOCK Is a PUSH POLICY, safety stock is normally used traditionally to cope with unanticipated demand so the large buffer stock is retained in the big warehouses to manage with the unforeseen demand otherwise the company lose the sales and there will emerge the danger to lose the customer so company pay more to stock the inventory and pay more to stocking.

4: ABC INVENTORY is use to cauterize the inventory according to their value in organization .

The companies used to manage their inventory because on average, 56 cents out

of every dollar of revenue (i.e. 56 percent of revenue) to cover the direct cost of

purchased goods, with this percentage figure being even higher for the typical

wholesaler or retailer (Monczka et al., 2002; Handfield, 2002). Add to this figure the

indirect cost of having to manage inventory of purchased goods (which has been

estimated to be 30-35 percent of the value of purchased goods – see Chase et al., 2004)and the total cost of purchased goods inventory can be quite alarming.

The inventory management need the investment and warehouse which used by PRIMARK who received the outsourced supplies and distribute to other stores in Europe which cost him high and reduce profit.

The inventory management polices as JIT and ABC systems want the basic changes in operation and the process and affect the emplyees as well to understand the them.

New inventory policy as JIT want supplier commitment because it change the whole supply chain and want the amendment in suppliers system so it affect all supply chain system.

organizational management and information system,2005,oxford,c.i.m.a

The PRIMRK and the AHL need to decide the inventory management system before the decision of capacity management because the JIT system not need high investment on expansion policy.

PERFORMANCE MEASURE

Here we use two type of performance measure

1: Multidimensional performance measure

Balance scorecard

2: Qualitative performance measure

Matrices

1: BALANCE SCORECARD

The balanced scorecard translates mission and strategy into objectives and measure into four different perspectives provide a framework, a language, to communicate mission and strategy, it uses measurement to inform employees about the drivers of current and future success. By articulating the outcomes the organization desires and the drivers of those outcomes, senior executives hope to channel the energies, the abilities, and the specific knowledge of people throughout the organization towards achieving long term goal. It should be used as a communication, informing, and learning system not controlling. (adopted, Kaplan and nortan, 1996, p.25)

Balance scorecard does not lead to a single aggregate summary control for example if we use RETURN ON INVESTMENT (ROI) it conveniently show “ how things are going”.

No clear relation between the BSC and shareholders’ value.

Measure may give conflicting signals and confuse management. For example high customer satisfaction lead to falling financial indicators.

BSC involves substantial shifts in corporate culture to implement.

So if the AHL and the PRIMARK use the balance scorecard for their performance measure the above problems also occur in the system.

So the capacity management and the inventory management comes in the internal business process part of the balance scorecard.

Supply chain value

Normally porters value chain model used for analyzing the operating process in manufacturing industry but we can use it in service industries as well. These activities are linked with each other to create value for the customer in the product and service. (appendix 1 shows the value chain of both companies). But the supply chain value add two more componenets in the value chain.

Supply value chain → company value chain → customer value chain According to a July 16 report in The Wall Street Journal, Nissan Motor Co. halted production at four factories in Japan and at two auto manufacturing plants in the United States for three days in July due to a delay in the shipment of engine control units from supplier Hitachi Ltd. Hitachi officials said the delay was caused by a shortage of semiconductor chips from its suppliers.

Nissan, which had adopted the Lean model about five years ago and dramatically reduced its inventory, said the production stoppage will reduce the company’s output by 15,000 vehicles.

However, Lean expert Matt Wrye, who writes the Beyond Lean blog (beyondlean.wordpress.com), said that Nissan’s issues were the result of a misapplication of Lean techniques. “If you had hiccups in procurement, Lean behavior would ask questions around what are the hiccups in procurement,” he wrote. “Then Nissan would solve [these] problems, not arbitrarily start to add more suppliers ‘just in case’ they have a similar hiccup in the future.”

http://www.isixsigma.com/index.php?option=com_k2&view=item&id=1699&Itemid=156 last access 22 march 2011

Total Quality management

TQM is a process and philosophy of achieving best possible outcomes from the inputs, by using them effectively and efficiently in order to deliver best value for the customer, while achieving long term objectives of the organization.

r.ashley.rawlins (2008). total quality management. london: authur house. 5-10.

TQM involves the three main components

Customer satisfaction involve conformance to specification, value, fitness for purpose, support, psychological impression

Employee involvement include cultural change, teams.

Continuous improvement is based on the philosophy of KAIZEN theory, to improve in each aspect of the entity.

Quality as four type of cost

Prevention example check the inbound logistic

Appraisal example quality of inbounds

Internal failure include cost of failure before sell to customers

External failure example warrantee, guarantee

TQM is the continuous improvement in the product and services which is not enough because the quality is what the customer so the AHL not only continuous improve the process but also make sure the customers needs in his products.

TQM is not easy to apply but it needs a long time to internalize in the companies all aspect and it is also expensive for any company for example if Primark want the quality in his services it need to implement in each activity.

TQM want the employee commitment so it is not easy to get the person to do what you want .

TQM wants the cultural change in the organization which is a challenge for the organization and if not implemented successfully its become the danger for the company’s survival.

http://findarticles.com/p/articles/mi_m3257/is_n12_v47/ai_14858551/?tag=content;col1 last access 21 march 2011

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