An Introduction To The Operations Management Concepts Business Essay
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Operations Management has been defined by Krajewski, et al. (2007) as the control and direction of the processes of the organization that changes its input materials to products and/or services for its customers. This report will compare how Mercedes-Benz and Honda manage their operations. The comparison might be useful because it would help identify various ways an organisation could be run in order to meet its goals and objectives.
The report will give a brief background of the two organizations mentioned above and then would move on to the comparison of their marketing strategies and competitive priorities. Finally, the importance of frameworks such as capacity planning, inventory management, supply chain design, Total quality management and performance measures, would be discussed and how they could be useful in helping an organisation function efficiently and effectively.
A) COMPANY BACKGROUND OF MERCEDEZ BENZ [MERCEDEZ-BENZ U.S. INTERNATIONAL, inc. (MBUSI)] and HONDA [HONDA MANUFACTURING OF ALABAMA, LLC. (HMA)].
Mercedes-Benz U.S. International, Inc. (http://www.mbusi.com) was established for the main purpose of manufacturing the M-Class. The M-class was such a huge success that they decided in August 2000 to expand the facility not only to manufacture more units of It, but also to include the R and GL-classes to its product list. The expansion not only doubled the plant size but also the labor force. The plant consists of a body shop, paint shop and two assembly shops. MBUSI receives orders from their 135 worldwide markets.
MBUSI uses the "Just-in-Time" (JIT) philosophy which implies that they do not stockpile large amounts of the inventory they use to assemble their cars.
HMA (http://www.hondaalabama.com) manufactures the odyssey, ridgeline and pilot models for the world wide market. HMA's investment in Alabama is over $1.4billion with the construction of a new Honda Engineering facility, on-site consolidation center and steel blanking operation. One of their goals is to be able to produce goods with high quality and sell at a reasonable price. HMA can be referred to as a Zero Landfill Facility due to the fact that they are committed to the principle of "Reduce, Reuse and Recycle". They have made efforts in curbing energy use during their production processes, and this has earned them an energy star award from the U.S. Environmental Protection Agency (EPA).
A.1) OPERATION/TRANSFORMATION PROCESS OF THE ORGANIZATIONS
The manufacturing process for both models begins in the Body Shop where the components that comprise the metal body are welded together. From the body shop, they are taken to the ultra-clean Paint Shop where the cars are painted. Finally, they end up in the Assembly where it becomes a new Mercedes-Benz M, R, or GL-Class ready for shipping. From beginning to end, these vehicles are created with style, functionality, and quality in mind (http://www.mbusi.com).
Honda Manufacturing of Alabama (HMA) has the largest output for Honda light trucks. It has the capacity to create over 300,000 odyssey minivans, pilot sport utility vehicles, Ridgeline pick-up trucks and V-6 engines annually (http://www.hondaalabama.com).
A.2) COMPARISON OF THE ORGANISATIONS BASED ON MARKETING STRATEGIES
The Ansoff matrix suggests four ways an organisation could develop strategically. The first one which is market penetration deals with going into the market yet further with existing goods, the next one, product development, has to do with developing new products for the existing market, the third which is market development deals with developing new markets and new segments for existing products while the final one which is diversification takes a radical step to create new products for new markets (Wood, 2007).
The table below shows the similarities and difference in marketing strategies between MERCEDEZ-BENZ and HONDA.
The marketing strategies mentioned in the table above will be discussed in the following paragraphs.
Product Development deals with producing new products or improving existing one's for the existing market.
According to Mercedes-Benz (http://www.mbusi.com) and HONDA (http://www.automobiles.honda.com), below are some of the areas they have tried to improve their products. Mercedes (GL-CLASS/C-CLASS) and HONDA (PILOT/INSIGHT HYBRID) would be used as examples.
-12-Way protection of an 8-air bag protection
-Electronic stability program(ESP)
-Low tire pressure warning system
-Active head restraints
-Three-Row side curtain airbags with rollover sensor
-Vehicle stability assist with traction control
-Lower Anchors and Tethers for children(LATCH)
- Advanced compatibility Engineering(ACE) body structure
-Tire pressure monitoring system(TPMS)
-Room for 7 adults
-collapsible seats for 2ndand 3rdrow, leaving more cargo space.
-Room for 8 adults
-collapsible seats for 2nd and 3rdrow, leaving more cargo space.
4-WHEEL AIR SUSPENSION
- 4-wheel air suspension which can raise its height by up to 3". This is useful for off road trips.
-7500-ib towing capacity.
-4500-ibs towing capacity.
-Honda's variable cylinder management (VCM), which helps improve fuel economy.
-"Blue efficiency" technology which is efficient at reducing CO2 emissions
Reduced CO2 emission.
From the table above, it can be observed that the two organizations have developed their products in various areas which include safety, fuel economy, environmental friendliness etc. product development could be said to be a good marketing strategy because many consumers are drawn towards goods they can derive good value for money from. However, the development of a product might result to an increase in its price. This price change might discourage certain consumers from purchasing it which could have a negative effect on the amount of sales of the product.
Market Development is concerned with creating new markets and segments for existing products.
MERCEDEZ-BENZ and HONDA have registered their presence in many parts of the world. With respect to Honda, they have manufacturing companies in America, China, Japan, Europe, Indonesia, and India. When manufacturing automobiles in any region, the needs and values of the consumers over there should be put into consideration. This could help in getting the market to patronize you all the more. For example, according to (http://www.world.honda.com) because the European market is highly Eco-conscious, Honda manufactured and launched the Insight Hybrid and the CR-Z Hybrid in 2009 and 2010 respectively, in Europe. Honda also released the Accord Crosstour model in the African and Middle Eastern markets where the SUV category is widely popular in order to cultivate a new CUV (Cross-over Utility Vehicle) category that offers new added value.
Mercedes-Benz also has markets in various parts of the globe which include; Africa, Asia, Australia/Pacific, Europe, North and Central America, South America. Apart from developing new markets in different parts of the world, Mercedes-Benz has also tried to look into new customer segments. According to (http://www.exampleessays.com), they are looking to expand their market base to youths. This is being done by using a more 'life-style' marketing strategy which emphasizes a more fun loving, approachable and energetic side of Mercedes-Benz. This new message was obvious when they sponsored the Elton John concert in New York, and sponsoring of the professional tennis.
Market development is a good marketing strategy in that it could help increase sales. However, when organizations enter into new markets without carrying out proper research on its suitability for their products, if it turns out that the market is not favorable enough due to reasons such as low purchasing power of consumers, then that product being introduced might not perform too well in the market.
Diversification is developing entirely new products for a new market.
Unlike Mercedes-Benz, Honda is into the production of different goods in different product lines. They manufacture Automobiles, Power sports (motor bikes and ATV's), Jets, Power equipments (Generators, lawnmowers, pumps, snow blowers etc), Honda Marines (Engines used for boats), and Honda Engines for (water pumps, agricultural equipments, forestry equipments, etc). Diversification is a very useful marketing strategy in that it helps expand the market base of the organisation and thereby increase the sales opportunities. However, for various reasons such as availability of substitute goods; strong competitors etc, certain brands might become weak or unprofitable and this could affect the organization negatively.
A.3) COMPARISON OF THE ORGANISATIONS BASED ON COMPETITIVE PRIORITIES.
Some of the competitive priorities will be discussed below.
Both Mercedes and Honda have consistent quality as a competitive priority. It may be argued that Consistency is being achieved due to the fact that production of cars is highly automated, and so the chances of error are slimmer. Honda and Mercedes for example have robots they use in their plants. These robots have been programmed to work in a particular which helps ensure consistency.
Both organizations have a wide range of goods available to customers. Mercedes has the A, B, C, CL, GL, S, SLK, E, R, M etc classes. On the other hand, Honda has different models of vehicles which include Accord coupe, crosstour, sedan, Civic coupe, hybrid sedan, si coupe, odyssey, pilot, Ridge line truck, etc. With this in place, the consumers have an array of choices.
Delivery speed might be argued to be an important competitive priority to organizations because usually, consumers prefer going to places where they can get what they want when they want it. If an organisation can not deliver to its customers as quickly as possible, with time they might loose them. This could be one of the reasons why some companies decide to have branches all over the world just like Mercedes and Honda. The nearer you are to your market, the faster you can deliver.
Majority of Mercedes vehicles are luxurious and sophisticated. The materials involved in the manufacture of their cars are of higher quality and therefore could relatively cost more. This reflects in the price of the vehicle at the end of the day as Mercedes cars are usually very expensive. On the other hand, Hondas' cost of operation might be a little lower because they manufacture vehicles that fall in the "small car" market; the raw materials used may not be as expensive as that of Mercedes. This is an area Honda and Mercedes differ.
B.1) CAPACITY PLANNING AND THE EXPANSIONIST MODEL
Capacity planning is employed to ensure that the processes in any given organisation run smoothly without any hitch. It would help identify the bottle necks, and then suggest ways of alleviating them. And also, through demand forecasts, it helps to guide the decision on whether or not to increase their capacity by buying more equipment, putting up more structures etc. There are a couple of tools used in capacity planning, and one of them is the expansionist model.
The Expansionist strategy makes a forecast on demand and based on this, decides whether or not to expand capacity. The advantage of the expansionist strategy is that if the forecast is accurate, the chances of sales being lost to insufficient capacity becomes very narrow. However, if the demand does not increase as expected, the investment made in expansion might become a waste.
Honda (http://www.world.honda.com) used the expansionist strategy when it forecasted that in 2004 they expected sales to increase by 36% of the previous year in the Asia-Oceania region. This made them increase the annual production capacity in India from 30,000 to 50,000 units. This decision to expand would have helped them reduce the chances of missing out on sales due to capacity insufficiency.
B.2) INVENTORY MANAGEMENT AND JUST-IN-TIME (JIT)
Inventory management has to do with monitoring the in-flow and out-flows of the goods of an organisation in such a way that they do not have too much in store, and at the same time are able to meet up with their demand. There are different methods of managing inventory in an organisation, and one of it is Just-In-Time (JIT).
JIT is a philosophy which states that products should be ordered for and produced only when needed, and that they should not be produced to store away. The advantage of the JIT philosophy is that it produces a lean system which is anti-waste. JIT also helps save on cost such as storage, handling, shrinkage etc. However, if suppliers fail to deliver on the agreed date, fail to deliver materials of acceptable quality and/or deliver materials that require scrap or rework, the organisations' processes would be disrupted.
Mercedes ( http://www.mbusi.com) uses the JIT philosophy for its operations. In their body shop, they have about one day's supply of materials, and on the production line they have about 40 minutes of parts. Their team uses a computerized system whereby if they need more materials, a member of the team pushes a button which sends a signal to the screen on the forklift which will inform the forklift driver on which part is needed for what particular station. They use this system as opposed to stockpiling of parts on the line. It works for them because it helps them to be "lean"
B.3) SUPPLY CHAIN DESIGN AND OFF SHORING
Supply chain design has to do with the plan the organization has in place to ensure its supply chain does not hinder it from being competitive in the market. Supply chain design is both relevant to the service and manufacturing industries. In the service industry, it seeks to ensure that the resources needed to provide a service are always available in the right proportion, while in the manufacturing industry, it seeks to ensure that the organization does not have too much nor too little stock in its possession so they could meet up with their competitive priorities. One important aspect of supply chain view is off shoring.
Off shoring involves establishing branches of an organization in one or more parts of the world. This could be done for various reasons one of which is to reduce the cost of logistics. However, if there is an over-estimation of the suitability of the intended location for the organization, and after setting up there for a while, they discover the prospects are not as bright as they thought probably due to insufficient power supply, they might have to fold up the organization which might be very costly because they would have invested so much in the project. It is therefore important for organizations to make sure it is absolutely necessary before embarking on an off shore project.
Both Mercedes and Honda have off shore branches, and this can be reflected in the number of subsidiaries they have all over the world. One of the reasons why they do this is to be closer to their customers, so they can cut down on delivery cost.
B.4) TOTAL QUALITY MANAGEMENT AND 3 PRINCIPLES
Total quality management (TQM) is used to ensure that the goods produced and services rendered by an organization are of good quality, and up to standard. The International Standard Organisation (ISO) sets the bar for all organizations. TQM takes into consideration three principles which include; level of customer satisfaction, degree of employee involvement and the rate of continuous improvement.
Customer Satisfaction: This has to do with producing goods and rendering services that meet the need and satisfy the desires of the customer. It is important for an organization to satisfy their customers because they are the ones who keep them in business. If your customers are unhappy with your goods or services and they leave, then that organization might fold up in less than no time.
Employee Involvement: This has to do with getting the opinion of workers on how to move the organisation forward. It might be argued that involving employees in some decision making processes is essential to the success of that organization because, it makes them feel useful and so they might want to put in their best in what they do. They are allowed to be innovative and to contribute their ideas to the organization which might end up taking the company to heights of greatness.
Continuous Improvement: This deals with ensuring organizations processes are always efficient and effective. The competition in the market now a days is so stiff that organizations cannot afford to have a lackadaisical attitude towards the continuous improvement of their processes. If they do that, they would loose their customers to their competitors.
It could be said that the application of the 3 principles to an organisation would be helpful for its survival. However, it might be expensive to handle especially when it comes to the continuous improvement bit because it might entail having to train staff on a frequent basis.
Mercedes (http://www.mbusi.com) tries to continuously improve their processes by training their staff before and even after they commence work.
B.5) PERFORMANCE RESOURCES AND BALANCED SCORE CARD
Each organization need some form of benchmark to measure their level of performance. Kaplan and Norton's balanced scorecard could be used for this purpose, and it is discussed below.
Financial Measures; this has to do with the measurement of the financial performance of the organisation. It takes into perspective concepts like Operating income, ROI, EBIT etc. Daimler AG, (http://www.daimler.com) the parent company of Mercedes had a net profit of C1.4billion in 2008 while in 2009, they recorded a net loss of C 2.6billion. This loss might be partly because of the economic recession. In 2009, (http://www.world.honda.com) Honda had an operating income of Y189, 643 millions while in 2010, it increased to Y363,775. Looking at these figures, one can tell at a glance their level of financial performance for those years.
Customer-Relationship Measure; this deals with how well an organisation treats its customers. It considers issues such as customer satisfaction, customer retention etc. Mercedes is a brand which could be argued to be well known for making their customers happy because they produce cars with "class". They try to meet the "need of sophistication" which their customers have. With the release of the CR-Z hybrid, Honda has also tried to satisfy a segment of its market which is the Environmental-conscious group.
Business Process Measure; This tries to assess how well an organistion manages its operations. It includes measures such as Quality, cost etc. Using quality as an example, one could say it is necessary for both Benz and Honda to have it because consumers are willing to buy goods that are worth the value of their money. So if these organizations lack this requirement, very soon they would run out of business.
Learning and Growth/Human Resource Measures; This deals with how the employees are treated in the organisation. Some measures for this include employee retention, employee satisfaction, training etc. Mercedes is having problems with staff retention due to the recession. As a result, they are retrenching workers because they want to reduce the amount spent on wages. Honda on the other hand has made efforts in trying to make their staff a bit comfortable. Honda guaranteed a sum of &31.7billion for employee bank loan so that if any of its employees take a loan a falters, that sum would bail them out.
C.1) EVALUATION OF THE MIX
The concepts in the mix might be argued to be essential to any given organisation. This could be because they each play very important roles in ensuring the operations of an organisation run smoothly.
Capacity planning helps ensure they don't loose out on demand due to insufficient capacity. Inventory management ensures they have the right amount of stock at every given point in time. This is necessary because they do not want so much stored up away which could result in an increase in holding cost, and at the same time they want to be able to meet up with demand. Supply chain Design helps to ensure the suppliers do not serve as impediments to the organisation from meeting their competitive priorities. Total quality management and performance resources are in place to ensure that the goods and services being produced are of acceptable standard.
Based on the functions of the various frameworks described above, it could be said that all the members of the mix are important to both Mercedes and Honda.
C.2) IMPACT OF THE MIX ON COMPETITIVENESS
It could be argued that capacity planning, supply chain design and inventory management are necessary for competitiveness.
Supply chain design is necessary because you need suppliers whose emphases are; on-time delivery, consistent quality and low prices. This could help organizations meet competitive priorities such as low cost operation, consistent quality, delivery speed, on-time delivery, top quality. Having a good supply chain design would be necessary for Mercedes (MBUSI) because they practice a JIT system which is highly dependent on reliable suppliers in order for it to succeed.
Capacity planning helps competitiveness in that it ensures the organisation always has enough products to meet its demand. This is essential because if customers seldom get what they want from an organisation, they might loose confidence in them and thereby stop patronizing them. Capacity planning would be useful to both Mercedes and Honda because there's a need to meet up with the demand for their products in order to build confidence in their customers.
Inventory management might also be necessary for competitiveness because for an organization which has low cost operation as its competitive priority, having too much goods in store might not be useful in helping them achieve this goal due to holding cost. Therefore such organisations need to monitor the amount of goods they have in stock at a particular point in time.
C.3) IMPACT OF THE MIX ON INNOVATION
Performance resources and Total Quality Management could impact innovation. One of the metrics in performance resources which has to do with new product/service development could have an impact on innovation because it's a benchmark that emphasizes product improvement. Also, the continuous improvement principle under TQM which states that organizations should try to deliver better goods and services on a constant basis could have an impact on its innovative skills.
Mercedes and Honda use this mix. That is why it can be observed that each model of car they release is an improved version of the previous one.
C.4) IMPACT OF THE MIX ON SUSTAINABILITY
The mix contains important principles which include capacity planning, inventory management, supply chain design, performance resources and Total quality management. If these principles are being applied to both Mercedes and Honda, these organizations would most likely remain in the market for quite a long period of time because the application of the mix gives an operational and competitive edge, and being able to compete in the market is necessary for survival.
SUMMARY AND CONCLUSION
This report has helped to highlight how important it is for organizations to manage their processes well by applying principles such as TQM, Capacity planning, inventory management etc because then, they will not only meet their competitive priorities, but they will be able to compete effectively against competitors in their target market.
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