BYD Case Study Analysis

FINAL BYD CASE STUDY ANALYSIS 2 The company BYD (Build Your Dreams) of China started with making high quality batteries in 1995 at a lower price. Batteries were already available, but they were poor quality and high price. Wang Chuan-Fu was the creator of BYD and would study the Japanese batteries since they were high quality and try and find ways to create the high quality with lower cost. Wang’s excitement with batteries lead to electric and hybrid global car market in which they want to become the largest car company. Lithium ion is the material for the batteries and the batteries of the vehicles BYD produces. The country of Bolivia has the largest source of lithium and is run by a socialist president and an indigenous population not keen on development of the region (Rarick et at.,2011, p. 27). BYD needs to make sure that if they are getting most of their lithium from Bolivia that they have a backup supplier. This could be a challenge making sure that they are able to get enough lithium from countries like Bolivia in order to keep operations going and product to the customer. BYD operates many of its production facilities in China & other countries with low-cost labor which is lower than labor costs in Europe & the United States. This low-cost labor can be a challenge; however, it might provide an opportunity to look at more technology and machines to do some of the labor. BYD ‘s advantages are it use or reverse engineering and technology in production of ferrous lithium ion batteries that are more environmentally friendly, smaller, lighter and faster charging. We will discuss how proper operation management (OM) practices can help BYD and make them a leader in the battery and automobile industry in the future. We will explore process management function, quality processes, data analysis, location analysis, sustainability and the steps BYD will need to take to become a more efficient and quality company that is in high demand and growing. Generating Value FINAL BYD CASE STUDY ANALYSIS 3 BYD entered the market as a battery manufacturer and they learned how to make and sell their batteries at a cheaper price then their competitors while still providing a high-quality product. Their main source of revenue came from cell phones, components and batteries in which they used the technology and production of lithium ion batteries. They then expanded to the automobile industry and began to study the market and understand the needs and wants. Entering the automobile market, they decided to focus on electric vehicle because of the technology advances they had made in the battery industry. BYD seemed to embrace technology earlier than other companies in the industry. They are using a cost innovation strategy that the Japanese used in their batteries and reproducing those in their product. They have achieved impressive revenue number by “utilizing low labor costs, little outsourcing and successful innovation” (Rarick et at.,2011, p. 24). BYD has achieved a competitive advantage by studying their competitors such as the Japanese battery industry. They are “producing batteries that contain nontoxic fluids and thus do not less harm to the environment, if the battery is discarded instead of being recycled” (Rarick et al., 2011, p. 24). This creates a competitive advantage along with the longer lasting charge in which it can be charged numerous times keeping costs much lower than the competition. They “tapped into a cost innovation strategy by reducing manufacturing costs through reverse engineering the expensive Japanese battery models and substitution the expensive raw materials with cheaper substitutes” (Rarick et al., 2011, p.22). BYD differentiates themselves from others in the market by their batteries being more environmentally friendly and by being lower cost alternative in batteries or in the auto market. Differentiation is providing a uniqueness and they do that by being more environmentally friendly. Furthermore, these operations management decisions that BYD made created a competitive advantage for them. Manufacturing operations are companies that create a tangible product and service operations are services like repair, education, entertainment and government. While they both have a schedule, quality FINAL BYD CASE STUDY ANALYSIS 4 standards and their main objective is to create something for the consumer they do have some differences. A consumer can resell a tangible product, however you cannot resell legal advice or a concert which is a service. Many products can be automated versus a service like an education cannot as it is knowledge based. In manufacturing you can evaluate quality but that is harder when it comes to service. Lastly goods in manufacturing are standardized and similar versus services are unique to the person giving you the investment advice or medical car. Sometimes it is hard to decide between goods and service and almost all services & good are a mixture of a service and a tangible product. An example is when you buy a large product like a couch or appliance it may have delivery and that is a service. It is also important to remember that service activities are a vital part of manufacturing, such as human resources and accounting. For BYD, manufacturing and service operations need to communicate in order to provide the product that creates customer value and the end they and the customer are satisfied. Theories and Techniques Material Requirement Planning (MRP) systems are comprised of both scheduling and inventory control and are computerized. They work simultaneously to confirm availability of supplies for productions, schedule manufacturing and delivery schedules with keeping inventory at the lowest. Four pieces of data that go into producing the mater production schedule are bill of material, lead times, inventory data, and purchasing data. A gross material requirements plan is a demand schedule for an item that highlights when orders must be placed from suppliers and when production should begin to meet demand if there is no current inventory. Net requirements plan adjusts for considering inventory on hand as well as other gross requirements, net requirements, planned order receipt and order release. To establish a successful MRP operations managers at BYD need to provide information on their current inventory as well as files such as purchasing orders, manufacturing lead times, and current supply costs. It can provide management with visible inventory quantities along FINAL BYD CASE STUDY ANALYSIS 5 with supply and manufacturing schedules. It reduces waste and cuts costs creating a more efficient manufacturing process. Critical path method (CPM) and program evaluation and review method (PERT) are both tools developed to “help managers schedule, monitor, and control large and complex projects” (Heizer, Render & Munson, 2020, p. 67). A major difference in PERT versus CPM “is that PERT employs three time estimates for each activity. These time estimates are used to compute expected values and standard deviations for the activity. CPM makes the assumption that activity times are know with certainty and hence requires only one-time factor for each activity” (Heizer, Render & Munson, 2020, p.67). I think the CPM technique would be best in areas such a restaurants and food service where the time needed to complete the project is already known. Whereas the PERT technique would work best in a business in which the time required or needed to complete an activity are not known such as new products in development. The four primary priority rules for job sequencing are the following: (Heizer, Render & Munson, 2020, p.615).  FCFS: first come, first served. Jobs are completed in the order they arrived.  SPT: shortest processing time. Jobs with the shortest processing times are assigned first.  EDD: earliest due date. Earliest due date jobs are assigned first.  LPT: longest processing time. Jobs with the longest processing time are assigned first. FCFS advantage is that customers get things according to their order number, but it can cause delays of other orders fulfilling orders in order of receipt. SPT advantage is those with a shorter completion time are filled as soon as possible but those with longer completion time or more detailed must wait longer for orders. EDD advantage is providing the processing priority per order date, while the disadvantage of this method is that is processes those orders which have 6 FINAL BYD CASE STUDY ANALYSIS longer period. LPT advantage is it completes the longer processing orders first but that delays those with a shorter processing time. Theory of constraints “is a body of knowledge that deals with anything that limits or constrains an organization’s ability to achieve its goals “(Heizer, Render & Munson, 2020, p.316). Business constraints can be physical ones like raw materials, supplies & procedures or nonphysical constraints can be training, morale or procedures. In order to explain the five steps of the theory of constraints (TOC) process it is helpful to know the steps, which are listed below. TOC Steps (Heizer, Render & Munson, 2020, BYD p.316) Step 1-Indentify the constraints In this step, BYD would need to identify the constraint. Shortage of raw materials such as lithium In this step, BYD would need to develop a Step 2-Develop a plan for overcoming the identified plan to resolve the shortage issue. They may constraints look at and find other vendors for the lithium, possible in other geographic areas Step 3-Focus resources on accomplishing Step 2 In this step, BYD will focus on finding the personnel needed to accomplish the plan and find the new vendors. Step 4-Reduce the effects of the constraints by offloading work or by expanding capability. Make sure that the constraints are recognized by all those who can have an impact on them. In this step, BYD will have the additional vendors for lithium in different geographic locations to keep production going to their product. Step 5-When one set of constraints is overcome, go back to Step 1 and identify new constraints. In this step, BYD has this constraint settled and go back to identifying the next constraints to tackle and go thru the steps An advantage of TOC is recognizing the issues before revenues go down or a possible shutdown of manufacturing due to physical or nonphysical issues. If you are consistently using FINAL BYD CASE STUDY ANALYSIS 7 these steps are you are addressing these issues before they become larger issues and constraints and I think a company that is willing to look at these things only becomes better and better. When it comes to forecasting systems, these are the steps involved in forecasting and how it could be utilized by BYD. Step 1 Determine the use of the forecast: We would want to understand the use for the forecast for BYD which would be the sales to help with decisions about supplies & staff. Step 2 Select the items to be forecasted: BYD would forecast the sales of the newest model the Yuan EV360 model. Step 3 Determine the time horizon of the forecast: BYD would determine the timeline and I believe that a yearly and 5-year timeline would be best. Step 4 Select the forecasting model(s): BYD would need to select a model or model(s) from ones such as linear regression, trend projection, naïve approach, moving averages and exponential smoothing. I would suggest a naïve approach like moving averages and time model like cycles and any other model needed. Step 5 Gather the data needed to make the forecast: BYD would hire several analysts to. gather data. Step 6 Make the forecast: Step 7 Validate and implement the results: BYD would need to review the data and models to determine if data & assumptions are valid. If needed, change models or add models to the forecasting system. The results of implementing a forecasting system for the Yuan EV360 model would be to help determine the supplies and staff needed which would be predicted by the forecasting of the sales of the newest model. Some of the forecasting could be predicted by sales of its other models. 8 FINAL BYD CASE STUDY ANALYSIS The following are supply chain risks and tactics that any company can experience when using outside suppliers. # Risk Risk Reduction Tactics 1 Supplier failure to deliver 2 Supplier quality failures 3 Use multiple suppliers Careful supplier selection, training, certification & monitoring Take over production; provide or perform the Outsourcing service yourself 4 5 6 Logistics delays or damage Multiple/redundant transportation modes & warehouses; secure packa ging; effective contracts with penalties Careful selection, monitoring, & effective contracts with penalties Distribution Information loss or distortion Redundant databases; secure IT systems; training of supply chain partners on t he proper interpretations & uses of in formation 7 Political Political risk insurance; cross-country diversification; franchising & licensing 8 Economic Hedging to combat exchange rate risk; purchasing contracts that address price fluctuations Natural Catastrophes Insurance; alternate sour cing; cross-country diversification 9 1 0 Theft, vandalism & terrorism Insurance; patent protection; security measures including RFID & GPS; diversification Below are some of the risks above and how BYD can reduce the associated risk Risk # above How BYD Can Mitigate the Risk 1 BYD would have multiple suppliers for a supply especially when it comes to Lithium. 2 BYD would do extensive supplier selection, training & monitoring FINAL BYD CASE STUDY ANALYSIS 9 3 BYD would learn the production so that they could provide or perform it in house. 4 BYD would find alternative delivery routes. 5 BYD would carefully select & monitor contracts. 6 BYD would have redundant databases and secure IT systems. 7 BYD would purchase political risk insurance especially when dealing with Bolivia for lithium. 8 BYD would secure fixed price contracts with suppliers 9 BYD would make sure to have two or more suppliers in different geographical region for an outside component bought from suppliers, especially when it comes to lithium. 10 BYD would purchase insurance to protect them and capture losses. In short, BYD would need to make sure to have several reliable resources when it comes to lithium as that is a big part of their need for the battery and for the battery for the automobiles industry. They would need to continue to look for new sources while keeping costs down as they have been successful with that in their low-cost of labor. Just-in-Time (JIT) is a continuous improvement theory that the words somewhat describe the theory of inventory in which you get just what you need from your suppliers when you have the orders. You align your supply orders from suppliers with production schedules and this keeps your inventory low on hand and costs are lower. It eliminates the need to stockpile too much inventory on hand and it does not become out of date and reduces storage costs. This way the manufacturing assembly area continues to have all the necessary parts at the right time (justin-time). Lastly this also exposes bad quality supplies as you are not keeping inventory on hand. Toyota Production System (TPS) refers to a system Toyota manufacturing uses to focus on continuous improvement, respect for people and standard work practice (Heizer, Render & Munson, 2020). These three components of TPS are also considered essential parts of Lean FINAL BYD CASE STUDY ANALYSIS 10 operations. Lean focuses on the elimination of waste through continuous improvements and focus on exactly what the customer needs (Heizer, Render & Munson, 2020). All three of these theories help make an organization more efficient and run better. JIT helps eliminate extra cost of storage and inventory, TPS focuses on always improving and getting better and Lean streamlines the processes. These three are related in the way they try and make companies run more efficiently and streamline along sharing of information through the manufacturing process. BYD using JIT would help eliminate waste, extra inventory and reduce supply and storage of inventory cost which is an advantage. In the current Covid-19 pandemic this could be an issue when you keep a low inventory and your supplier had to shut down do to state regulations or too many employees out with Covid-19. Many supply chains were interrupted during the pandemic and if one of BYD suppliers were unable to provide a raw material needed for production then manufacturing would have to shut down. TPS & Lean are very similar and focus on employees and improving processes. Lean charges workers with increasing efficiency and eliminating waste in their jobs and relentless attention to detail which is an advantage. Lean does not want unnecessary raw supplies and so they could run into the same issue a JIT during this pandemic. TPS instills in their employees a value system that stresses processes can be improved and improvement is a part of every employee’s job which is an advantage of TPS along with streamlining the manufacturing process. A disadvantage of TPS would be sometimes over analyzing the process can cause issues with employees and it you empower your employees you need to truly listen to them in every suggestion or they will begin to feel not valued. FINAL BYD CASE STUDY ANALYSIS 11 Total Quality Management (TQM) principles are ultimately about giving the customer the best product and the customer being satisfied. TQM principles involve employees of an organization making & giving the best products or services and continuing to improve processes to make the product or service better. BYD applies TQM by the way they research the Japanese batteries and trying to find creative ways of making the same high-quality product at a lower cost. “BYD is producing batteries that contain nontoxic fluids and thus do less harm to the environment” thus providing a better product & service to the customer (Rarick et al., 2011, p. 24). This shows that BYD wants a high-quality product done right and they are also focused on a product that does less damage to the environment. In order to ensure they are producing a highquality product that will need get total employee commitment to this vision of high quality and less harmful that is customer focused. To focus on quality, they will want to have quality controls in which they are checking the products in the different phases of production for quality and quality improvements all the time. In order to continue this type of quality it is not just a one-time quality check but a forever consistent check and improvements. BYD can also help facilitate not only TQM but the above points by ensuring that they use the best raw materials & supplies possible. They will need to research sources and work with suppliers and transportation to get the best raw materials and supplies to a timely manner. Another aspect is having the best skilled employees who understand the need for quality and know that the purpose is to provide that to the customer. Data Analysis FINAL BYD CASE STUDY ANALYSIS 12 As an operations manager the above hypothetical process (time-function) map is an estimate and measurement tool to tell us areas in which time is wasted or unnecessary or even what is working and the process flow of things. In the above diagram, BYD ‘s times between process seem wasteful and along with the time it takes the order to be received, processed and verified by sales. I am not sure what is causing the 4 days for the order to be process and verified by sales but believe that time could be cut in half. The extra wait times between the assembly plant to the finishing plant could be decreased by BYD doing all production and assembly at one point and cutting out the transport time there. This would streamline the process by having one assembly point in the same location and would eliminate the transporting step totally. FINAL BYD CASE STUDY ANALYSIS 13 BYD should follow the fishbone diagram to work on their process and try and make the most efficient and quality products possible. When it comes to inventory, we find things are not available or not well defined as to where it is located. Sometimes it can be an issue of not documenting where things in inventory are located and not have a great inventory tracking system. With equipment, BYD will need to make sure they have parts for the equipment on hand in case of breakdowns and that the equipment is efficient and there are no quality issues due to equipment. Lastly, methods are like the process and they need to be followed through and available to everyone and be the most efficient methods to make BYD’s product. FINAL BYD CASE STUDY ANALYSIS 14 The above factor-rating chart shows that Mexico City is the best location for BYD’s next manufacturing plant over Columbia, SC. By accessing a weight to each factor, we are signifying “it’s relative importance in the company’s objectives” (Heizer, Render & Munson, 2020, p.344). So those with higher weights will weigh heavy in the decision if their score is higher. Since political risk had such a high weight (.25) I thought that would be more favorable for Columbia, SC and it was. However, because of things such as labor productivity, rental & labor costs scoring higher for Mexico City is how their total score was higher by 1.75. Now with the total score between Mexico City & Columbia, SC being so close we could see it wouldn’t take much for Columbia to be the clear choice if only one of their scores were a little higher. BYD believes that is might have some inefficiencies with its inventory management processes so below we have classified the inventory items with a standard ABC classification FINAL BYD CASE STUDY ANALYSIS 15 system. Classifying inventory items with a Class A means items are those on which the annual dollar volume is high, Class B means those items with medium annual dollar volume and Class C with the lowest annual dollar volume (Heizer, Render & Munson, 2020). The objective in classifying the inventory items is separate the important from unimportant. Based on the information below Class A represents 78% of the total inventory cost, Class B represents 16% and Class C 6%. BYD needs to continue to monitor the inventory with the ABC classification system and focus on the highest total dollar items and this way they will manage the inventory better. They will also want to watch the Class B & C items, but Class C should be the priority. Item Annual Cost/Unit Total Demand A2 G2 F3 D1 C7 B8 I5 E9 J8 H2 3000 300 500 6000 1500 4000 1750 1000 2500 600 21150 50 1500 500 10 45 12 10 20 5 20 150000 450000 250000 60000 67500 48000 17500 20000 12500 12000 1087500 Percentage Classification of total 14% 41% 23% 6% 6% 4% 2% 2% 1% 1% 100% A A A B B B C C C C Sustainability Triple bottom line is a newer concept rising in more and more corporations. The three components of the triple bottom line are People, Planet and Profit. People means caring about their employees and their customers that purchase their products. By caring about their employees that means providing them safe workplaces, offering educational opportunities and FINAL BYD CASE STUDY ANALYSIS 16 paying them good wages. Planet means reducing the environmental impact that their production does on the planet and profit means of course making a profit while doing the other two p’s. When it comes to BYD’s care for its employees. BYD provides employees, including engineers and scientists housing on company grounds and covers other living expenses (Rarick et al., 2011). However, we cannot dismiss the fact that by doing this in China where the labor cost is low, they are still saving a substantial amount because the labor cost is a fraction of the costs in the United States and Europe. BYD reduces their impact on the planet, they produced a battery that contains nontoxic fluids and if the battery is discarded instead if recycled it will do less harm to the environment. They are producing electric cars, buses, work trucks and forklifts that have a smaller carbon footprint than gasoline cars which is better for the planet. Lastly is profit, and without profit the other 2 P’s are not possible. ISO I400 is a series of environmental management standards that have five core elements, environmental management, auditing, performance evaluation, labeling and life cycle assessment (Heizer, Render & Munson, 2020). These standards and elements are meant to reduce the environmental impact that companies have on the planet. BYD does believe ISO is important that they are certified and that is why they use ISO suppliers and want all suppliers to have ISO 1400I certified management systems in place. They have tried to select their suppliers that have the highest environment, labor practice and human rights standards (BYD, 2019). BYD believes it is so important to reduce their environmental impact on the planet that they produced a battery that contains nontoxic fluids and if the battery is discarded instead if recycled it will do less harm to the environment. “BYD believes that it has made a major FINAL BYD CASE STUDY ANALYSIS 17 breakthrough in battery technology which will produce a longer lasting charge and allow the battery to be recharged numerous times” (Rarick et al., 2011, p. 24). Corporate responsibility is corporate social responsibility meaning companies need to consider how the product or service they provide affect both people and the environment. This means they need to consider their image and think of the environment their employees work in and disposal of any production waste or product. I think BYD needs to think about their employees more and the wages they are paying them, especially in China. They talk about the low cost of labor in China, however, are they paying them a fair wage for the work these workers in China are producing to be more responsible. When talking about corporate social responsibility the concept of shared value comes up and it “suggests finding policies and practices that enhance the organization’s competitiveness while simultaneously advancing the economic and social conditions in the communities in which it operates” (Heizer, Render & Munson, 2020). BYD does this with their electric vehicles because of their low carbon footprint that they sell in the global market and help the environment. I believe the most effective corporate responsibility action BYD can take is to focus on its employees and its suppliers. If they focus more on their employees and pay them fair wages, I think they will get more and more production out of happy workers. When it comes to suppliers, BYD wants suppliers that are have ISO 1400I certified management systems, but they also will want to make sure they screen them and have enough suppliers to keep them supplied especially in hard times in order to keep production going. BYD is headed in the right direction to becoming one of the world’s top electric car manufacturers. The fact that they want to make a quality product that is better for the environment at a time when sustainable companies are huge is wonderful. BYD is one of the top selling electric vehicle manufacturer under Tesla and continues to grow, they sold 236,506 vehicles last year. FINAL BYD CASE STUDY ANALYSIS 18 With BYD focusing on the environment with its batteries and the profits are growing is seems like they are headed towards the triple bottom line but need to focus more on the people and those are its employees. They need to compensate their employees in all countries fairly and keeping the same production and safety standards in all production facilities around the country. Consistency is important in making sure they provide the same quality products whether it’s produced in China, India, Hungary, Romania, or the United States. Another important aspect for BYD to be successful is to focus on its suppliers and especially it’s supply of lithium and making sure it has many different suppliers in different regions. They need to screen their suppliers and make sure their procedures and quality standards are on the same level of BYD.