QSO 300 Final Project Perry Turner PDF

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Running Head: FINAL BYD CASE STUDY ANALYSIS

QSO-300 Project BYD Case Analysis Perry Tuner 08/14/2020

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Final Milestone Study

Final Project Milestone One- Module Seven

FINAL BYD CASE STUDY ANALYSIS

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Although most people have probably never head of BYD they have a very ambitious goal of becoming the world’s largest car company (Rarick, Firlej, & Angriawan, 2011). BYD is a publicly held Chinese based company that has been around for several years (1995), primarily building batteries. After being successful at building batteries for many years in 2003 the company’s founder, Wang, decided to purchase a failing state-owned automobile manufacturer (Rarick, Firlej, & Angriawan, 2011). BYD is quickly becoming the world’s largest car manufacturer in fact it is already the largest electric vehicle manufacturer in the world. BYD has been on a mission for several years to be a sustainable company. In this brief, we will describe how proper OM practices will help propel BYD to the forefront of the not so distant future of the auto industry, explore the process management function both used and explore the quality process and location analysis below and explain why BYD will be doing at each of the steps of the process. BYD is using more low-cost labor and attention to details instead of moving to use expensive machines to perform most of the tasks in factories. BYD is moving to use a different battery technology than most, ferrous lithium batteries, which are safer and cost about half of those of the competition (Rarick, Firlej, & Angriawan, 2011). They are also focusing on reverse engineering cars and configurations of other competitors instead of trying to start from scratch. By reducing manufacturing costs, they in turn end up producing less expensive vehicles into the market and hence gain market share. BYD has the battery technology down so they can simply focus on the development of the vehicle itself. By using the technology that BYD is already an expert at, batteries, and focusing on reverse engineering part they are not experts at, vehicles, they are quickly adding value to the company. Hence, they are taking the part they do better than the competition, batteries, and

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adding them to existing vehicle designs to make a better product than the competition. They appear to primarily be using the differentiation strategy of a competitive advantage here to set themselves apart. They are building cars differently than other competitors by using existing battery technology, reverse engineering, and low-cost labor to better the competition. An additional way BYD is adding more competitive advantage if by announcing its latest “Blade Battery” This new technology Battery reflects BYD’s determination to resolve issues in battery safety while also redefining safety standards for the entire industry (Shin, 2020). Through those operations and design management Manufacturing operations are generally defined as an industry that takes raw goods and combines them into another product for sale. Whereas service operations are defined as pretty much everything else. The operations activities for both of these are very similar but not the same. BYD has been expanding its service operations of late by opening a vehicle-specific service location, Service Location announcement. This new location will, of course, be separate from the BYD manufacturing location located in Northern California. By adding this new service location, they will enhance their service operations by having service closer to some of their largest customers, making it easier for the customer to properly maintain the vehicles. MRP or Material Requirements Planning is a schedule showing the total demand for an item and when the components must be ordered from suppliers (Rarick, Firlej, & Angriawan, 2011). To be able to accurately schedule orders and deliveries takes coordination of information. The team will build the MRP from a matrix of the existing bill of materials, lead times, existing inventory data, and purchasing data. This is usually accomplished via software where all of the inputs are plugged in and the software will generate the calendar or planning. Being able to

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accurately plan for the arrival of materials required for manufacturing is vital to keeping production lines flowing without interruption. Timely and accurate gathering of the information needed for these inputs is vital to the process. Typically, this kind of information would be pulled by either someone who was specifically that or someone in a Business Analyst role. CPM or critical path method is an algorithm for scheduling a set of project activities. PERT Analysis or Program Evaluation and Review Technique is a method used to examine the tasks that are in a schedule and determine any possible variation on the method used to examine the tasks that are in a schedule and determine a variation of the CPM Critical Path Method. Both methodologies do similar things, one of the main differences is that PERT employs 3 times the number of estimates for each project task. At BYD CPM projects should be leading with the exception of battery design. Battery design should employ the PERT method so that all safety and design issues are thoroughly thought and planned out. Forecasting sales and needs of the business is always a complex task. A combination of both qualitative and quantitative forecasting models should be used. There are 7 basic steps to be able to properly forecast; 1. Determine the use of the forecast 2. Select the items to be forecasted: sales should be forecast as well as the cost and availability of materials 3. Determine the time horizon of the forecast: both sales should be forecast out 3+ months whereas the cost of good should be forecast out further if possible. 4. Select the forecasting model(s): Disney uses a variety of statistical models that we shall discuss, including moving averages, econometrics, and regression analysis. It also employs judgmental, or nonquantitative, models.

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5. Gather the data needed to make the forecast: 6. Make the forecast. 7. Validate and implement the results: As time goes on it is very important to compare the forecasts to the actual numbers. If the actuals are off from the forecasts, then the algorithms used for the forecasts should be re-evaluated. According to information found sales forecast for the Yuan EV360 are frankly incredible. One source showed a waiting list of estimated 40,000 vehicles (Holland, 2019). Risks of supply chain issues from nearly 100% avoidable within a company. The largest risk BYD has is the acquisition of raw materials for the batteries. Without the Lithium required for the batteries, BYD runs the risk of production slowing if not halting completely. BYD has removed this risk of the supply chain interruptions by simply owning the entire supply chain (). By owning the entire chain not much, short of a major war or natural disaster, will inhibit BYD from being able to produce both their batteries as well as their vehicles. Mitigating the supply chain interruptions caused by natural disasters can somewhat be accomplished by stockpiling supplies that need to arrive via methods that could be interrupted. Risk Supplier failure to deliver Supplier quality failures Outsourcing Logistics delays or damage Distribution Information loss or distortion Political Economic Natural catastrophes

BYD mitigation techniques BYD owns the entire supply chain BYD owns the entire supply chain and hence controls the quality Because BYD owns the supply chain and does its manufacturing this is limited Since BYD owns the supply chain and the majority of the shipping as well this is a limited risk. As of today, BYD vehicles are purchased direct or through company-owned locations Implement the highest level of IT security on any engineering plans and financial information Expanding to have manufacturing and maintenance facilities in more than one location or jurisdiction Multiple business lines help alleviate economic downturns Caching of supplies

FINAL BYD CASE STUDY ANALYSIS

Theft, vandalism, and terrorism

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Security around manufacturing plants. Monitoring of media and government sources for threats.

There are four primary priority rules when it comes to sequencing jobs. FCFS: First come first served, SPT: Shortest processing time, EDD: Earliest due date, LPT: longest processing time. Each of these four rules has their place in manufacturing companies. For instance, FCFS makes sense if the time to process all orders is the same. SPT makes the most sense in an environment where processing varies, and you want to make the most customers happy the quickest. EDD minimizes maximum tardiness which is best for jobs with a heavy penalty (Heizer, J., & Render, B., Munson C. 2020). LPT works best to complete jobs at the same time. EDD has the advantage of getting jobs completed the earliest and a disadvantage of easily recognizing the problems by measuring tardiness. FCFS has an advantage that there is no time estimate required but a disadvantage that there is not a specific priority. SPT reduces average flow time but also requires a time estimate for every job. LPT gets the jobs that take the longest done first but has the disadvantage that the shorter job, in means of work, takes longer to complete according to the calendar (Cross, 2019). Many manufacturing and repair facilities use a hybrid approach to processing jobs. Basically, triaging the jobs as they come in and placing them into the appropriate buckets for how they will be processed. The Theory of Constraints (TOC) (Heizer, J., & Render, B., Munson C., 2020) is a body of knowledge that deals with the potential limits a company has in trying to achieve its goals. The TOC steps are outlined below. The theory behind the TOC is to identify the problem, map out a solution, assign resources to the solution, reduce the problem by working on the solution with the resources allocated, and finally solve the constraint. Solving the constraint completely may not be possible but it will be possible to reduce the impact of the constraint.

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TOC Step (Heizer, J., & Render, B., Munson BYD response C., 2020) Step 1-Identify the constraint. During this step, BYD would analyze a specific portion of the business that is causing any delays in the manufacturing or sales process. For example, a shortage of raw materials. Step 2-Develop a plan for overcoming the Once BYD has identified the specific identified constraint. constraint they can then move ahead with a plan to resolve the issue and hence make the process better. An example of a plan may be to try and find other ancillary sources or vendors for the raw materials. Step 3-Focus resources on accomplishing Once BYD has identified the constraint and Step 2 developed a plan, they will need to find and assign appropriate resources to the plan and solution. Step 4-Reduce the effects of the constraints In the example here BYD will be expanding by offloading or by expanding capabilities capabilities by finding additional vendors or locations to supply their much-needed raw materials. Step 5-When one set of constraints is Once BYD has the plan in place, the overcome go back to step 1 resources assigned and the solution in progress the operations team can start work on the next constraint and hence move back to step 1. Some of the biggest advantages in following the TOC principles are to potentially reduce operating costs and expenses from unexpected shutdown due to lack of resources (2019). Increased throughput and improved operation control would also be advantages of using the TOC principles to resolve Raw Material shortages. Total Quality Management (TQM) principles are a way of building not only the quality of the product but also the reliability of the product in both the manufacturing eyes and the eyes of the customer (Heizer, J., & Render, B., Munson C., 2020). TWM is applied at BYD in many different ways and methods. First, they start with working on quality in such a way that they build the best quality item the first time.

They do not want to have to revisit a product, be a

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battery a bus, or anything in between, more than one time. They focus on built it once and built it right the first time. BYD will need to constantly be looking and checking their products for quality improvements all the time. This is not a do it once and it is good forever paradigm. Another thing BYD can do to help facilitate not only TQM but the point listed above is to make sure they used the best raw materials possible.

To do this they will need to work on

sourcing of those materials. If you are sourcing and transporting the best raw materials whether they are truly raw or manufactured by another vendor, the product BYD ends up with will be better for it. Lastly, none of this works if BYD does not have the best quality people. They will need to hire and maintain the best quality and skilled employees to facilitate the best products.

BYD should follow the above pictures fishbone diagram to work on their process and try to make the most efficient and quality products possible. Under the materials category of the major causes, we will find that they could be receiving poor quality raw materials. They could not have enough on hand of the materials. There could be a long delivery time or an unknow delivery time. All of these will affect the materials sire of the cause and affect diagram. With

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regards to machines, BYD needs to make sure they have modern equipment that is efficient and that they have appropriate parts on hand in case repairs to the equipment is needed. For people BYD will need to make sure they do not have a lack of qualified labor, which they can help resolve with training possibly, they also need to be aware that the cost of quality skilled labor can be high. Lastly, methods, BYD needs to be watching that their methods are efficient and qualitydriven, working on the follow-through will help with this.

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BYD Time Function Map

Customer

Order Produ ct

Sales

Proces s Order

Productio n Assembly Plant

Warehous e

Receive Product

Wait, verify order and material s availabl e Assembl e Product Wait, for finish crew and shippin g Finish Produ ct

Finish Plant

Transport

Transpo rt to Custom er

5 day 1 day 5 days s 7 days

The operations management (OM) team would use a chart like initially as an estimate and ultimately as a guideline and measurement tool to see how the team(s) are doing. Ideally, the

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team leaders should be striving to hit this goal maybe 90% of the time. This would account for the one-off type of orders coming from customers. Through streamlining the processes and efficiencies the team should be able to cut the time down in some areas. Perhaps the assembly plant and the finish plant could be in the same location, which could take days off the process and reduce the cost by eliminating the transportation steps. The OM team should be constantly monitoring actuals against this timeframe to make sure things do not slip. Likewise, the team could change the timeframe if they become more efficient with the assembly.

Based on the chart below showing weighted risk factors on 2 possible new locations, BYD should plan to move ahead with the new manufacturing plant in Columbia, SC. There are a number of factors that lead to this decision. The political risk is favorable to Columbia but only by a small amount. The single biggest factor is transportation costs. Clearly transportation costs to and from Mexico City and much higher than those from Columbia SC. You can see in the chart below which of the factors wins out on each row as highlighted in blue.

Factor Political Risk

Weight

Columbia, SC

Mexico City

Columbia, SC Weighted score

Mexico City Weighted Score

25%

70

80

17.5

20

Transport. Costs Labor Productivit y Rental Costs

20%

40

90

8

18

20%

85

75

17

15

15%

90

55

13.5

8.25

Labor Costs

10%

80

50

8

5

Taxes

10%

90

50

17.5

20

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Totals

81.5

100%

86.25

Currently, BYD believes it may have some inefficiencies with its inventory management processes. In review some of the inventory items, listed below, we have classified the items with a standard ABC classification system. By definition Class A means items are those on which the annual dollar volume is high, Class B means those items with medium dollar volume and Class C with the lowest dollar volume (Heizer, J., & Render, B., Munson C., 2020). When evaluating the items, we need to look for the total percentage of costs not just cost per item or number of units. We classified the top 3 items as Class A, representing 78% of total inventory cost. Class B represents 16% and Class C 6%. If the company continues to monitor inventory in this way and focus on the highest total dollar items, they will do a better job of managing its inventory. They will need to be careful to also watch the Class B & C items but clearly, Class A should be the priority.

Item A2 G2 F3 D1 C7 B8 I5 E9 J8 H2

Annual Demand 3000 300 500 6000 1500 4000 1750 1000 2500 600

Cost/Unit 50 1500 500 10 45 12 10 20 5 20

Total 150000 450000 250000 60000 67500 48000 17500 20000 12500 12000

Percentage Classification of total 14% 41% 23% 6% 6% 4% 2% 2% 1% 1%

A A A B B B C C C C

JIT or just in time inventory system that aligns raw-material orders from suppliers directly with production schedules (Banton, 2020). This in turn allows for the manufacturing or

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assembly to continue due to having all of the necessary parts at the ready. Also, it eliminates the need to stockpile too much inventory causing the inventory to become stale or out of date also, saving on the real estate or storage costs. Toyota Production System (TPS) refers to the system Toyota manufacturing uses to focus on continuous improvement, respect for people, and standard work practices (Heizer, J., & Render, B., Munson C. 2020). This system helps Toyota maintain its role as a world-class manufacturing company. Toyota uses both JIT and TPS to maximize efficiency and quality in the manufacturing plants. Lean operations focus on the elimination of waste through continuous improvement and focus on exactly that the customer needs (Heizer, J., & Render, B., Munson C. 2020). Companies that focus on Lean do things like count steps that employees use between repetitive tasks and working on either moving equipment or facilities to help eliminate those steps between tasks. JIT helps eliminate extra storage of inventory and part, TPS focuses on always getting better and Lean works to make the process more streamlined. Each of these methodologies helps make an organization more efficient and in effect better. The use of all 3 of these will help companies that much more. BYD uses JIT to help in its manufacturing process to help eliminat...