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Running Head: FINAL BYD CASE STUDY ANALYSIS

QSO-300 Final Project Milestone BYD Case Study Analysis Timothy Alcorn 6/19/20

Final Project Milestone One- Module Seven

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FINAL BYD CASE STUDY ANALYSIS

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BYD is a Chinese firm that started out as a battery manufacturer in 1995 with the intent of creating higher quality batteries then those available on the Chinese market while keeping the price point lower than imports. The company's success in batteries has allowed them to branch out into the automotive industry as they seek to become the world's largest automaker (Rarick et al, pg.19) In the paper below, I will analyze their operations management techniques and discuss how they bring value to their products, and how it allows them to compete in the market of electric cars. I will also illuminate techniques that they can use to help manage inventory and mitigate waste, and overall maintain a sustainable and eco-friendly work model. While replacing gas powered vehicles with electric cars is a step towards helping people and the planet, ensuring they are produced in a way that keeps the people and planet’s wellbeing in mind, while still remaining profitable, is equally paramount. Generating Value A. Evaluate how BYD uses operations management functions to provide products and generate value for its customers. The primary value BYD offers consumers is the fact it produces electric vehicles. These vehicles require no gasoline to travel and produce no harmful emissions. (Rarick et al, pg.20) They instead run on batteries, usually lithium ion, and while they are typically expensive to produce, BYD's technology allows them to produce a safer and cheaper alternative than their competitors. (Rarick et al, pg. 20) Their greatest value, however, comes in the long term effect of producing environmentally friendly vehicles. What better value is there than assuring the survival of the environment we live in? B. Assess how BYD achieves a competitive advantage using operations management. BYD does many things to ensure that they maintain a competitive advantage over their competition. As mentioned above they use a cheaper and safer alternative battery than their competition, but that is just the start. They maintain facilities in areas where labor costs are less expensive, and they also provide on site living arrangements for their researchers and engineers to increase efficiency and productivity. They also have some facilities located nearby their biggest customers, allowing them to meet their demands quickly.(Rarick et al, pg. 24) ((Heizer et al., 2020, p. 4) They have also used reverse engineering techniques on their competitors products in order to find ways to make their own products superior. (Rarick et al, pg. 24) Most importantly is that they use all of these advantages to ensure that their technology stays ahead of their competition, allowing them to differentiate their battery from the competition. Their batteries are unique in that they are safer, last longer, and are environmentally friendly. They are also produced using environmentally friendly techniques. (Rarick et al, pg. 24) (Heizer et al., 2020, p. 36)

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C. Compare and contrast service operations and manufacturing operations at BYD. How are they the same? How do they differ? How does each of these operations provide value for their customers? Manufacturing and service operations are both used by operations managers to provide value to their customers, but while the manufacturing side of things produces a physical product, the service side produces other values. (Heizer et al., 2020, p. 4) Both are important to providing the best value for the customer, as operations management ensures both a quality and reliable product, as well as ensuring a company maintains the goodwill and understanding of its market. BYD's major value in their service operations is in education and transportation. They have provided many public transit vehicles worldwide. They also provide an extensive apprenticeship program which has 2 benefits. First, it allows them to employ a diverse work staff; people that might get passed over due to lack of knowledge in the field become employable. Second, this allows more people to be familiar with what BYD has to offer; people become more interested and knowledgeable of a company and its product if they are considering employment, and will likely share this knowledge with colleagues. (BYD Motors)

Theories and Techniques A. Explain how gross-to-net calculations are processed for material requirements planning (MRP). What specific input files would BYD need to include in this process for a successful MRP? How would you use the MRP information to improve the operations as the manager of BYD? What additional organizational functions could affect inputs to and outcomes of MRP? In order to have a successful MRP, BYD would need to keep a master production schedule. This would allow them to establish what materials they need to produce different products and when they need them. (Heizer, et al pg.569) By keeping to this schedule and keeping it consistent, it would allow BYD to know when to order new materials based on the number of products and their components that are being produced. BYD would also need to keep a bill of material to track all of the components and parts needed to produce a final product. (Heizer, et al pg.570) While the master production schedule allows BYD to know when to order new materials, the bill of materials states much of each material must be ordered. However, this is the only the primary part of the plan. BYD also needs to keep records of inventory on hand to ensure they do not order more materials than necessary. (Heizer, et al pg.572) They need to keep on hand documents tracking all purchase orders for all products to have an accurate account of the demand for their products. Finally, BYD needs to know how long it will take to receive materials from their suppliers. This differs from when to order product, as it will take time for the materials to be harvested and delivered, as suppliers will likely be using a similar process and only maintain enough materials on hand to meet their demands. (Heizer, et al pg.572) Different materials will be coming from different suppliers, so maintaining accuracy across all accounts stated here is an absolute must to properly utilize a successful MRP. (Heizer, et al pg.572) In a perfect world, once the above steps were taken BYD would be able to maintain an efficient and accurate plan of ordering materials. However, time creates a constant flux that

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requires adjustment that needs to be accounted for. A shortage of materials from suppliers in an order could delay production, or material spoilage. Machine downtime, an increase in customer demand, or a necessary change in product could also cause excursions in the MRP. Proper forecasting, analyzing risks with supply chains, and quality management are all tools that BYD can use to help keep the MRP on track. B. Compare and contrast the critical path method (CPM) and the program evaluation and review technique (PERT). What types of projects at BYD would favor PERT over CPM? Why? What types of projects at BYD would favor CPM over PERT? Why? CPM and PERT are both methods used by managers to delegate and schedule complex projects. Both rely on 6 major steps: ⦁ Define the project and the work it entails. ⦁ Organize and develop a timeline of activities ⦁ Connect all of the activities ⦁ Determine the cost of the activities ⦁ Calculate the longest or critical path ⦁ Plan, schedule, and monitor the project (Heizer et al., 2020, p. 67) Both methods have the same end result, but they differ in application, as PERT takes 3 time estimates for each activity to determine the critical path, while CPM assumes that the times are standard and only used 1 calculation. (Heizer et al., 2020, p. 67) An example of when BYD would use the PERT method would be in researching new methods for developing batteries. The reason PERT would be preferred is because research is unpredictable, it is new territory and therefore it would be difficult to assign an assumed time as to how long it is expected to take. CPM would be a preferred method to developing a training program. It is important that the staff all receive universal training, and it is easy to assume the training program's time estimate as there should not be much variation. C. Explain the four primary priority rules for job sequencing. In what instances at BYD might each rule be most advantageous? When would each rule be most disadvantageous? Explain a situation where a hybrid (mixed) approach might work best. There are a number of methods BYD could use to determine the sequence of completing customer orders. The four primary methods are stated below: ● First Come, First Serve: This method focuses on customer satisfaction, as the focus is on completing the earliest orders first. This method would be suitable for BYD to use for their production of standard automobiles. Since these would be made directly for the consumer to use for their own personal use, it is unlikely that there would be orders that would have priority over another due to a timeline or order size, so processing these orders as they are received would be a fair method, and would lead to a high customer satisfaction. (Heizer, et al pg.614) This method would not be suitable for producing a line of emergency vehicles, however. In this instance, there may be deadlines to be met, as

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some orders may bear more urgency than others, and that would need to take priority over order date. ● Shortest Process Time: Using this method allows for many projects to be completed quickly. By running the shortest processes first, BYD would be able to potentially quickly clear excess inventory, and earn profits from the many products sold that are produced quickly. It would reflect well on their sales numbers. However, longer processes would be passed over, which may not sit well with the customers, and, similar to First Come First Serve, urgent projects may be overlooked in lieu of quicker ones. (Heizer, et al pg.614) ● Earliest Due Date: This is the method that would put the spotlight on urgency. Products that need to be completed the soonest, like the emergency vehicles, would get priority. The advantage in this is that BYD would severely lessen tardiness on delivering products on time. The disadvantage to this method is that quicker, more lucrative processes may be pushed back. It also may hurt efficiency, as it does not take process times into account, and it could leave BYD producing various different products with different production times. (Heizer, et al pg.614) ● Longest Process Time: This method puts the products with the longest process time in the forefront. By putting the longer jobs earlier, BYD would ensure that these jobs were not passed over and risk them falling late due to their extended times. After they are completed the shorter jobs can be pushed through quickly. However, this also does not place any weight on job urgency, and if there are any complications that would lead to delays with these processes, it would make a great deal of other projects tardy. (Heizer, et al pg.614) Ultimately, a hybrid approach would work best for BYD. In vehicle production, for example, a First Come, First Serve method with an allowance for urgent products to skip priority would allow BYD to keep their customers happy, without having to compromise the urgent projects that need timely completion.

D. Explain the five steps of the theory of constraints (TOC) process. To what processes might BYD apply TOC? Why would applying TOC to these processes be advantageous? BYD of China’s ultimate goal is to become the world’s largest car company. (Rarick pg.19) However, in order to succeed at this goal, BYD needs to take steps to identify and overcome constraints that could hinder them from accomplishing this goal. An example of which is demonstrated below.

FINAL BYD CASE STUDY ANALYSIS

TOC Step

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BYD

Step 1-Identify the constraint.

In order to become the world’s largest car company, the biggest obstacle for BYD to overcome is setting up battery replacement stations for their batteries. (Rarick pg.26)

Step 2- Develop a plan for overcoming the identified constraints.

Getting these stations set up worldwide is a huge undertaking, so BYD needs to systematically begin setting up stations near their plants and in their biggest markets. As their market grows, they can expand outward in a step by step process to eventually reach the goal of having battery replacement stations available world wide.

Step 3 - Focus Resources on accomplishing Step 2.

BYD needs to forecast where their potential biggest markets are and will be to strategically decide the best locations for replacement stations. (Heizer et al. pg.109) Once identified BYD will need to increase production of batteries in the areas where the stations are set up to ensure the stations always have spare batteries.

Step 4 - Reduce the effects of the constraints by offloading work or by expanding capability. Make sure that the constraints are recognized by all those who can have an impact on them.

BYD can petition governments and businesses in their large market area to install replacement stations of their own, offloading some of the burden of erecting the stations so that BYD can focus primarily on battery production.

Step 5 - When one set of constraints is overcome, go back to Step 1 and identify new constraints.

Once a plan is in place for the initial recharging stations, BYD can focus on improving battery life to better expand their market, to more rural areas, for example.

(Heizer et al. pg.316) By using the steps of the TOC process, BYD can identify where to best utilize their resources towards accomplishing their goal. They can discover the biggest obstacle to overcome to reach their goal and how best to tackle it. (Heizer et al. pg.316)

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E. Explain the steps used to develop a forecasting system. How would these steps be specifically utilized by BYD? What do you predict would be the result of implementing a forecasting system for the top-selling product line at BYD? A forecasting system could be utilized to allow BYD to maintain its competitive edge over the competition. This is comprised of seven steps: Step 1 - Determine the use of the forecast: BYD would determine what their top-selling product line will be and why. Step 2 - Select the items to be forecasted: BYD would forecast potential sales on each of their major product lines. Step 3 - Determine the timeline of the forecast: BYD would set a timeline in forecasting their sales, likely either annually or quarterly. Step 4 - Select the Forecasting Models: BYD would use various statistical models to determine sales averages for the designated time period. Step 5 - Gather Data: BYD would analyze market trends, technological developments and market demographic models to forecast sales. Step 6 - Make the Forecast: Using the information gathered, BYD would forecast what their highest selling product line would be. Step 7 - Validate and Implement the Results: BYD would review their results to ensure their information is valid, and then allocate necessary resources to ramp up production of the product line. (Heizer et al., 2020, p.110) The reason this forecasting is important is it allows BYD to determine where they should be focusing a majority of their resources. If their forecasts are correct, then they need to ensure production is available to meet the demand, as well as ensure that the quality of their top product is at its best to maintain goodwill with the consumer base. F. List the major categories of supply chain risk and associated risk-reduction tactics. How could BYD mitigate exposure to supply chain disruptions caused by natural disasters? The forecasting would also allow BYD to plan for possible supply chain risks and try to develop plans to mitigate these potential risks so as to not put too much of a hindrance on production. Some examples of risks BYD might face are as listed: Risk Lithium Supply Shortage seeking out unavailable. Bolivia's access the supply. Distribution Problems ensure

Mitigation Strategy While Bolivia is the largest supplier of lithium (Rarick et al, pg. 22), it is also high risk. BYD would mitigate this by other sources of lithium in case Bolivia's becomes Another option could be to offer incentives to government to ensure BYD continues to BYD offers an extension training program for its employees, and has facilities located close to its largest buyers to easy product distribution. (Rarick et al, pg. 24)

FINAL BYD CASE STUDY ANALYSIS

Natural Disasters the world, capable of to finish, it would disaster in a region.

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As above BYD could plan on alternative suppliers in case of a disaster, as well as diversify their production. BYD already maintains facilities in multiple countries throughout (Rarick et al, pg. 24)by ensuring each facility is producing its vehicles or batteries from start allow production to continue despite a

G. Summarize the following theories: just in time (JIT), Toyota Production System (TPS), and Lean. How are these concepts related? Describe the advantages and disadvantages for using each of these concepts at BYD. Just in time, Toyota Production System, and Lean all refer to methods of operations used to eliminate waste throughout the manufacturing process. (Heizer et al. pg.644) BYD of China can employ any or all of these concepts to ensure high quality products with little waste. JIT- Just in time focuses on using constant problem solving solutions to increase throughput and reduce defects and variability in the product while maintaining a low inventory on hand. (Heizer et al. pg.646) The benefits of this for BYD are many. First, it can help BYD maintain a low cost point as there will be less expenses needed to maintain inventory and less wasted money producing defects. This is important as it is one of BYD’s main goals - to maintain higher quality products at a lower cost than the competition. (Rarick pg.19) Next, it promotes continuous improvement so that BYD can maintain its technological advantage over the competition. (Rarick pg.24) Finally, having few defects ensures that BYD can maintain a positive image within its market. A disadvantage to the JIT method comes with the possibility of a disaster or a major increase in demand. If production has to be halted or is lost for a time, there is little to no extra inventory available to continue to meet demand. TPS- TPS focuses more on the employee training and the people aspect to ensure everyone uses a standard production method and is motivated to maintain quality. (Heizer et al. pg.644) BYD can benefit from this because it ensures the product is all manufactured using the same standard methods. This is important because BYD has over 130,000 employees in 11 different plants (Rarick pg. 24). If all of the factories had different processes and training, it would be difficult to determine the best procedures needed to produce a high quality product. The obvious disadvantage to this comes with cost. Every time a newer, better procedure is discovered every one of the employees in every facility needs to receive the updated training. This could lead to downtimes as employees are being trained, as well as travel expenses as trainers need to travel to each location to ensure the training is uniform at all sites. Lean - Lean is a method that is more customer targeted, as it is a method that focuses on delivering exactly what a customer wants, when the customer wants it. (Heizer et al. pg.644) Their customer base is ultimately the deciding factor on whether or not BYD will achieve their

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