Operations and Supply Chain Management in Automobile Industry

Table of Contents
OBJECTIVE.......................................................................................................................3 RESEARCH METHODOLOGY.......................................................................................4 RESEARCH DESIGN....................................................................................................4 SAMPLE DESIGN.........................................................................................................4 SCOPE OF STUDY...........................................................................................................5 LIMITATION.....................................................................................................................6 OPERATIONS IN AN AUTOMOBILE INDUSTRY.......................................................7 INTRODUCTION..........................................................................................................7 OVERVIEW OF THE INDIAN AUTOMOBILE INDUSTRY....................................8 GROWTH OF THE INDIAN AUTO INDUSTRY.....................................................12 Automobile Export Numbers............................................................................................12 MAJOR MANUFACTURERS OF THE AUTOMOBILE INDUSTRY.........................13 EVEN GROWTH.........................................................................................................13 REASONS FOR THE UPSWING...............................................................................15 SWOT ANALYSIS OF THE INDIAN AUTOMOBILE INDUSTRY...........................17 STRENGTHS...............................................................................................................17 WEAKNESSES............................................................................................................18 OPPORTUNITIES.......................................................................................................18 THREATS....................................................................................................................18 OPERATIONS FOLLOWED IN AN AUTOMOBILE INDUSTRY..............................18 MANUFACTURING PROCESS.....................................................................................19 MACHINE ATTACHEMENTS..................................................................................20 NUMERICALLY CONTROLLED MACHINES........................................................20 AUTOMATED QUALITY CONTROL INSPECTION .............................................20 AUTOMATED IDENTIFICATION SYSTEMS.........................................................20 AUTOMATED PRODUCTION SYSTEM.................................................................21 TOYOTA PRODUCTION SYSTEM..............................................................................21 INTRODUCTION- Richest Automobile Company.....................................................21 TOYOTA The History...............................................................................................23 THE TOYOTA PRODUCTION SYSTEM..................................................................25 OHNOs SEVEN WASTES.....................................................................................25 STANDARDISATION OF WORK.............................................................................28 TAKT-TIME.................................................................................................................28 JUST- IN- TIME...........................................................................................................28 PULL SYSTEM............................................................................................................30 PUSH SYSTEM...........................................................................................................30 KANBAN.....................................................................................................................31 HEIJUNKA...................................................................................................................32 KAIZEN.......................................................................................................................33 THE HUMAN ELEMENT AND JIDOKA..................................................................35 OPERATIONS AT TOYOTA MOTOR CORPORATION.............................................39 BENEFITS OF TPS......................................................................................................40 1

Operations and Supply Chain Management in Automobile Industry IMPLICATIONS..........................................................................................................44 CHALLENGES FACED IN ADOPTING TPS...........................................................44 TOTAL QUALITY MANAGEMENT.............................................................................46 WHAT IS TOTAL QUALITY MANAGEMENT?.....................................................46 WHY LEARN A SIMPLIFIED TQM DIAGNOSTIC MODEL?...............................47 THE GUIDING PRINCIPLE...................................................................................47 TWO IMPLEMENTATION APPROACHES.............................................................48 THE NEED FOR THREE INTEGRATED and SIMPLIFIED MODELS...................49 A SIMPLIFIED TQM MODEL...................................................................................49 TQM as LargeSale Systems Change............................................................................51 People's Expectations and Perceptions.....................................................................53 Sources of Resistance...............................................................................................54 Dealing with Resistance...........................................................................................55 Force Field Analysis ....................................................................................................56 INVENTORY CONTROL...............................................................................................59 SUPPLY CHAIN MANAGEMENT................................................................................62 INTRODUCTION........................................................................................................62 CONCLUSION.................................................................................................................64 BIBLIOGRAPHY.............................................................................................................66 Certificate.........................................................................................................................70 Acknowlegdement............................................................................................................71

Operations and Supply Chain Management in Automobile Industry

OBJECTIVE
To study the various operation techniques followed by leading automobile manufacturing industries in India. Also, a comparative study on the supply chain effectiveness of these selected Indian automobile-manufacturing companies. Today every organization is facing a fierce competition in the market, because of short product cycle, rapidly changing technology and economic conditions. Virtually each major automobile company in the country is trying to make its presence felt in the new net-centric economy. The dealers are also focusing on getting to know their customer better, some on making their supply chain neat and transparent and some on creating electronic presence. Also trying to figure out new ways of increasing the organization operations effectiveness so as to get and edge over the competitors in the market. This can be obtained from information sharing, cooperation, risk and reward sharing among supply chain partners. In this scenario only those organizations can survive who can compete on the basis of cost and quality. All these can be explained with effective operations technique and supply chain management. Also there are various tools, which are adopted by the automobile manufacturing companies nowadays, which enable them to reduce their cost and enhance their productivity along with increasing the revenues. These tools are really effective as they are adopted by most of the automobile manufacturing industries.

Operations and Supply Chain Management in Automobile Industry

RESEARCH METHODOLOGY
RESEARCH DESIGN
The objective of the project is to find out the best mode of operations and supply chain management that can be carried out by an automobile company to get the most effective product outline with the minimum of cost input. Also to study the various forms of operation techniques that are implemented in and automobile industry. This project will contain the comparison of the operations of 3 companies. One of them is Toyota Motors whose operations and supply chain management will be compared with that of two local auto giants Tata and Honda which have their base in Delhi. Thus, arriving the most effective operation and production line with the best supply chain.

SAMPLE DESIGN
For the best results the project contains the comparison of the operations of three companies who have established a strong market presence for their products in this sector. They have created a brand name for themselves and the customers are willing to pay any price to attain this brand. They have established themselves in the market for a long time. The three companies are 1. Tata Motors 2. Toyota Motors 3. Honda Siel Cars The basis of taking these companies is that two of the companies have been the leading producers of automobiles in India for a long time. The third is a company, which has acquired a brand name for itself worldwide. So the operation strategy, which this company follows, is different from that of the other two companies, thus, it will be a good basis of comparison and could be implemented for the Indian companies too.

Operations and Supply Chain Management in Automobile Industry

SCOPE OF STUDY
The study as mentioned earlier is limited to three companies. The study focuses on conducting a research on the various operations tools that are implemented by the automobile manufacturing companies so as to get the best output with the minimum cost input, thus, increasing the revenues and also capturing the most of the market share for the company so that they get a leading edge over the others. Also, finding out the best supply chain management all of which could be implemented by Tata motors so as to increase the market share for their vehicles. The study attempts to answer the best strategies for operations that the automobile manufacturing companies can have if they plan to setup a base in India, also the ways of enhancing their productiveness. This study also answers why the leading auto giants have attained the position in which they are today and thus what steps could be adopted by those companies which are new in this field or are planning to diversify their mode of operations to manufacturing cars.

Operations and Supply Chain Management in Automobile Industry

LIMITATION
The project topic being vast by nature it is limited to the passenger car segment. It is not possible to consider the whole automobile sector in India as there are many companies which fall in this segment and collecting the data for each industry is not possible. Thus the companies selected are based in Delhi were a personal visit to the manufacturing unit can be made to have a personal experience of how the operations are carried on by these companies. The other manufacturing giants are located in different state so a personal visit to these companies is not possible.

Operations and Supply Chain Management in Automobile Industry

OPERATIONS IN AN AUTOMOBILE INDUSTRY

INTRODUCTION
The Indian automobile industry has been on the developing trend. During the past few years there has been and incredible increase in the growth rate of the automobiles in the Indian subcontinent. There are many reasons for the growth of this industry. One of the reasons for this growth could be that there is lot of competition coming up in this industry. There are many foreign players, which have come into this continent and have developed their manufacturing base here. The reasons are 1. The Indian market is favorable for the growth of this industry. As there are many people who are auto crazy in this country. There are people who are willing to go out of their ways and try different vehicles. Some are so attracted to the cars and bikes that they are ready to pay any price to get their vehicle of choice. 2. Secondly that the raw materials available here is very cheap and abundant. The basic requirement for this industry is the availability of the various components, which are required to make a complete vehicle and of course labour which is ready to work even at low wages. All these conditions can be met in India. Thus India is now becoming the favorite manufacturing center for all the foreign companies. 3. Thirdly the legal environment is very friendly in India. It allows foreign companies and money to come in and invest so as to develop the Indian economy. This is indeed fruitful as it not only brings in foreign capital but also brings in opportunities, by this I mean to say that chance for Indian talent to go outside and Indian market to expand. For eg Indian companies, which create

Operations and Supply Chain Management in Automobile Industry opportunities for them to expand it branches in other countries and expand, its base. 4. Moreover since the last few years there has been a lot of liberalization in trade especially in the auto industry. Government has removed many legal restrictions so that components from foreign countries can come in thus help in boosting up the Indian auto industry.

OVERVIEW OF THE INDIAN AUTOMOBILE INDUSTRY

Not long ago, India's auto industry was a laughing stock. Its two best-known cars were a 1940s Morris model called the Ambassador and a 1960s Suzuki-derived model called the Maruti 800. But that was then. Today, for instance, the Mumbai-based Dilip Chhabria Design Pvt Ltd (DC Design) is seeking to take on Pininfarina and Bertone, the Italian standard in international car design, by designing and building concept cars, prototypes and limited-production runs. Nor is DC Design alone. "There can be few more improbable automotive stories than the yarn about the Indian designers creating bespoke concept and prototype cars," said the United Kingdom's auto magazine Autocar in a recent issue. "Yet the hottest ideas in car design are happening right now in the back streets of Mumbai." India is now the ninth country in the world to design a vehicle on its own. In fact, the Indian auto industry is fast becoming an outsourcing hub for automobile companies worldwide, as zooming automobile exports from the country indicate. Surinder Kapur, the chairman of Sona Koyo Steering, which exports car steering assemblies, says, "Car makers over the world have realized that India can design a car on its own and make it globally acceptable." Passenger car exports have nearly trebled in four years, from 28,122 units in 1998-99 to

Operations and Supply Chain Management in Automobile Industry 71,653 vehicles in 2002-3. The industry expects this to gather steam further ahead because car exports in the first quarter of 2003-4 leapt by 87 percent over the same period in 2002-3. The two-wheeler segment is booming, too, with exports zooming from 100,004 units last year to 179,000 units in 2002-3. By 2005, the industry expects 400,000 two-wheelers on foreign shores. The Indian-made sports utility vehicle Scorpio received a singular response in Detroit early this year, not just for its design but also because of its cheaper price tag. Tata Motors, the country's second-largest carmaker's small Indica convinced MG Rover of the UK to sell it to the UK market as the City Rover. Others like Ford's mid-sized car model Ikon, Maruti's Altos and Toyota's Indian-made multi-utility vehicle have found ready buyers in a number of American, European and neighboring countries. And when cars and two wheeler exports are on a roll, can automobile components be far behind? Pushed to export last year following a two-year domestic slowdown, the auto component exported $850 million worth of the nuts and bolts that go into making an automobile by March 2003, up from $578 million in March 2002. "Indian auto component makers now supply to virtually the best and the biggest in the world," says Suresh Krishna of Sundaram Fasteners, a leading auto component exporter, adding that he expects the country to export a targeted $2 billion by 2006. "Indeed, India is well on its way to become an outsourcing hub for global auto manufacturers and the country stands a good chance against China," says Sundaram Mutual Fund managing director T P Raman, although Joginder Singh, vice president of finance for Ford Motor Company of Canada, thinks that global auto majors can't ignore either China or India. Already, 15 global car makers - including GM, Ford, DaimlerChrysler, Mercedes-Benz, Audi, Isuzu and Nissan have set up outsourcing offices in the country, with a combined budget of approximately $1.5 billion, industry sources say. Leading component makers like Delphi, Visteon and Caterpillar, too, have found India their best

Operations and Supply Chain Management in Automobile Industry bet. While according to industry estimates the cost of automotive design in Europe ranges as high as $800 per hour, and even higher in the US, costs are as low as $60 per hour in India for equivalent quality. Whether the next outsourcing wave or simply smart marketing by a local industry, global auto makers are increasingly turning to India for sourcing a wide range of needs that even include designing models meant only for global markets. "To begin with," says Deep Kapuria, of Automobile Components Manufacturers Association of India, "it's triggered by the overall economic slowdown and large-scale bankruptcies in the global auto sector. And as global giants continue losing money, cost pressures are forcing them to opt for sourcing bases in developing countries." But more importantly, according to industry analysts, the Indian auto industry has finally come of age, having upgraded itself in the past few years to meet global standards. Dilip Chhabria, the head of DC Designs, makes no bones about taking on the world's best. Earlier this year, the Aston Martin AMV8 Vantage starred at the Detroit Auto Show. Chhabria developed the prototype as part of a Ford contract. Until the mid 1990s, the Indian auto sector consisted of just a handful of local companies. However, after the sector opened to foreign direct investment in 1996, global majors moved in. By 2002, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi had set up their manufacturing bases here. "These companies first had to focus on issues like quality, vendors and marketing before they could think big," says Arindam Bhattacharya, vice-president, Boston Consulting Group. Thus, in the past four to five years, these companies have not only fine-tuned their operations but forced transformation on the rest of the industry as well. "Consequently," Bhattacharya adds, "India has not only emerged as a low-cost base but also a source for producing quality products."

10

Operations and Supply Chain Management in Automobile Industry The sector also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. It also drew technology infusion and investment. "Not surprising then that India is also set to become a preferred research and development [R&D] center," says Ravi Khanna, president and managing director, Delphi India, adding that its Indian facilities are "an integral part of its worldwide engineering and technical footprint". Nevertheless, according to managing director Jagdish Khattar of Maruti Udyog Ltd. India's largest car maker and a Suzuki joint venture, India still has a long way to go to become a global force. "Indian companies need to first grow the Indian market to acquire economies of scale," he says. China, for instance, consumes four times India's 700,000 annual car sales. Moreover, if Indian companies hope to corner a big chunk of the global market they need to ramp up global presence considerably, say others. Still, Joginder Singh of Ford feels that India's auto industry will continue to make its presence felt, primarily because it is one of the few countries the global auto industry cannot ignore. "Two-thirds of a car is built from suppliers. That's a big cost item and companies can cut costs to a large extent in places like India and China," he says. "We can't ignore either China or India, which are projected to be so huge that it would be dangerous to look only at one of them. They are showing the highest growth rate of any market in the world. Any auto maker would be on a fool's errand if it ignores any of them." Small wonder then that Ravi Khanna of Delphi India is "convinced that with the increasing emphasis on quality, India is fast moving towards becoming a sourcing hub for global automobile makers".

11

Operations and Supply Chain Management in Automobile Industry

GROWTH OF THE INDIAN AUTO INDUSTRY

Following India's growing openness, the arrival of new and existing models, easy availability of finance at relatively low rate of interest and price discounts offered by the dealers and manufacturers all have stirred the demand for vehicles and a strong growth of the Indian automobile industry. The data obtained from ministry of commerce and industry, shows high growth obtained since 2001- 02 in automobile production continuing in the first three quarters of the 2004-05. Annual growth was 16.0 per cent in April-December, 2004; the growth rate in 2003-04 was 15.1 per cent The automobile industry grew at a compound annual growth rate (CAGR) of 22 per cent between 1992 and 1997. With investment exceeding Rs. 50,000 crore, the turnover of the automobile industry exceeded Rs. 59,518 crore in 200203. Including turnover of the auto-component sector, the automotive industry's turnover, which was above Rs. 84,000 crore in 2002-03, is estimated to have exceeded Rs.1,00,000 crore ( USD 22. 74 billion) in 2003-04.

Automobile Export Numbers

Category Passenger Car Multi Utility Vehicles Commercial Vehicles Two Wheelers Three Wheelers Percentage Growth 1998-99 25468 2654 10108 100002 21138 -16.6 2004-05 (Apr-Dec) 121478 3892 19931 256765 51535 32.8

The industry has adopted the global standards and this was manifested in the increasing exports of the sector. After a temporary slump during 1998- 99 and 1999-00, such exports registered robust growth rates of well over 50 per cent in 2002-03 and 2003-04 each to exceed two and- a-half times the export figure for 2001-02.

12

Operations and Supply Chain Management in Automobile Industry

MAJOR MANUFACTURERS OF THE AUTOMOBILE INDUSTRY

Maruti Udyog Ltd. General Motors India Ford India Ltd. Eicher Motors Bajaj Auto Daewoo Motors India Hero Motors Hindustan Motors Hyundai Motor India Ltd. Royal Enfield Motors Tata motors TVS Motors DC Designs Swaraj Mazda Ltd Force Motors Honda Siel cars Honda motors Skoda Kanada

EVEN GROWTH
Opposing the belief that the growth in automobile industry has catered only to the top income-stratum of society, Growth of exports of 32.8 % in the first three quarters of 13

Operations and Supply Chain Management in Automobile Industry 2004-05, the fastest growth in volumes has come from commercial vehicles as against passenger cars. Between 1998-99 and 2003-04, output of commercial vehicles has grown 2.8 times compared to the 2.2 times increase in passenger cars. Furthermore, two-wheeler output continues to dominate the volume statistics of the sector. In 2003-04, for every passenger car turned out by the sector, there were 7 two-wheelers produced. In the two-wheeler segment, there is a greater preference for motorcycles followed by scooters, with both production and domestic sales of motorcycles increasing at faster rates than for scooters in the current and previous years. However, mopeds have registered low or negative growth. Export growth rates have been high both for motorcycles and scooters.

14

Operations and Supply Chain Management in Automobile Industry

REASONS FOR THE UPSWING

Sales incentives, introduction of new models as well as variants coupled with easy availability of low cost finance with comfortable repayment options continued to drive demand and sales of automobiles during the first two quarters of the current year. The risk of an increase in the interest rates, the impact of delayed monsoons on rural demand, and increase in the costs of inputs such as steel are the key concerns for the players in the industry. As the players continue to introduce new models and variants, the competition may intensify further. The ability of the players to contain costs and focus on exports will be critical for the performance of their respective companies. The Indian automotive industry has flourished like never before in the recent years. This extra-ordinary growth that the Indian automotive industry has witnessed, is a result of a two major factors namely, the improvement in the living standards of the middle class, and an increase in their disposable incomes. 15

Operations and Supply Chain Management in Automobile Industry

Moreover, the liberalization steps, such as, relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies, initiated by the Government of India, have played an equally important role in bringing the Indian Automotive industry to great heights. It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years. Thus, the sale of cars has reached a figure of 1 million users and is expected to increase further. It's also to be noted that the demand for luxurious models, SUVs, and mini-cars for family owners, have shot up, largely due to increase in the consumer's buying capacity. The increased demand for Indian automobiles has resulted in a large number of multinational auto companies, especially from Japan, U. S. A., and Europe, entering the Indian market and working in collaboration with the Indian firms. Also, the institutionalization of automobile finance has further paved the way to sustain a longterm high growth for the industry. The basic objective of this market research report ""Indian Automobile Industry Recent Trends"" is to estimate the demand for automobiles from 2005 till 2012. The increasing role of auto finance is also scrutinized by proving a series of surveys conducted across the country covering all categories of private and commercial vehicles' finance. The report also examines the region-wise demand and growth trends for the selected vehicles, and how they influenced India's GDP growth. The fastest growth in volumes has come from commercial vehicles. Between 1998-99 and 2003-04, output of such vehicles has grown 2.8 times compared to the 2.2 times increase in passenger cars. Furthermore, two-wheeler output continues to dominate the volume statistics of the sector. In 2003-04, for every passenger car turned out by the sector, there were 7 two-wheelers produced.

Automobile production (Numbers) Category 2002-03 2003-04 2004-05*

16

Operations and Supply Chain Management in Automobile Industry

Passenger Car Multi Utility Vehicles Commercial Vehicles Two Wheelers Three Wheelers Total Percentage Growth 608,851 114,479 203,697 5,076,221 276,719 6,279,967 18.1 842,437 146,103 275,224 5,624,950 340,729 7,229,443 15.1 699,082 178,187 247,797 4,758,639 271,983 6,155,688 16.0

SWOT ANALYSIS OF THE INDIAN AUTOMOBILE INDUSTRY

STRENGTHS
1. 2. 3. 4. COST EFFECTIVENESS IN TERMS OF LABOUR AND RAW MATERIALS ESTABLISHED MANUFACTURING BASE ECONOMIES OF SCALE DUE TO DOMESTIC MARKET POTENTIAL TO HARNESS THE GLOAL BRAND IMAGE OF THE DOMESTIC MANUFACTURRS

17

Operations and Supply Chain Management in Automobile Industry 5. GLOBAL HUB POLICY FOR SMALL CARS (HYUNDAI, SUZUKI) 6. CUSTOMERS WITH VARIED TASTE AND READINESS TO EXPERIMENT

WEAKNESSES
1. PERCEPTION ABOUT QUALITY AND QUALITY CONTRO MEASURES 2. INFRASTRUCTURE BOTTLENECKS 3. INDIAN ROAD CONDITIONS NOT FAVOURING VEHICLES OF HIGHER ENGINE CAPACITY AND OTHER VEHICLES WHICH ARE A GREAT SUCCESS IN THE OTHER INTERNATIONAL MARKETS 4. VERY HARD TO CHANGE THE PERCEPTION OF THE PEOPLE ONCE SET

OPPORTUNITIES
1. HUGE MARKET POTENTIAL OF THE INDIAN CARS IN OTHER MARKETS (EUROPE, AMERICA, AFRICA) 2. MORE AVAILABLITY OF CHOICES IF MORE FOREIGN PLAYERS COME INTO THE INDIAN SUBCONTINENT 3. POTENTIAL TO INCRESE MORE MARKET BASE FOR INDIVIDUAL PLAYERS IN THE AUTO MARKET 4. INCREASE IN TH AUTO COMPONENTS INDUSTRY IF MORE PARTICIPATION IS MADE AVAILIBLE.

THREATS
1. OTHER COMPETITIVE MARKETS LIKE CHINA, MALAYSIA WHCI CAN MAKE VEHICLES AND AUTOMOBILES FOR CHEAPER PRICES AND THUS PENETRATE THE INDIAN MARKET AND CREATE HUGE OPPORTUNITIES FOR THEMSELVES.

OPERATIONS FOLLOWED IN AN AUTOMOBILE INDUSTRY

18

Operations and Supply Chain Management in Automobile Industry Generally after the raw material has been purchased from the suppliers then comes the process of turning the raw material into the finished goods. This is the process which is actually termed as operations. This is when the actual process of giving the actual shape to the raw material is done. By raw material I mean to say is that the individual components required while making the vehicle. It can be from the very small components of the dashboard till the whole sheet metal that is the outer and the inner body covering of the vehicle. The operations start from the process of planning out how many vehicles have to be produced and what are the requirements of the vehicles that will be produced, by this I mean is whether it is that what model of the vehicle shall be produced and what color and what specifications should be provided and then in which quantity should it be produced so that it reaches the final customer in time. So keeping these in mind there are certain operation strategies, which are followed by the entire auto manufacturing industries. These are as follows:

Manufacturing process Quality control process Inventory management Materials requirement planning

MANUFACTURING PROCESS

This is the process from where the planning and other techniques are brought into actual implementation. Manufacturing is the activity that operations are mostly talking about;

19

Operations and Supply Chain Management in Automobile Industry the process of converting the raw material into finished goods. For any company operations has to be the most important activity

MACHINE ATTACHEMENTS
The manufacturing work which is carried on is generally done by machines attachments rather than doing the whole work manually because it is a very lengthy process and here time is the big constraint. These are usually inexpensive add-ons to machines that basically reduce the amount of human effort and time required to perform an operation.

NUMERICALLY CONTROLLED MACHINES

These are the best type of automatic machines and are generally found in most of the auto manufacturing companies. Today these machines are programmed through computers to perform a cycle of operations repeatedly. Machine settings are achieved by the control system rather than thus human beings reduce the amount of error by a hug amount. With the advances in computing came computer numerically controlled machines (CN/C). As computing sophistication continued to increase, direct numerically controlled machines were developed that placed several machines under the control of single computer.

AUTOMATED QUALITY CONTROL INSPECTION

These are machines, which have been integrated into inspection of products for quality control purposes. These systems perform a wide range of tests and inspections and are found in many industries. They can be used to take physical quality of parts, compare measurements to standards and determine whether the parts meet the quality standards.

AUTOMATED IDENTIFICATION SYSTEMS

These are machines that read bar codes, radio frequencies, magnetic tapes, and optical characters. The system reads the identification number of the bar code from the item

20

Operations and Supply Chain Management in Automobile Industry accesses a computer database and sends the price to the item to the cash register. These are becoming more popular in floors in warehousing where the inventory is stored and so with the help of a proper track record of the entire inventory is maintained.

AUTOMATED PRODUCTION SYSTEM

As the technology is changing so is the focus of individual machines to a broader concept. Today whole systems of automated machines to a linked for broader purposes. A few of these are Automated flow lines Automated assembly lines Flexible manufacturing system

TOYOTA PRODUCTION SYSTEM

INTRODUCTION- Richest Automobile Company
In May 2004, Toyota Motor Corporation (Toyota) announced record financial results for the fiscal year ended march2004. The companys revenues and operating income had reached highs of $163bn and $15bn respectively. What was noteworthy, however, was that the companys net earnings were more than double the combined net earnings

21

Operations and Supply Chain Management in Automobile Industry of other automobile majors General Motors (GM), Ford, Daimler Chrysler, and Honda for the fiscal. Toyota was firmly entrenched as the most profitable company in the automobile industry in the early 2000s. At a time, when the giants of the industry were making meager profits and some were even suffering losses, Toyota showed steady profits. This profitability gave the company a strong position in the Japanese economy as well as the global automobile industry, and helped it grow rapidly. Because of its stable cash position, it was able to invest in the development of new technologies like hybrid engine systems and develop brands like the youth- focused scion, which many believed to be risky. Analysts said that the foundation of Toyotas strong performance was its much analyzed and emulated manufacturing system, which made use of concepts like just-in time(JIT) and Kaizen or the process of continuous improvement, to reach a high level of efficiency in production. Through its competitive advantage in manufacturing, Toyota was not only able to maintain its award winning levels of quality, but was also able to rapidly capture market share by exercising aggressive cost control and churning out better car models. Toyotas rivals themselves acknowledged the superiority of the Toyota production system (TPS), which was put in place in the 1950s-1960s under the direction of the companys production chief Taiichi Ohno (Ohno). Officials from GM went on record to say that Toyota was the benchmark in manufacturing and product development in the automobile industry. Ford and BMW also openly acknowledged Toyotas manufacturing superiority and often borrowed ideas from the TPS. On its part, Toyota encouraged other companies to study its manufacturing processes and did not deny access to its plants, even to representatives of rival companies. Toyota was growing rapidly and had overtaken Ford (the second largest company in the industry) in the global market share in 2003. Analysts declared that it had a very good

22

Operations and Supply Chain Management in Automobile Industry chance of achieving its target of 15% market share by 2015 , which would help it displace GM as the biggest automobile company in the world.

TOYOTA The History

Toyotas history goes back to 1897, when Sakichi Toyoda (Sakichi) diversifies into the textile machinery business from the traditional family business of carpentry. He invented a power loom in 1902 and founded the parent organization of Toyota, the Toyoda group, in the same year. In 1926, Sakichi invented an automatic loom that stopped operating when a thread broke. This prevented the manufacture of imperfect cloth. The same year, Sakichi formed the Toyoda Automatic Loom Works (TALW) to manufacture automatic looms. Sakichis son Kiichiro, an engineer from Tokyo University, who was interested in automobiles and engines than the familys textile business traveled to the US and Europe to study the manufacturing process in car factories there. In the early 1930s, Kiichiro convinced his father to launch an automobile business and in 1933, Sakichi established an automobile department within TALW. The first passenger car prototype was developed in [Link] traveled to the US again in the late 1930s to study the manufacturing processes at Ford. He observed that an average US workers productivity was nine times that of a Japanese worker and Japanese automobile industry has to increase its productivity to compete globally . Armed with a strong knowledge of the Ford production system, Kiichiro returned to Japan determined to adapt the system to smaller production quantities, more suitable to Japan. In addition to adapting the Fords model he also developed a system where each process produced only the exact number of parts required for the next process in the production line, and at the right time. This system was called Just-in time, within Toyota. CARPENTRY

23

Operations and Supply Chain Management in Automobile Industry TEXTILES

AUTOMOBILES

The automobile venture was formed in the late 1930s and the passenger car production began in 1947 (during the second world war, the company was involved in building military vehicles). Toyota faced tough competition from Ford and GM, which were the top car manufactures in Japan at that time. In 1950, after a major strike by labor unions, Kiichiro was forced to step down and his cousin Eiji Toyoda was made Managing Director. Eiji traveled to the US to study Fords River Rouge manufacturing facility. He was impressed by the scale of production and realized that it was accompanied with several manufacturing facilities. From here the idea of Kanban system emerged. In 1957, Eiji renamed Toyota as The Toyota Company.

Toyotas first export to the US was the Toyota Crown, which was not successful as it was too slow for US highways. However, the Corolla, which was exported in 1968, was a huge success due to its reliability and relatively lower price . Toyotas car became popular in US, due to high quality and good resale value. Toyota received a major boost in the late 1970s, when the oil crisis made many people shift to Toyotas cars from fuel thirsty American and European models. The crisis also sent Japan into recession and most of the automakers suffered losses. But the efficiency and flexibility of the TPS helped Toyota bounced back. This naturally heightened interest in the TPS in Japan (the system formally came to be known as TPS in 1977). Toyota brought TPS to the US in the 1980s, when it set up a joint venture with GM called New United Motor Manufacturing Inc (NUMMI). In 1983, the companys name was changed to Toyota Motor Corporation.

24

Operations and Supply Chain Management in Automobile Industry In the early 1990s, Toyota expanded its overseas operations. By the early 2000s, Toyota had become one of the top manufactures of cars in the world and was poised to become the biggest automobile company.

THE TOYOTA PRODUCTION SYSTEM

The TPS tried to overcome the deficiencies of production , while making the most of the available resources. Japan had few natural resources; however it had an abundance of hard working labour. Therefore, the TPS tried to increase the efficiency of production by eliminating waste and lowering costs. The focus of the TPS was reduction of cost through elimination of waste . Waste or Muda identified as any material or action that did not add value to the final product. It was assumed that any equipment, materials, parts, and workers (working time), that exceeded the minimum amount that was absolutely essential to production, was surplus, and resulted in increased cost. Ohno believed that waste not only raised cost, but also concealed problems within the system that led to more serious repercussions at a later stage.

OHNOs SEVEN WASTES

25

Operations and Supply Chain Management in Automobile Industry 1. Defects- This includes units that do not meet the production specifications or quality standards. 2. Over Production- This means producing in excess of required quality. It involves not only wastage of precious resources, but also added inventory carrying cost and cost of disposing excess inventory. 3. Waiting- Time that is not used effectively is a waste as it involves wages of workers, as well as all fixed and overhead costs like electricity, rent, heating etc. 4. Transporting- Moving components and goods between places involve costs. Sometimes cost may be hidden and other times apparent like transporting cost. Ohno said workers and equipment should lay down plant in such manner as to minimize movements. 5. Movement- If people spend time moving around the plant; it is wasteful as it consumes their energy. Therefore an ideal plant should keep all the components required by workers close at hand. 6. Inappropriate Processing- This refers to processing output in a way that it does not add any value to the final product. 7. Inventory- Holding inventory in excess of what is required adds to the cost of production. It also has a hidden cost in a way that it hides problems that would otherwise have been apparent.

TPS consisted of two aspects:

26

Operations and Supply Chain Management in Automobile Industry The hard or the technical part The soft or people related part

The hard aspect focused on manufacturing systems like JIT and Kanban, and the soft part related to respect for humans, which included workers and suppliers. Ohno was great believer in the importance of people and values like respect for people, loyalty, and lifetime employment. He was instrumental in developing the lifetime employment concept at Toyota, which made workers more committed to the company. He also initiated the practice of supervisors wearing the same uniforms as the workers, to create a feeling of a flat non-hierarchical structure. Ohno gave lot of importance to the suppliers as he realized that the efficiency of the manufacturing process depended on the timely availability of the raw materials. The TPS stressed flexibility of processes and cross-utility of resources and there was constant quest to bring about improvements in work. Following practices are essential to TPS: Standardisation of work Takt time JIT Kanban Heijunka Kaizen Jidoka

27

Operations and Supply Chain Management in Automobile Industry

STANDARDISATION OF WORK
The Toyota Production System organizes all jobs around human motion and creates an efficient production sequence without any "Muda." Work organized in such a way is called standardized work. It consists of three elements: takt-time, Heijunka and JIT Work standards at Toyota are designed jointly by team members and engineering supervisors.

TAKT-TIME
Continuous flow of work at Toyota is possible because the work flows through each part of the entire system at a uniform pulse rate or takt-time. The rate is specific to an individual plants condition and maturity. "Takt-Time" is the time which should be taken to produce a component on one vehicle. This timing mechanism is based on the monthly production schedule. Daily total operating time is figured on the basis of all machinery operating at 100% efficiency during regular working hours. The takt time allows to produce many parts of many different types for use in vehicles on the production schedule and to supply those parts to each process on the assembly line at the proper time. This keeps production on schedule and permits flexible response to change in sales.

JUST- IN- TIME

JIT was the foundation of the TPS. Its aim was to eliminate waste of all kinds by producing or supplying materials only when they are needed. The principle behind JIT was to produce only the necessary products, at the necessary time and in the necessary quantity, to keep stock at a minimum. Adopting JIT allowed Toyota to do away with inventory and stores thereby cutting out the corresponding costs. JIT was especially important for Toyota as the company was based in a country where flat industrial land was scarce. Therefore, there was little scope for Toyota to integrate vertically by making its own components. As a result, Toyotas component sourcing strategy was governed by buy 28

Operations and Supply Chain Management in Automobile Industry and it was important for the company to be able to gets its components on time . JIT governed Toyotas buy strategy. The aim of JIT was to make production process smoother by avoiding or eliminating unnatural peaks and gullies in production. Ohno believed that when the production process was smooth and continuous, then all production and quality problems would float to the surface. These could be then corrected. His motto was speed without continuity is meaningless If the production line were either too fast or too slow it would create inventory problems. For Example: high-speed production at one point of the line would result in serious imbalances in the system. It would suck in supplies too fast, creating shortages in the preceding stages of production, and spew out products creating excess inventory at the next point on the line. JIT sought to avoid this by making components only when the need for them arose. Ohno was inspired by the functioning of the US supermarkets in his implementation of JIT. By observing the inventory management systems of these supermarkets, he understood the importance of adding inventory only when it was needed and not before that. The added inventory was also equal to the amount that had been used, not more, not less. JIT was based on reverse reasoning and the working of the production line started at the point of customer demand. To simplify, when there was demand for certain make of car, its assembly began at the factory. When the assembly was ready to begin, the parts were delivered to it by the previous process in the production line. When the parts had to be delivered to the assembly, the suppliers supplied their raw materials for their manufacture. In short, demand pulled the factorys workflow. This was based on the pull system of manufacturing as against the push system , where each process manufactured components to its highest potential and then pushed them down the line, often creating excess inventory and the blocking of the production line.

29

Operations and Supply Chain Management in Automobile Industry

PULL SYSTEM
Demand Assembly Parts Supply Raw materials

In the Pull system, demand leads to assembly, which leads to parts supply, which results in supply of raw materials. The starting point is the customer demand for the product manufactured by a certain product line.

PUSH SYSTEM
Raw materials Parts Manufacture Assembly Product

In the Push manufacturing, the work is pushed through the system at each stage. Raw materials are brought into line to manufacture parts. Once the parts are manufactured, they are sent to the assembly and the assembly manufactures the final product. The product is then ready for marketing.

If JIT was achieved throughout the organization, then the inventory would be completely eliminated and factory would have no need for stores and warehouses. However, achieving JIT in all processes automatically would be very difficult for companies like Toyota which required thousands of components to manufacture one car. The very complexity of the system would make it difficult for preceding processes to correctly anticipate the exact demand of the subsequent processes. It was to overcome the difficulty that Toyota developed Kanban system.

30

Operations and Supply Chain Management in Automobile Industry

KANBAN
Kanban was the cornerstone of JIT and helped Toyota achieve a high level of outsourcing. Kanban means signboard in Japanese was a tool to effectively control production quantities. The Kanban system looked at the production flow conversely i.e people working on the certain process of production line went to the preceding process on the line to withdraw the necessary units in necessary quantities at the necessary time. Then the preceding process produced only enough quantities of units to replace those that were withdrawn from its inventory. To produce the withdrawn units, the second process sometimes withdrew some other units from its preceding process and so on. In the Kanban system, workers of a process needing components wrote the details about the kinds of units needed and the quantity in which they are needed on a card called the Kanban. A worker then took his card to the preceding process and withdrew the amount required from it.

The system was made up of a fixed number of containers, each holding a certain fixed quantity of parts. Each container had a set of kanbans attached to it. A set comprised two types of kanbans- the Withdrawal Kanban and the Production Kanban.

A Withdrawal Kanban detailed the kind and quantity of product that the subsequent process should withdraw from the preceding process. The Productionordering Kanban specified the kind and the quantity of the product that the preceding process must produce. The total number of containers and the number of parts of each container would hold was calculated using Ohno formula, which gave the maximum amount of inventory that could be present in the system to hold the process together. All the process in the production line were thus connected to each other through Kanban.

31

Operations and Supply Chain Management in Automobile Industry Ohno initially used prices of paper contained in rectangular vinyl envelopes to convey information. However, by early 2000, Kanban had evolved into sophisticated inventory management tool that ensured production in the required quantities at the right time in all manufacturing processes within a factory.

HEIJUNKA
"Heijunka" - which means level production. Level production is something that can have tremendous benefits to any manufacturer Heijunka was born out of [Link] the early 1950's, Toyota needed to increase production of trucks for the U.S. to use in the Korean War. Unfortunately, though, there was a shortage of everything from raw materials to parts. Toyota could not get things in the quantity or time needed. In fact, production could not be done during the first half of the month. Those two weeks were spent gathering the parts that were arriving in no particular order. The second half of the month assembling the trucks it was realized that this system would never work if production levels increased. So, out of this challenge, the system of Heijunka was developed. Heijunka means the leveled sequencing of variants in production . It enables the manufacture of endless varieties at the cost of mass-production of one variety. Heijunka helps deal with the problem that producing varieties of product on the same line means that the cycle times of work in individual work stations will differ from variant to variant. What production would look like if we were matched exactly to customer orders? Some days production would be very high and some days it would be very low. But, there would always be a need to have the machinery, manpower and materials to produce at peak production . Of course, there would be significant idle time during the valleys. This is waste - muda. So the solution is to take all the orders for a certain period - a month... a week... a day... put them in a "pool" and then level out the production. This is Heijunka.

32

Operations and Supply Chain Management in Automobile Industry To give a simple example, let's say that over the period of a week, Toyota gets 700 orders for Camrys and 300 orders for Avalons. Now, of course, those orders don't come in at 100 per day of Camry. Some days it may be 175, other days 65. But Toyota pool together all the Camry and Avalon orders and then produce them in a level way. So, the production line would look like this: Camry, Camry, Avalon. Camry, Camry, Avalon. And so on. This leveling takes place not only for the vehicle itself, but also for various options, such as engine size, sunroofs, color and more. Each of these is levelized into a pool. Heijunka requires a company to rethink how they purchase from suppliers... how they design machines and tooling... how they develop work processes... and how they plan their staffing. Heijunka uses the pull model rather than the push Heijunka drives to create flexible processes. Heijunka is production leveling, working to produce only the parts and products that are needed whilst also keeping all machines and people as active as possible . This is done by sequencing orders in a repetitive pattern and smoothing the day-to-day orders to correspond to longerterm demand. At Toyota, production leveling was done to ensure that the flow was continuous and unobstructed. Leveling eliminated unevenness in the flow of items. For instance, if a component which required assembly had an associated requirement of 100 units during a 25-day working month, then four were assembled per day, one every two hours in an 8 hour working day. Leveling was also applied to the flow of finished goods out of the factory and to the flow of raw materials into the factory.

KAIZEN
Kaizen meant continuous improvement and was another important element of TPS. Kaizen required all employees to participate in eliminating all activities that were classified as waste, from the production system . All activities that would improve productivity and safety, such as improved plant layout, machine design or process flow fell under the scope of Kaizen. Besides, Kaizen was a continuous process not periodic as in other companies. Team leaders and supervisors had to be on the constant lookout for

33

Operations and Supply Chain Management in Automobile Industry problems and solve as many of them as possible on the spot. They also had to look for ways to improve productivity even when things were working smoothly. Kaizen changes were usually small and incremental, rather than systemwide and revolutionary.

Kaizen involved a great deal of observation of workers and their work processes . Sometimes video recordings were made and supervisors often maintained a detailed log of the movements of workers. Ohno believed that observation was the best way to spot problems and that constant observation would reveal problems that would otherwise escape ones notice. Therefore, he stressed the importance of people beings in touch with gemba or the place where action was (in this case the factory). He would urge managers to go to the factories everyday. He would say, Go to gemba everyday. And when you go, dont wear out the soles of your shoes in vain. You should come back with at least one idea for Kaizen. When teaching a person the methodologies of TPS, Ohno would take the trainee to the factory, draw a circle on the floor and have him/her stand there for a couple of hours to observe the work processes. At the end of the stipulated period, the observer was expected to suggest ways in which the process could be improved. Ohno realized new thoughts and new technologies do not come out of the bluethey come from the understanding of the process. The five whys were important parts of Kaizen. Ohno would insist that people ask why five times when confronted with any problem. For example, if a machine broke down, a person had to ask why it broke down. If the reason was a mechanical failure, he had to ask why the mechanical failure had occurred, and so on. This way one would get to the root of the problem, and once that was corrected, the problem would not recur.

Prerequisites for Kaizen Discard conventional fixed ideas. Don't make excuses. Start questioning current practices Think of how to do it, not why it cannot be done. by Don't seek perfection. Do it right away even if
34

Operations and Supply Chain Management in Automobile Industry

for only 50% of target. Correct it right away, if you make a Don't spend money for Kaizen. Use mistake. your wisdom Wisdom is brought out when faced Ask 'WHY' five times and seek root with hardship. causes Seek the wisdom of ten people rather than the knowledge of one Kaizen ideas are infinite Source: [Link]
Considering the persuasive nature of Kaizen activities, the support and commitment of the management was an important prerequisite for their successful implementation. Without these, Kaizen would remain a theory. However, at Toyota, continuous improvement was a corporate philosophy. Toyota employees were trained to look for possible improvements even in seemingly efficient processes, and it surprised many to see the improvements that were possible even in the best systems. Some analysts even felt that Kaizen was the major contributor to Toyotas global success. An important element in Kaizen was poka-yoke or error proofing. Poka-yoke involved the creation of processes that moved smoothly from step to step, without giving room for errors to creep in. At Toyota, processes were often created in such a way as to make it impossible to assemble a product in any way other than the correct one, to eliminate the chance of error.

THE HUMAN ELEMENT AND JIDOKA

In most manufacturing organisations, labor is treated like just another factor of production and no effort is made to develop the creativity of workers or to assign responsibility to them. However, the human element played an important role in the TPS. Analyst said that the organisation and structure of the human resource function, in addition to the corporate culture, played a very important role in Toyotas success.

35

Operations and Supply Chain Management in Automobile Industry

The main considerations in TPS were: Elimination of wasteful movements by workers Consideration for workers safety; and Self-display of workers capabilities by entrusting them with greater responsibility and authority The TPS emphasized flexibility and teamwork. Most of the workers were crosstrained and could be shifted between different production lines . This flexibility, which Toyota called Shijinka, was extremely useful in that the company could adapt to demand and did away with the need to recruit new workers when the demand for a certain type of product increased. People were also organized in teams and each team was assigned a certain portion of work. Members could change roles within the team. This offset the monotony of mass production. The stress was on empowerment and workers were given the responsibility of running and improving their own workshops. Any employee at any level of the hierarchy had a right to make improvements in processes . This was called visible control and all workers took positive steps to improve or eliminate any waste that they identified. They were also informed of the priority order of the parts to be processed and the state of production advancement. Therefore, the actual authority for decisions of job dispatching and overtime was delegated to the foreman, and this allowed each shop to conduct production activities without orders from the control department. This helped improve production rates and the moral in the factories. Jidoka was the manifestation of Toyotas commitment towards empowerment. This philosophy empowered workers to stop the equipment of operations in a line whenever an abnormal or defection condition arose in the line . This displayed the

36

Operations and Supply Chain Management in Automobile Industry trust that Toyota placed in the capability of its workers and was also meant to promote worker participation. The rationale behind Jidoka was that it was men who operated the conveyor and not the other way round. Whenever a worker detected an abnormality or problem in the production line, or found himself unable to keep pace with the line, he could stop the operation by pulling a cord called the andon cord, which would set off an alarm system and illuminate the color coded andon electric light board. This would alert all the workers and supervisors to the presence of a problem in the line. If the problem was not rectified within a specified length of time, then the entire line would stop, either manually or automatically. Andon- Andon is a Japanese word for lantern; signal that a team member has identified a problem possibly needing supervisory attention. Andons are overhead boards located near each work area in the plant. The flashing lights and musical sounds coming from these overhead boards resemble electronics scoreboards in a sports arena. These flashing lights and distinctive musical sounds identify a specific area, the nature of the problem and status of the alert. The lights and sound are triggered by the andon sensor system. There is an andon cord located within the arms reach of each team member throughout every assembly area. A team member knows that it is his or her responsibility to pull the cord at the first sign of any problem. Pulling the andon cord merely alerts supervisory personnel-team or group leaders-to be prepared to assist the team member who has identified an abnormality. While the team member addresses the problem, the line continues to flow without interruption until it reaches the end of the standard interval or takt time. The line stops only when a team member, team leader, or supervisor is unable to solve a problem within the remaining current takt-time interval and does not release the andon alert. Even when stopping becomes necessary, work does not stop in the entire plant. It ceases only in the segment of workstations immediately surrounding the affected workstations.

37

Operations and Supply Chain Management in Automobile Industry

The andon cord system enables team members promptly to identify and signal the time, place and condition of abnormality, no matter how slight. The Jidoka system helped direct attention to the problem as soon as it occurred, thus preventing further complications. The problems could often be corrected immediately by directing attention to the part of the line where the problem had occurred and the worker who had sounded the alert. Identifying the problem as it occurred prevented the line from producing a complete lot of defective products. This helped Toyota achieve high levels of quality . It also showed its faith in the workers ability as thinkers. To ensure that workers spotted deviations easily, Ohno called for work to be standardized to as great an extent as possible with specific work instruments being given for every job. It was common for employees to stop a line hundreds of times in each shift at Toyotas factories.

Training and development of human resources were integral to the TPS . Toyotas commitment to its workers made it invest substantially in developing the full potential of workers. Training and induction of supervisors and managers often lasted three months or more and a new recruit was not assigned his designated place of work until the company was completely satisfied that he was familiar with the Toyota way. Recruits were posted in different plants to observe and learn the various facets of the TPS. In the early 2000s, Toyota invested in e-learning to ensure that all employees were up-to-date on all the manufacturing operations and the latest techniques in engineering. Safety and worker well-being were also given a great deal of importance as Toyota and Ohno believed that a safety conscious work place would improve the morale of the workers and lead to greater productivity. One employee recollected that at a Kaizen event, members of a team had devised a method for collecting Kanban cards without 38

Operations and Supply Chain Management in Automobile Industry getting off their tow motors, thus eliminating wasted time and motion. However, when they described the method to Ohno, he pointed out that if the vehicle was moving all the time, the driver would have to keep a hold on the accelerator continuously, and this would not be good for his wrist. Ohno also said that getting off the vehicle for a while provided exercise and was good for the Kanban collectors well-being.

OPERATIONS AT TOYOTA MOTOR CORPORATION

Operations involved following stages: STAMPING At the beginning of each vehicle's 20-hour journey through the production process, gleaming coils of steel 95 percent of which is provided by domestic suppliers are cleaned, straightened and stamped into more than 200 body components and parts. An in-house Die Manufacturing Shop makes dies for Georgetown and other North American Toyota Plants. BODY WELD A combination of human welders and more than 700 robotic welders make more than 4,200 spot welds per vehicle, transforming the steel parts into the strong body shell that is the foundation for the finished vehicle. PAINT During more than ten hours in Paint, each vehicle shell undergoes a complex series of prep, priming, sanding sealing and topcoating processes designed to create a finish that is as durable and corrosion-proof as it is beautiful. PLASTICS

39

Operations and Supply Chain Management in Automobile Industry For efficiency and the ability to make improvements quickly, instrument panels, glovebox covers and other plastic components are produced on site.

POWERTRAIN Kentucky-made engines have powered Camrys since January 1990, and Avalons since the model was launched. The Georgetown Powertrain Plant produces four and six cylinder engines, along with axle assemblies. In addition, engines and engine components are manufactured for export.

ASSEMBLY In assembly, each body shell is transformed into an operating vehicle, as team members install everything from the engine and electrical components to operating fluids and the insignia. This is the largest area of production. INSPECTION At the end of assembly, each vehicle receives a quality inspection. From the marshaling yard in Georgetown, vehicles are shipped by rail and truck to distributors, dealers and customers across America and around the world. TEST TRACK Every day, vehicles are chosen randomly to be put through their paces on the two-mile test-track near the production facilities. Team members from throughout the plant drive and evaluate the vehicles as if they were new-car buyers.

BENEFITS OF TPS
TPS conferred a great amount of flexibility and productivity enhancing capabilities on Toyota. By the early 2000s, Toyota had the capability to 40

Operations and Supply Chain Management in Automobile Industry manufacture a car, from raw materials to final assembly in five days. This gave the company a considerable advantage over competitors, many of whom took nearly 30 days for the same process. Flexibilty provided by TPS allowed Toyota to make the best use of its resources for greater productivity. In the 1990s, two different models of cars were manufactured at the same assembly line at Toyota, something unheard of at other car manufacturers. Concepts like Kaizen and Jidoka ensured that high levels of quality were maintained, making Toyota one of the best car companies in the world. In a quality survey conducted in 2000, Toyota captured the top position in 9 out of 13 vehicle segments and won the top three plant awards. Kaizen made people see how things could change for better. Jidoka and other human resources tools resulted in high morale among the workers who knew they were valued at the company and enjoyed a high level of empowerement. TPS supplanted both the Mass production and Crafts production to became the standard global production system of the 21st century. The lean manufacturing combines the positive aspects of both while eliminating their shortcomings.

LEAN MANUFACTURING John krafcik, a researcher at the Massachusetts institute of technology, first coined the term lean manufacturing in the late 1980s. The concept was based on the philosophy of Toyotas production system, which manufactured better quality products with a lower defect rate and at a greater speed than its competitors. Many analysts considered lean manufacturing to be the western incarnation of TPS. Lean manufacturing is lean because its uses less of everything- half the manufacturing space, half the investment in tools, half the engineering hours, half the engineering hours, and half the time to produce goods that have fewer defects- in accordance with customer demand.

41

Operations and Supply Chain Management in Automobile Industry

Lean manufacturing is much more flexible than its predecessors, craft production and mass production, and combines the positive aspects of both, while eliminating their shortcomings. It also requires minimum levels of inventory and can produce a greater variety of products with the same resources. it combines teams of multi-skilled workers at all levels of the organization and uses highly flexible and increasingly automated machines to produce volumes of products of enormous variety. CRAFT PRODUCTION In craft production, the producer uses highly skilled workers and simple, but flexible tools to make exactly what the customer asks for- one item at a time. Exotic sports cars are an example of craft manufacturing, where the car is manufactured on order and according to the customers specifications. Craft production has the benefit of being able to provide exactly what the customer wants: but the obvious disadvantage is that the products are too expensive. So mass production was developed at the beginning of the 20th century as an alternative. MASS PRODUCTION In mass production, the producer uses narrowly skilled professionals to design products made by unskilled or semi-skilled workers operating expensive, single purpose machines. Products are churned out in a standardized form in very high volumes. Because the machinery costs so much and is intolerant of disruption, the mass producer keeps standard designs in production for as long as possible. Therefore, though the customer gets lower cost products, there is no variety. Employees working in mass production also tend to find the work monotonous and uninspiring. THE TOYOTA PRODUCTION SYSTEM The main principles of lean manufacturing were: no waiting time, minimal inventory, pull-based manufacturing, line balancing, smaller batch sizes, and lower process time. Analysts around the world believed that lean manufacturing was the need of the day as companies were operating in a highly dynamic and competitive environment in which 42

Operations and Supply Chain Management in Automobile Industry lower production costs could make all the difference. The search was also on for the successor of lean manufacturing, which some people said could be agile manufacturing. Agile manufacturing sought to obtain a competitive advantage by developing agility in manufacturing processes, which would help the company to react quickly to market changes. Knowledge was also an important resource in agile manufacturing. Toyotas strong relationships with its suppliers also ensured that the company was able to implement JIT effectively, which allowed achieving a greater degree of flexibility and considerable low inventory costs. Toyota was very protective of its suppliers and maintained close relationships with them. This allowed it to adapt itself quickly to market conditions, giving itself a competitive advantage over rivals. The use of TPS makes the Toyota motor manufacturing plant at Kentucky, markedly different from other plants in North America. TMM plant differs from other North American auto plants in the following ways: a. There is reduced noise level and steady pace of work at all parts of the plant, other than the stamping area. Even the stamping at TMM is quieter than similar operations in other companies. b. There is impressive cleanliness and orderliness everywhere. c. In TMM, rework areas are sparse whereas North American auto plants often allocate several hundred spaces for cars temporarily parked to await rework. At TMM only a few dozen rework bays exist. d. Another difference is the high degree to which TMM fabricates and assembles automobile major components on one site. Although such high degree of integration under one roof is not absolutely necessary to achieve continuous flow of work, it is consistent with Toyotas long standing strategy to achieve unbroken continuous flow in as many operations as possible, from component making through final assembly.

43

Operations and Supply Chain Management in Automobile Industry

IMPLICATIONS
To promote the TPS, Toyota set up the TSSC, headquartered in Kentucky in the late 1990s. TSCs objective was to help companies that were genuinely interested in adopting TPS to implement it. Toyota did not charged any fee for its services only the consultants expenses had to be reimbursed by the client. By the early 2000s, several companies some in Japan and others in Western countries, had begun experimenting with the implementation of the TPS. The TPS was an important part of the turnaround plan of Fujitsu, a major electronics company based in Tokyo. Japan Post (the countrys postal service), which was privatized in 2003, also employed a TPS consultant to help it streamline operations and recover from losses. Many organizations in the US and Europe also adopted the TPS. General Mills, a major US food products company, had a TPS consultant, and Gortans, major seafood major in USA, used TPS to reduce inventory at its fish-processing plant. Hickory chair, a subsidiary of industry leader Furniture Brands International, also kept prices steady for three years by adopting the TPS.

CHALLENGES FACED IN ADOPTING TPS

The biggest challenge facing the TPS was the time it took for its implementation. In Toyota, the system grew out of discrete programs that were implemented over the years. But for other companies to implement the TPS, it took at least two years and involved a number of system wide changes: The client company had to reform its organizational culture to suit the requirements of TPS and the entire value system had to be changed. This was generally not easily done and led to complications.

44

Operations and Supply Chain Management in Automobile Industry When TPS was implemented, things first became worse before they became better. This demoralized companies and they often abandoned the implementation mid-way. This system was also prone to regression and if it was not sustained constantly, things could slip back to what they had been before its implementation and sometimes became even worse. Although many manufacturers in Europe and US adopted elements of the TPS in their production systems, none of them were successful in replicating the model. This was because of the social, economic, and cultural differences between Japan and the Western world. Management in western countries did not easily relate to ideals like empowerment and decentralization. They were more inclined towards command and control philosophies and vertical organizational structures.

45

Operations and Supply Chain Management in Automobile Industry

TOTAL QUALITY MANAGEMENT

WHAT IS TOTAL QUALITY MANAGEMENT?
In many automobile companies the way to ensure that customers receive quality products and services is to have a rigorous system of inspection.. the idea is that if there is enough inspection then the defective products wll be identified and discarded leaving only the good products to be made available to the customers. In this approach the main the main decision is to find out how many goods will have to be inspected., the cost of scrap, rework, and detecting defects increase while the cost of defective products to customers decline. At some level of inspection and optimal trade off is achieved where total quality costs are minimized. Operations manager are somehow supposed to manage these costs. Now the fault in here lies in the view that it implies quality can be inspected into products. In other words acceptable product quality can be achieved by discarding defective products that are found in inspection. while continuing to produce shoddy products with sloppy production practices. The scenario now has changed. Quality managers now know that superior quality products are not attained only through high and rigorous inspection. It is that manufacturers must go back to production and make fundamental changes in the way that they design their products and produce it right the first time. That way superior quality products will be coming out of production and inspection job shifts from discarding bad products to preventing defects and providing feedbacks and how production can continue to improve quality. This is called the Total quality management. Many companies have now abandoned the traditional approach and have gone into TQM.

46

Operations and Supply Chain Management in Automobile Industry

WHY LEARN MODEL?

SIMPLIFIED

TQM

DIAGNOSTIC

This model can help you gain confidence in making TQM decisions: Identify necessary elements for a successful quality management approach. Know how they fit together to successfully accomplish quality goals. Display the most options, thus helping make the right quality management choices. This model can help you integrate daily TQM tasks with strategic TQM goals: Learn skills to balance competitive quality strategic planning with daily operational choices. Learn skills to maximize human and organizational resources for daily productivity demands. This model can help you understand and enjoy team technology in the context of TQM: Learn how to avoid strategies that lead to the "program-of-the-month" mentality. Learn how to keep management commitment for TQM at its highest level. Learn how to avoid employee "end-runs" around management during TQM implementation.

THE GUIDING PRINCIPLE

Successful Total Quality Management requires both behavioral and cultural change. A successful TQM System brings two other management systems together with a behavioral and cultural commitment to customer quality. 47

Operations and Supply Chain Management in Automobile Industry

Thus, TQM becomes a system within itself by default or by choice. These three management systems must be aligned in a successful TQM initiative:
o o o

OM (organizational management system), HRM (human resource management systems) and TQM (total quality management).

TWO IMPLEMENTATION APPROACHES

TRADITIONAL MANAGEMENT APPROACH: This is the most common. A TQM is overlayed (some say forced) upon the other two systems. This approach represents the 80% failure of TQM's. In this approach TQM never becomes an accepted reality by either organizational or human resource management. It is usually seen as competition, or "something to be tolerated." The TQM system consumes valuable resources needed by the other systems and rejection begins to occur.

INTEGRATED MANAGEMENT APPROACH: This is the least common. A TQM is blended and balanced with existing cultural initiatives in both organizational and human resource management systems. This represents the 20% success rate of TQM's. Whether both organizational management and human resource management systems take on a "quality management commitment" or "join a quality management team" is not important. The principles of quality management are attended to as an important third system that blends, integrates, aligns and maximizes the other two systems to beat competition in world class quality performance. This approach can often be divided into two sub-choices, depending upon managerial resources, readiness, acceptance, and competencies. .

48

Operations and Supply Chain Management in Automobile Industry

THE NEED FOR THREE INTEGRATED and SIMPLIFIED MODELS

Managers committed to successful implementation of total quality management (TQM) must have both an HRD Model and an OD Model that work together. In simplified terms, HRD + OD = TQM. Even though a TQM is an entity within itself, it must see its existance as the catalytic blending of the other two systems. It does not consume the other systems, it empowers them to do what they have wanted to do - attain world class customer quality!

This can be tricky politically, and is the reason for this Simplified TQM Diagnostic Model. You may access simplified HRD and OD models by clicking on the HRD and OD acrostics.

A SIMPLIFIED TQM MODEL

While Total Quality Management has proven to be an effective process for improving organizational functioning, its value can only be assured through a comprehensive and wellthoughtout implementation process. The purpose of this chapter is to outline key aspects of implementation of largescale organizational change which may enable a

49

Operations and Supply Chain Management in Automobile Industry practitioner to more thoughtfully and successfully implement TQM. First, the context will be set. TQM is, in fact, a largescale systems change, and guiding principles and considerations regarding this scale of change will be presented. Without attention to contextual factors, wellintended changes may not be adequately designed. As another aspect of context, the expectations and perceptions of employees (workers and managers) will be assessed, so that the implementation plan can address them. Specifically, sources of resistance to change and ways of dealing with them will be discussed. This is important to allow a change agent to anticipate resistances and design for them, so that the process does not bog down or stall. Next, a model of implementation will be presented, including a discussion of key principles. Visionary leadership will be offered as an overriding perspective for someone instituting TQM. In recent years the literature on change management and leadership has grown steadily, and applications based on research findings will be more likely to succeed. Use of tested principles will also enable the change agent to avoid reinventing the proverbial wheel. Implementation principles will be followed by a review of steps in managing the transition to the new system and ways of helping institutionalize the process as part of the organization's culture. This section, too, will be informed by current writing in transition management and institutionalization of change. Finally, some miscellaneous do's and don't's will be offered. Members of any organization have stories to tell of the introduction of new programs, techniques, systems, or even, in current terminology, paradigms. Usually the employee, who can be anywhere from the line worker to the executive level, describes such an incident with a combination of cynicism and disappointment: some manager went to a conference or in some other way got a "great idea" (or did it based on threat or desperation such as an urgent need to cut costs) and came back to work to enthusiastically present it, usually mandating its implementation. The "program" probably raised people's expectations that this time things would improve, that management would listen to their ideas. Such a program usually is introduced with fanfare, plans are made, and things slowly return to normal. The manager blames unresponsive employees, line workers blame executives interested only in looking good, and all complain about the resistant middle managers. Unfortunately, the program itself

50

Operations and Supply Chain Management in Automobile Industry is usually seen as worthless: "we tried team building (or organization development or quality circles or what have you) and it didn't work; neither will TQM". Planned change processes often work, if conceptualized and implemented properly; but, unfortunately, every organization is different, and the processes are often adopted "off the shelf" "the 'appliance model of organizational change': buy a complete program, like a 'quality circle package,' from a dealer, plug it in, and hope that it runs by itself" (Kanter, 1983, 249). Alternatively, especially in the underfunded public and notforprofit sectors, partial applications are tried, and in spite of management and employee commitment do not bear fruit. This chapter will focus on ways of preventing some of these disappointments. In summary, the purpose here is to review principles of effective planned change implementation and suggest specific TQM applications. Several assumptions are proposed: 1. TQM is a viable and effective planned change method, when properly installed; 2. not all organizations are appropriate or ready for TQM; 3. preconditions (appropriateness, readiness) for successful TQM can sometimes be created; and 4. leadership commitment to a largescale, longterm, cultural change is necessary. While problems in adapting TQM in government and social service organizations have been identified, TQM can be useful in such organizations if properly modified (Milakovich, 1991; Swiss, 1992).

TQM as LargeSale Systems Change

TQM is at first glance seen primarily as a change in an organization's technology its way of doing work. In the human services, this means the way clients are processed the service delivery methods applied to them and ancillary organizational processes such as paperwork, procurement processes, and other procedures. But TQM is also a change in an organization's culture its norms, values, and belief systems about how organizations function. And finally, it is a change in an organization's political system: decision making processes and power bases. For substantive change to occur, changes in these three dimensions must be aligned: TQM as a technological change will not be successful unless cultural and political dimensions are attended to as well (Tichey, 1983). 51

Operations and Supply Chain Management in Automobile Industry Many (e.g., Hyde, 1992; Chaudron, 1992) have noted that TQM results in a radical change in the culture and the way of work in an organization. A fundamental factor is leadership, including philosophy, style, and behavior. These must be congruent as they are presented by a leader. Many socalled enlightened leaders of today espouse a participative style which is not, in fact, practiced to any appreciable degree. Any manager serious about embarking on a culture change such as TQM should reflect seriously on how she or he feels and behaves regarding these factors. For many managers, a personal program of leadership development (e.g., Bennis, 1989) may be a prerequisite to effective functioning as an internal change agent advocating TQM. Other key considerations have to do with alignment among various organizational systems (Chaudron, 1992; Hyde, 1992). For example, human resource systems, including job design, selection processes, compensation and rewards, performance appraisal, and training and development must align with and support the new TQM culture. Less obvious but no less important will be changes required in other systems. Information systems will need to be redesigned to measure and track new things such as service quality. Financial management processes may also need attention through the realignment of budgeting and resource allocation systems. Organizational structure and design will be different under TQM: layers of management may be reduced and organizational roles will certainly change. In particular, middle management and first line supervisors will be operating in new ways. Instead of acting as monitors, ordergivers, and agents of control they will serve as boundary managers, coordinators, and leaders who assist line workers in getting their jobs done. To deal with fears of layoffs, all employees should be assured that no one will lose employment as a result of TQM changes: jobs may change, perhaps radically, but no one will be laid off. Hyde (1992) has recommended that we "disperse and transform, not replace, midlevel managers." This no layoff principle has been a common one in joint labormanagement change processes such as quality of working life projects for many years. Another systems consideration is that TQM should evolve from the organization's strategic plan and be based on stakeholder expectations. This type of planning and stance regarding environmental relations is receiving more attention but still is not common in the human services. As will be discussed below, TQM is often proposed based on

52

Operations and Supply Chain Management in Automobile Industry environmental conditions such as the need to cut costs or demands for increased responsiveness to stakeholders. A manager may also adopt TQM as a way of being seen at the proverbial cutting edge, because it is currently popular. This is not a good motivation to use TQM and will be likely to lead to a cosmetic or superficial application, resulting in failure and disappointment. TQM should be purposeoriented: it should be used because an organization's leaders feel a need to make the organization more effective. It should be driven by results and not be seen as an end in itself. If TQM is introduced without consideration of real organizational needs and conditions, it will be met by skepticism on the part of both managers and workers. We will now move to a discussion of the ways in which people may react to TQM.

People's Expectations and Perceptions

Many employees may see TQM as a fad, remembering past "fads" such as quality circles, management by objectives, and zerobased budgeting. As was noted above, TQM must be used not just as a fad or new program, but must be related to key organizational problems, needs, and outcomes. Fortunately, Martin (1993) has noted that TQM as a "managerial wave" has more in common with social work than have some past ones such as MBO or ZBB, and its adaptations may therefore be easier. In another vein, workers may see management as only concerned about the product, not staff needs. Management initiatives focused on concerns such as budget or cost will not resonate with beleaguered line workers. Furthermore, staff may see quality as not needing attention: they may believe that their services are already excellent or that quality is a peripheral concern in these days of cutbacks and multi problem clients. For a child protective service worker, just getting through the day and perhaps mitigating the most severe cases of abuse may be all that one expects. Partly because of heavy service demands, and partly because of professional training of human service workers, which places heavy value on direct service activities with clients, there may be a lack of interest on the part of many line workers in efficiency or even effectiveness and outcomes (Pruger & Miller, 1991; Ezell, Menefee, & Patti, 1989). This challenge should be 53

Operations and Supply Chain Management in Automobile Industry addressed by all administrators (Rapp & Poertner, 1992), and in particular any interested in TQM. Workers may have needs and concerns, such as lower caseloads and less bureaucracy, which are different from those of administration. For TQM to work, employees must see a need (e.g., for improved quality from their perspective) and how TQM may help. Fortunately, there are winwin ways to present this. TQM is focused on quality, presumably a concern of both management and workers, and methods improvements should eliminate wasteful bureaucratic activities, save money, and make more human resources available for core activities, specifically client service.

Sources of Resistance
Implementation of largescale change such as TQM will inevitably face resistance, which should be addressed directly by change agents. A key element of TQM is working with customers, and the notion of soliciting feedback/expectations from customers/clients and collaborating with them, perhaps with customers defining quality, is a radical one in many agencies, particularly those serving involuntary clients (e.g., protective services). Historical worker antipathy to the use of statistics and data in the human services may carry over into views of TQM, which encourages the gathering and analysis of data on service quality. At another level, management resistance to employee empowerment is likely. They may see decision making authority in zerosum terms: if employees have more involvement in decision making, managers will have less. In fact, one principle in employee involvement is that each level will be more empowered, and managers lose none of their fundamental authority. There will undoubtedly be changes in their roles, however. As was noted above, they will spend less time on control and more on facilitation. For many traditional managers, this transition will require teaching/training, self reflection, and time as well as assurances from upper management that they are not in danger of being displaced.

54

Operations and Supply Chain Management in Automobile Industry Resistance in other parts of the organization will show up if TQM is introduced on a pilot basis or only in particular programs (Hyde, 1992). Kanter (1983) has referred to this perspective as segmentalism: each unit or program sees itself as separate and unique, with nothing to learn from others and no need to collaborate with them. This shows up in the "not invented here" syndrome: those not involved in the initial development of an idea feel no ownership for it. On a broader level, there may be employee resistance to industry examples used in TQM terms like inventory or order backlog (Cohen and Brand, 1993, 122).

Dealing with Resistance

There are several tactics which can be helpful in dealing with resistance to TQM implementation. Generally, they have to do with acknowledging legitimate resistance and changing tactics based on it, using effective leadership to enroll people in the vision of TQM, and using employee participation. A useful technique to systematically identify areas of resistance is a force field analysis (Brager & Holloway, 1992). This technique was originally developed by Kurt Lewin as an assessment tool for organizational change. It involves creating a force field of driving forces, which aid the change or make it more likely to occur, and restraining forces, which are points of resistance or things getting in the way of change. Start by identifying the change goal, in this case, implementation of TQM. Represent this by drawing a line down the middle of a piece of paper. Slightly to its left, draw a parallel line which represents the current state of the organization. The change process involves moving from the current state to the ideal future state, an organization effectively using TQM. To the left of the second line (the current state), list all forces (individuals, key groups, or conditions), which may assist in the implementation of TQM. These may include environmental pressures leading to reduced funds, staff who may like to be more involved in agency decision making, and the successful applications of TQM elsewhere. On the other side, list restraining forces, which will make the change implementation 55

Operations and Supply Chain Management in Automobile Industry more difficult. Examples may be middle management fear of loss of control, lack of time for line workers to take for TQM meetings, and skepticism based on the organization's poor track record regarding change. Arrows from both sides touching the "current state" line represent the constellation of forces. Each force is then assessed in two ways: its potency or strength, and its amenability to change. More potent forces, especially restraining ones, will need greater attention. Those not amenable to change will have to be counteracted by driving forces. Exhibit I provides an example.

Force Field Analysis DRIVING FORCES Environmental pressures leading to reduced funds RESTRAINING FORCES Middle management fear of loss of control

Staff who may like to be more involved Lack of time for line workers to take time for in agency decision making TQM meetings Successful applications of TQM elsewhere Skepticism based on the organization's poor performance regarding change

The analysis of the force field involves looking at which driving forces may be strengthened and which restraining forces may be eliminated, mitigated, or counteracted. If it appears that, overall, driving forces are strong enough to move back restraining forces, adoption of TQM would be worth pursuing. The change plan would include tactics designed to move the relevant forces. It is also important to note and validate any points of resistance which are, in fact, legitimate, such as the limited amount of staff time available for TQM meetings. Klein (cited in Bennis, Benne, & Chin, 1985) encouraged change agents to validate the role of the "defender" of the status quo and respond to legitimate concerns raised. This will allow appropriate adaptations of the TQM process to account for unique organizational circumstances. Sell TQM based on the organization's real needs, note legitimate risks and negatives, and allow improvements in your own procedures. This should enhance your credibility and show your openness to critically looking at the process. 56

Operations and Supply Chain Management in Automobile Industry Another way to address resistance is to get all employees on the same side, in alignment towards the same goal. Leadership is the mechanism for this, and specific models known as transformational or visionary leadership (Bennis & Nanus, 1985) are most effective. Research on change implementation (Nutt, cited in Robey, 1991) has identified four methods. The first, "intervention," involves a key executive justifying the need for change, monitoring the process, defining acceptable performance, and demonstrating how improvements can be made. This was found to be more successful than "participation," in which representatives of different interest groups determine the features of the change. Participation was found to be more successful than "persuasion" (experts attempting to sell changes they have devised) or "edict," the least successful. Transformational or visionary leadership, the approach suggested here, is an example of the intervention approach. This would involve a leader articulating a compelling vision of an ideal organization and how TQM would help the vision be actualized. These principles will be discussed in more detail in a later section, as a framework for the change strategy. A powerful way to decrease resistance to change is to increase the participation of employees in making decisions about various aspects of the process. There are actually two rationales for employee participation (Packard, 1989). The more common reason is to increase employee commitment to the resultant outcomes, as they will feel a greater stake or sense of ownership in what is decided. A second rationale is that employees have a great deal of knowledge and skill relevant to the issue at hand (in this case, increasing quality, identifying problems, and improving work processes), and their input should lead to higher quality decisions. A manager should consider any decision area as a possibility for employee participation, with the understanding that participation is not always appropriate (Vroom and Yetton, 1973). Employees or their representatives may be involved in decision areas ranging from the scope and overall approach of the TQM process to teams engaging in quality analysis and suggestions for improvements. They may also be involved in ancillary areas such as redesign of the organization's structure, information system, or reward system. Involvement of formal employee groups such as unions is a special consideration which may also greatly aid TQM implementation.

57

Operations and Supply Chain Management in Automobile Industry A change agent should understand that, overall, change will occur when three factors (dissatisfaction with the status quo, desirability of the proposed change, the practicality of the change) added together are greater than the "cost" of changing (time spent in learning, adapting new roles and procedures, etc.) (Beckhard and Harris, 1987). This is represented in the formula in Exhibit II. Any key group or individual will need a level of dissatisfaction with the status quo, must see a desired improved state, and must believe that the change will have minimal disruption. In other words, the change (TQM) must be seen as responding to real problems and worth the effort or cost in getting there. Conditions favoring change may be created by modifying these variables. The change agent may try to demonstrate how bad things are, or amplify others' feelings of dissatisfaction; and then present a picture of how TQM could solve current problems. The final step of modifying the equation is to convince people that the change process, while it will take time and effort, will not be prohibitively onerous. The organization as a whole and each person will be judging the prospect of TQM from this perspective. A variation of this is the WIIFM principle: "What's in it for me?" To embrace TQM, individuals must be shown how it will be worth it for them.

58

Operations and Supply Chain Management in Automobile Industry

INVENTORY CONTROL
Inventory control is concerned with minimizing the total cost of inventory. In the U.K. the term often used is stock control. The three main factors in inventory control decision making process are: The cost of holding the stock (e.g., based on the interest rate). The cost of placing an order (e.g., for row material stocks) or the set-up cost of production. The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand. The third element is the most difficult to measure and is often handled by establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay. The ABC Classification The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management.

59

Operations and Supply Chain Management in Automobile Industry Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time. Safety Stock: Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur. Safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage. Quantity Discount Model Calculation Steps: Compute EOQ for each quantity discount price. Is computed EOQ in the discount range? If not, use lowest cost quantity in the discount range. Compute Total Cost for EOQ or lowest cost quantity in discount range. Select quantity with the lowest Total Cost, including the cost of the items purchased. Inorder to simplify the process of inventory control there is a software made which will not only quicked the process of inventory control but will also help in doing the whole process accurately. This software is called Hi tech software and it is being used ow by most automobile industry. HiTech Automobiles Sales, Stock and Accounts Management Program is a very powerful tool for Invoicing, Inventory Control, Sales and Purchase Control and Accounting. The program has got powerful features to take care of all requirements of a Automobiles Trading and Business House and serves as a complete Management Information system (MIS). The design of HiTech Automobiles SSAM (Sales, Stock and Accounts Manager) is modular. The data from various modules flows in Accounts module and all your final rep orts are produced at a touch of a button. The program has above listed modules : This modular program keeps detailed information about the Supplier, customer and accounts you deal with. Apart from the preparing and printing the vouchers HiTech F inancial Accounting keeps your accounts up-to-date without any effort. Numerous

60

Operations and Supply Chain Management in Automobile Industry reports are available for viewing and printing where you can keep an eye on the vital indicators about your business. Being Window based HiTech Financial Accounting is in tune with the latest computer software technology and will be a long time companion to your profitable business. The design of HiTech Automobile SSAM is modular. The data from various modules flows in Accounts module and all your final reports are produced at a touch of a button. The program has above listed modules. This application program is designed for use on Windows 98/2000/2003/ME/NT/XP. This program has much improved functionality and more power under Windows (TM). It is equipped with context sensitive On Line help to make the whole operation easy for a new user. The program uses Microsoft Access databases powered by Microsoft Jet Database Engine for fast and efficient storage and retrieval of Data. Multitasking (Carrying out two tasks at a time; i.e. printing reports or vouchers is simultaneously possible while viewing the reports or making new vouchers. The program uses spreadsheet to display all your data on the screen at the same time for easy readability. The program includes built in tools like Information Export Panel Information Export Panel that allows you to export all reports from to program to Printer with print preview, email, MS Excel, MS Word, CSV Text and also upload to web using FTP. All reports can be displayed in grid as well as in list view (sort-able) format. Another tool included with the program is Communication Control that is linked to party (customer, supplier, employee etc.) records. You can write a communication using word, excel o r notepad or send an email to a party. The communication is linked with the party record and can be re-accessed again. Also telephone numbers can be dialed by click of a button using the computer [Link] a program has an OCX user interface that make data entry effortless and editing of all records is possible with ledger and inventory being updated

61

Operations and Supply Chain Management in Automobile Industry automatically. A number of reports are displayed with graphs. All reports can be exported in various format as described above. Place your choice today in HiTech Financial Accounting Software and make your Business Accounting easy to handle. HiTech Financial Accounting shall be reliable companion of your successful business with years of bother free operation.

SUPPLY CHAIN MANAGEMENT

INTRODUCTION
Consider how a material might flow from a companies supplier through the companies operation, and the to its customers. An increasingly popular perspective today is to view the flow of materials from suppliers all the way to the consumers as a system to be managed. This perspective is commonly referred to as supply chain management. In the broader sense it refers to the way that materials flow through different organizations; Starting with basic raw materials and ending up with products delivered to the ultimate consumer. Eg consider the steel used in automobile bodies, mining company first only the iron ore from the dirt. The iron ore is then sent to a steel mill, where it is processed with other materials to form large steel ingots. These are again sold to another steel companies, where they are heated rolled into long thin sheets and annealed. These rolls are then sent to automotive manufacturers that are either specialized in making doors, and inner and outer body parts of the cars. The automobile is then sold to some car dealership that performs some final preparation work, such as

62

Operations and Supply Chain Management in Automobile Industry adding pinstrips to the sides etc. finally the ultimate consumer purchases the vehicle or car from the dealer who is the last link in the supply chain. Supply chain can form complex networks involving many companies and materials. A raw material can be used in many different finished products produced by numerous companies. Co-ordination of all companies involved in the supply chain, including effective communication is crucial in providing high quality finished products in a timely manner and at the lowest cost possible for the company. From an operations management perspective for a particular company that is in middle of a supply chain, only a portion of supply chain is of particular interest. So for most of the companies the most relevant aspect of SCM involve all management functions related to the flow of materials from the companies direct suppliers to its direct customers; including purchasing, warehousing, inspection, production, materials handling, shipping and distribution. Materials management and logistics management are two alternative names sometimes used to refer SCM within a single company.

63

Operations and Supply Chain Management in Automobile Industry

CONCLUSION
The Indian car industry is going through very interesting phase. Along with a booming economy has come increased spending patterns and a growing automobile sector. But it hasn't been this way forever. Initially very few foreign car companies were present in India, that too with a minor stake. The change in the Indian car industry came during the early '80s. Many International car companies set up manufacturing units all over the country. The feather on the cap of the Indian car industry, however, came with the launch of India's first indgeniously designed and manufactued passenger car - The Tata Indica. The Indica changed the Indian car industry for [Link] Indian automobile industry had a revolution taking place in the car segment with the launch of Indica [Link] car was very well received by the Indian car market. Popularity of the Indica V2 does not end just in the Indian car market and the Indian automobile industry but has gone way [Link] the coming years Tata Motors is committed to manufacture world class products that will be the envy of automobile manufacturers in India and abroad. Tata Motors is set to be a shining example of a progressive Indian car Industry. 64

Operations and Supply Chain Management in Automobile Industry On the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and is capable of being the driver of economic growth. A sound transportation system plays a pivotal role in the country's rapid economic and industrial development. The well-developed Indian automotive industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc. Although the automotive industry in India is nearly six decades old, until 1982, only three manufacturers - M/s. Hindustan Motors, M/s. Premier Automobiles & M/s. Standard Motors tenanted the motorcar sector. Owing to low volumes, it perpetuated obsolete technologies and was out of sync with the world industry. In 1982, Maruti Udyog Limited (MUL) came up as a Government initiative in collaboration with Suzuki of Japan to establish volume production of contemporary models. After the lifting of licensing in 1993, 17 new ventures have come up, of which 16 are for manufacture of cars. There are at present 12 manufacturer of passenger cars, 5 manufacturers of MUVs, 9 manufacturers of Commercial Vehicles, 12 of two wheelers, 4 of three wheelers and 14 of tractors besides 5 manufacturers of engine. The industry comprising of the automobile and the auto component sectors has shown great advances since delicensing and opening up of the sector to FDI in 1993. The industry has an investment of a sum exceeding Rs. 50,000 crore. During the year 2003-04 the turnover of the automotive sector was around Rs. 1,00,000 crore. The industry provides direct employment to 4.5 lakhs and generates indirect employment of 1 crore. The contribution of the automotive industry to GDP has risen from 2.77% in 1992-93 to 4% in 2003-04.

65

Operations and Supply Chain Management in Automobile Industry

BIBLIOGRAPHY

Case Study, ICFAI Journal of Operations Management, May 2005 Overdrive, vol 7 No.1 , September 2004, Motoring News,Aspi Bathena Overdrive,vol 7 no. 6, February 2005, Air Borne , Yogendra Pratap Overdrive , vol 6 no.12 , August 2004, First Drive Motoring, November 2004 Auto India , October 2004, Driving Impression, Abhijit Hingway Auto India , October 2004, talking to Mr Ratan Tata , Bhushan Mahapralkar. 66

Operations and Supply Chain Management in Automobile Industry

Overdrive , vol 7 no.2 , October 2004 Auto India, December 2004, rear view Autocar , decemebr 2004 , vol 6.n o.4 , Audi Attack Autocar ,July 2004, Vol 5 no. 11, Mahindra diversifying Production & Operations Management, Tata Mcgraw Hill, Nair. Principle of operations research, second edition, Harvey M Wagner. Fundamentals of operation Management, Second edition Aquilano chase davis Special Applications, Kevin lane keller, Strategic Brand Management. Can anything be branded?, Kevin Lane Keller, Strategic Brand Management. Branding Electronics, Jaap B. Kalkman & B. Peters The McKinsey Quarterly, 2002. Overdrive, vol 7 No.1 , September 2004, Motoring News,Aspi Bathena Overdrive , vol 6 no.12 , August 2004, First Drive. Motoring, November 2004 Auto India , October 2004, Driving Impression, Abhijit Hingway

67

Operations and Supply Chain Management in Automobile Industry Overdrive , vol 7 no.2 , October 2004. Auto India, December 2004, rear view Autocar , decemebr 2004 , vol 6.n o.4 , Audi Attack Autocar ,July 2004, Vol 5 no. 11, Mahindra diversifying

68

Operations and Supply Chain Management in Automobile Industry

REPORT ON

OPERATIONS AND SUPPLY CHAIN MANAGEMENT IN AN AUTOMOBILE INDUSTRY

(In fulfillment of the requirement of Post Graduate degree in Masters of Business Administration International Business)

Submitted To: Debashish Choudhury Assisstant Professor Advisor- Industry Interaction Cell

Submitted By: Anand M. Desai A1200306C02 MBAIB

AMITY INTERNATIONAL BUSINESS SCHOOL, AMITY UNIVERSITY

69

Operations and Supply Chain Management in Automobile Industry

Certificate
This is to certify that the dissertation entitled Operations and Supply Chain Management in an Automobile Industry contains original work done by Anand M. Desai of Amity International Business School, Noida. It is being submitted in fulfillment of requirement for the award of MBA (IB) awarded by Amity International Business School and is a record of students own work carried user guidance and supervision. Prof. Debashish Choudhury Amity Business School Noida

70

Operations and Supply Chain Management in Automobile Industry

Acknowlegdement

I would like to take this opportunity to wholeheartedly thank for the unconditional support I received from Dr. Gurinder Singh Ahluwalia, Pro VC and DYDG, Amity University, Amity International Business School. I am indebted to my faculty guide, Professor Debashish Choudhury for giving me an opportunity to complete my dissertation topic under his able guidance. Last, but not the least, I would like to thank my friends without whose support this piece of work would have been very difficult.

Anand M. Desai

71

Operations and Supply Chain Management in Automobile Industry

72