Hero Honda Motors the worlds major manufacturer of two wheelers
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Published: Mon, 5 Dec 2016
The company is a joint venture between India’s Hero Group and Honda Motor Company, Japan that began in 1984.
In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and the ‘World No.1’ two-wheeler company in terms of unit volume sales in a calendar year by a single company. Hero Honda has retained that coveted position till date.
Today, every second motorcycle sold in the country is a Hero Honda bike. Every 30 seconds, someone in India buys Hero Honda’s top-selling motorcycle – Splendor.
The Hero Honda story began with a simple vision – the vision of a mobile and an empowered India, powered by Hero Honda. This vision was driven by Hero Honda’s commitment to customer, quality and excellence, and while doing so, maintaining the highest standards of ethics and societal responsibilities. Hero Honda believes that the fastest way to turn that dream into a reality is by remaining focused on that vision.
In the 1980’s Hero Honda pioneered the introduction of fuel-efficient, environment friendly four-stroke motorcycles in the country. Today, Hero Honda continues to be technology pioneer. It became the first company to launch the Fuel Injection (FI) technology in Indian motorcycles, with the launch of the Glamour FI in June 2006.
The company has been continuously investing in brand building utilizing not only the new product launch and new campaign launch opportunities but also through innovative marketing initiatives revolving around cricket, entertainment and ground- level activation.
Hero Honda has been actively promoting various sports such as hockey, cricket and golf. Hero Honda was the title sponsor of the Hero Honda FIH Hockey World Cup that was played in Delhi during Feb-March 2010. Hero Honda also partners the Commonwealth Games Delhi 2010.
What is Lean Production system?
The lean systems are an operations system that basically maximizes the value added by each of a company’s activities by pairing unnecessary resources and delay from them. Basically lean system includes the company’s operations strategy, process design, quality management, constraint management, layout design, supply chain design, technology and inventory management and can be used by the both service and manufacturing firms. Like a manufacturer, each of the service business firm first take the order from the customers, then deliver the services and at last collect the revenue from their customers. Every service company purchases services or items, receives and pays for them, and hires and pays employees. The same activity can be held in a manufacturing firm. They also contain a large amount of waste.
Lean systems affect a firm’s internal linkages between its core and supporting processes and its external linkages with its customers and supplier. The using of the lean system is very important for the various department and functional area across the organisation. The system is used in the all functional department of the organisation like, marketing, human resource, engineering, operations, and accounts as well. The top management must embrace the lean philosophy and make it a part of organisational culture and learning.
Q1. Critically evaluate the use of lean production and/or lean services in your chosen
Organisation (10 marks)
Hero Honda® production system:-
Now at present time Hero Honda® is the king of the road from 1983 in India. Hero Honda target young generation as well as the old generation by providing the variety of product and service. Than some issues have been occurred that is management errors, competition and recession. The company was rescued by a sympathetic investor and a well-operated version of Lean Manufacturing system. In 1983 had an 80% market share but this dropped about 53% 20 years later? In the period of recession in 2003 the sales reduced nation-wide as well as Hero Honda market shares also reduced. Than the CEO Brijmohan Lall convinced lenders to restructure their plan strategy. That is based on the “Japanese management principals” who affect mainly the Hero Honda production system or the lean manufacturing system. After reducing tariff the large number of imported motorcycles has done a dramatically changes in their share price. The plan was becomes successful. In between 1983 and 2007 the company had increased inventory turns from 5 to 20, reduced inventory by 75%, reduced scrap by 68%, and reduced manufacturing space requirements by 25%. In the same manner the improvements were made to the marketing and product development sides of the company.
Hero Honda®, Inc. employs about 23,000 people in India. In the improvement process it is very critical to process the employee involvement. It required an ultimate, unique and trusting relationship with the union. The union always viewed management as a partner and it the management responsibility that they tried to “in-source” as much work as possible to help improve worker employment potential which is really proved them by the company management team. In Hero Honda the workers always responded by embracing and owning quality and continuous improvement.
Material forecasting and replenishment:-
Hero Honda® used material replenishment and forecasting used to reorder regularly stocked their products. It contains evaluation of a need for material or components, communication of the requirements of the supplier, and fulfilment of the required by the supplier.
Evaluation of the just- in- time (JIT) Production system in Hero Honda®:-
The term just- in- time (JIT) is used to refer to an operation system in which materials are moved through the system and services are delivered with precise timing so that they are delivered each step of the process just as they are needed. A highly coordinated, repetitive manufacturing or service system designed to produce a high volume of output very few resources than more traditional repetitive system, but with the ability to accommodate more variety than traditional system. The lean operations basically high quality processes in particular place. Quality is the internal part of the lean operations; without the quality lean operations can’t exist in any organisation. The JIT basic approaches to manufacturing planning, control and the material requirement planning (MRP). JIT operates on a “pull”, or demand basis whereby work is pulled from each step in process to the next step when next step has a demand for it, rather than pushed on to the next step when the work is completed at the present step.
The building blocks of the JIT system in Hero Honda are as follows:-
Highly capable production system with quality built in.
Small lot sizes.
Setup time reduction.
A balanced system.
A little inventory system.
Fail safe methods.
3. Personnel /organisational elements:-
Workers as assets.
Cross trained workers.
Leadership/ project management.
4. Manufacturing planning and control:-
a) Level loading.
b) Pull system.
c) Visual system.
d) Limited work in progress.
e) Close vendor relationship.
f) Reduced transaction processing.
g) Preventing maintenance and housekeeping
Q2. Discuss and recommend how waste is/can be managed along your chosen organisations
Value chain (20 marks)
According to the JIT there are the six types of the wastes in Hero Honda which are as follows:-
Waste from overproduction.
Waste of waiting time.
Waste of motion.
Waste of underutilized people.
Recommendation to manage the waste
Waste from Defects
The simplest form of waste is components or products that do not meet the specification. In this form of waste Hero Honda need to assign inspection team at the end of each process in their supply chain to ensure the quality of product because by doing this Hero Honda can decrease the level of waste from defects in their production house which make a product near to perfection.
Waste from Over-Production
A key element of JIT was making only the quantity required of any component or product. This challenged the Western premise of the Economic Order Quantity (EOQ) which was built on acceptance of fixed ordering costs, built around set-up times, and thus the need to spread these fixed costs over large batches.
Waste of Waiting Time
Time not being used effectively is a waste – we are incurring the cost of wages and all the fixed costs of rent, rates, lighting and heating so we should use every minute of every day productively. In this waste Hero Honda need to assign a person who can monitor the action in production house and need to insure that everyone is working and need to fill up the Gap which make the waiting line in the supply chain. Thus we have learnt about preventive maintenance and the creation of flow through our factories with the emphasis on tact time, the rate at which a component or product moves to the next stage.
Items being moved incur a cost, if it is only the energy needed to initiate the movement – such as the electricity absorbed by a fork lift truck. Of course, movement brings another cost, which is less visible but more significant. In this type of waste a manger or a supervisor need to check that the Transportation process is flowing smoothly or not in supply chain and need to fill the linkage/ gap which create the transportation process slow like assigning of next available driver if the main driver is unable to run the truck due to any reason.
On a related note, people spending time moving around the plant is equally wasteful. The time a machine operator or fitter wastes walking to the tool room or the stores for a fixture or a component could be far better utilised if our plant layout and housekeeping were geared around having everything that is required close to hand.
Inappropriate Processing Waste
The most obvious example of inappropriate processing from my own experience relates to surface finishes that required components to be moved to grinders for completion, when in fact such finishes served no purpose. A basic principle of the TPS is doing only what is appropriate.
The element that Western industry immediately focused upon when confronted with JIT was the cost reduction available from holding less inventory. We now know that stock hides problems and that problems are pearls in that finding a problem is a good thing – now we can solve it, which we couldn’t until it came to light! So manager need to check the Inventory level on regular basis which make a company to held inventory at right level which satisfied the customer demand level.
H) Waste of underutilized people
This type of waste can cause reduce the speed to supply chain, company provides wages to their employee to work at their best and in this case a manager need to check his team effort level and if he find any employee is unable to perform certain work within the desired time, he need to assign to that place where he can perform well, like a employee is taking so much time to process one work in manufacturing ground , here a manger need to assign him to that place where he can perform well. Manager can take certain action here like he can trained that employee which help him to perform well or motivate him so that he can perform well.
Q 3 Evaluate the impact that your recommendation will have on your organisation’s resources,
and justify how your recommendation will ensure increased competitiveness, long term
sustainability and corporate social responsibility (30 marks)
Hero Honda Group operates a just-in-time which works to achieve the goals of eliminating the wastes and to solve the related problems through the supply chain system. Some people think that JIT is the system of reducing the inventory wastes. The main goal of the JIT in Hero Honda® is to maintain a supply chain excellence.
After operating the JIT system in Hero Honda it place a great impact on the supplier section process so that they are able to produce the right product, at right quantity and quality mainly when they needed , and in the same manner that Hero Honda® requires them to be delivered. Hero Honda® and their suppliers simplify and standardize their products as more as possible. And they become successful in the products and process utilized to manufacturing the products. The focus of the Hero Honda® JIT environment provides a supply chain that is really useful to minimizing the wastes, increases flexibility, reduce inventory and also to minimizes the overall lead time for the material replacements. Hero Honda® generates its material for Original Equipment’s parts which is using the Master Production Schedule (MPS) which is used to produce by the Operations Planning Department in connecting with information provided by Marketing, Manufacturing, Finance, and Purchasing. The Master Production Schedule also plan for the plants internal capacity with external sales demand while producing products that assist us in meeting Hero Honda financial goals.
Results of Hero Honda’s JIT implementation:
Inventory levels decreased 75%.
Total unit sales of 46, 00,130 two-wheelers, growth of 23.6 per cent.
Total net operating income of Rs. 15860.51 Crores, growth of 28.1 per cent.
Net profit after tax at Rs. 2231.83 Crores, growth of 74.1 per cent.
Final dividend of 1500% or Rs. 30 per share on face value of each share of Rs. 2.
EBIDTA margin for the year 17.4 per cent.
EPS of Rs. 111.77, growth of 74.1 per cent.
Recommendation will ensure increased competitiveness, long term sustainability and corporate social responsibility.
Reduced Setup Times: All setup practices are wasteful because they add no value and they tie up labour and equipment. By forming procedures, using carts, and training workers to do their own setups, Hero Honda managed to slash setup times from months to hours and sometimes even minutes.
Small-Lot Production: Producing things in large batches results in huge setup costs, high capital cost of high-speed dedicated machinery, larger inventories, extended lead times, and larger defect costs. Because Hero Honda has found the way to make setups short and inexpensive, it became possible for them to economically produce a variety of things in small quantities.
Employee Involvement and Empowerment: Hero Honda organized their workers by forming team and gave them the responsibility and training to do many specialized tasks. Teams are also given responsibility for housekeeping and minor equipment repair. Each team has a leader who also works as one of them on the line.
Quality at the Source: To eliminate product defects, they must be discovered and corrected as soon as possible. Since workers are at the best position to discover a defect and to immediately fix it, they are assigned this responsibility. If a defect cannot be readily fixed, any worker can halt the entire line by pulling a cord (called Jidoka).
Equipment Maintenance: Hero Honda operators are assigned primary responsibility for basic maintenance since they are in the best position to defect signs of malfunctions. Maintenance specialists diagnose and fix only complex problems, improve the performance of equipment, and train workers in maintenance.
Pull Production: To reduce inventory holding costs and lead times, Hero Honda developed the pull production method wherein the quantity of work performed at each stage of the process is dictated solely by demand for materials from the immediate next stage. The Kamban scheme coordinates the flow of small containers of materials between stages. This is where the term Just-in-Time (JIT) originated.
Supplier Involvement: Hero Honda treats its suppliers as partners, as integral elements of Hero Honda Production System. Suppliers are trained in ways to reduce setup times, inventories, defects, machine breakdowns etc., and take responsibility to deliver their best possible parts.
Lean methods are applicable not only in production, but also in service-oriented industry and service environment. Every system contains waste, i.e. something that does not deliver value to your customer. Whether you are producing a product, processing a material, or providing a service, there are elements which are considered ‘waste’. The techniques for analysing systems, identifying and reducing waste, and focusing on the customer are applicable in any system, and in any industry.
Only executives who have a direct involvement with finding, keeping, or growing customers as well as key support staff – accountants, tax, legal and human resources people – should stay. Others can be rehabilitated by sending to an operating unit.
PEST analysis for Hero Honda
Potential impact on business
Unstable condition of the middle-east and the political instability including the Indian war with Pakistan, china and Bangladesh war
Upwards of 8 million automobile have been recalled in the India, amid reports of Hero Honda’s vehicles accelerating rapidly.
The Indian government bring Hero Honda into trial over the issue which may effect on Hero Honda’s brand image.
The Indian government’s stakes in Yamaha and TVS may influence the investigation and discriminate against its direct competitor.
Potential impact on business
Steep increase in crude oil price.
Global demand has exceeded global oil production. India growing at 8-10% annually have put a huge demand on oil in the global market keeping prices steady.
The price of gasoline, driven by supply concerns and increasing demand will serve to increase the attractiveness of vehicle options like plug in Electronic Bike that are less dependent on gasoline.
Governmental tax increases and tax credits on gasoline will increase the desirability of plug in Electronic Bikes
Potential impact on business
The development of ethnic markets can be relevant. In a number of countries, the ethnic mix of consumers is changing due to immigration and other factors.
The result of an increased number of women working over the past decades.
This will be reflected in changing demands for various goods, not only from the specific ethnic group but from other consumers whose tastes have been affected by them. Furthermore, as ethnic groups immigrate to other countries, their own tastes can affect those of consumers in the host nation.
This has been elevated household incomes, allowing for more frequent purchases of new vehicles.
Potential impact on business
Technological breakthroughs related to components and systems.
Development of leading-edge components and systems ahead of competitors.
4. Using Porter’s value chain as a template, create a framework that will assist a newly
employed first-line manager in your organisation with the following:
a. Identify the types wastes in both primary and support processes
b. The ‘danger signals’ of each waste
c. How to respond to the ‘danger signals’
Main Features of Porter’s Five Forces Analysis
The original competitive forces model, as suggested by Porter, identified five forces which would impact on an company’s behavior in a competitive market. These include the following:
The rivalry between existing sellers in the market.
The power exerted by the customers in the market.
The impact of the suppliers on the sellers.
The potential threat of new sellers entering the market.
The threat of substitute products becoming available in the market.
The ten guiding principle of lean manufacturing can be précised:
1. Eliminate waste
2. Minimize inventory
3. Maximize flow
4. Pull production from customer demand
5. Meet customer requirements
6. Do it right the first time
7. Empower workers
8. Design for rapid changeover
9. Partner with suppliers
10. Create a culture of continuous improvement (Kaizen)
The unique Hero Honda management system was contributed by upper management , who also developed the Hero Honda Production System . The Upper management summed up the theory behind the management of Hero Honda as, ‘work’ refers to the production of perfect goods only. If a machine is not producing perfect goods, it is not ‘working’.”
Hero Honda’s Competitive Advantage
Hero Honda’s competitive advantage is based on a corporate philosophy known as the Hero Honda production system. The system depends in part on a human resources management strategy that stimulates employee creativity and loyalty but also on a highly effective network of suppliers and components manufacturers.
CSR Policy- Contribution towards Sustainable Development
CSR Policy: Contribution towards Sustainable Development (adopted in 2003 and revised in 2008) explains how Hero Honda adapts the Guiding Principles with regards to social responsibilities to stakeholders. HERO HONDA MOTOR’S and their subsidiaries, take initiative to contribute to harmonious and sustainable development of society and the earth through all business activities that carry out in each country and region, based on Guiding Principles. Hero Honda complies with local and national laws and regulations as well as the spirit thereof and conducts business operations with honesty and integrity. In order to contribute to sustainable development, Hero Honda believe that management interacting with its stakeholders is of considerable importance, and Hero Honda will Endeavour to build and maintain sound relationships with stakeholders through open and fair communication. Hero Honda expects business partners to support this initiative and act in accordance with it.
The lean and TPS does work in Hero Honda since many years which make it the India’s best seller company. Hero Honda has an operating model for their business and everyone in the company knows about it. As long as they stick with their plan Hero Honda managed a very strong quality system.
There are some potential drawbacks of lean manufacturing. Delays in deliveries of stock when using just in time system can effect the next stage. Adhering to quality standards can take extra time and people which all add costs to businesses. However, if managed carefully ,the benefits of adopting a lean methodology to production for outweigh the drawbacks.
PORTER’s ValueChain Template
Firm infrastructure -general management, legal, finance, planning management and accounting.
Type of wastes
How to respond to danger signal
Average delivery time
Ask for reason
If continuous repeated source take raw material from another supplier.
Not full finished
Consistent improvement in technology used in printing, manufacturing and finishing goods
Not full utilisation of manpower
Lack of knowledge
Proper training to new as well as existing employees for firm growth perspective.
Continuous improvement in IT infrastructure
The main goal of the JIT is to achieve a balanced, smooth flow of production. Supporting goals include eliminating disruptions to the systems, making the system flexible, and eliminating the waste. Lean system requires the elimination of sources of potential disruption to the even flow of work. High quality is essential because problems with the quality can be disrupting the process. Quick low cost setups, special layouts, allowing work to be pulled through the system rather than pushed through, a spirit of cooperation are important tools of the lean systems.
The benefits of the JIT/lean systems are reduced inventory levels, high quality, and flexibility, reduced lead times, increased productivity and equipment utilization, reduced amount of scrap and rework, and reduced space requirements.
Careful planning and much effort are needed to achieve smoothly functioning systems in which all resources needed for the production come together at precisely the right time throughout the process. Raw material and purchased parts must be arrived when needed. Teamwork and cooperation are always the important tools at all the levels, as are problem solving ability of workers and attitudes of continuous improvements.
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