Research Korner: Manufacture and Assembly

Management of Southern Recreational

Case Study: Southern Recreational Vehicle Company   In October 2005, top management of Southern Recreational Vehicle Company of St. Louise, Missouri, announced its plans to relocate its manufacturing and assembly operations by constructing a new plant in Ridgecrest, Mississippi. The firm, a major producer of pickup campers and camper trailers, had experienced 5 consecutive years of declining profits as a result of spiraling production costs. The costs of labor and raw materials had increased alarmingly, utility costs had gone up sharply, and taxes and transportation expenses had steadily climbed upward. In spite of increased sales, the company suffered its first net loss since operations were begun in 1982.             When management initially considered relocation, it closely scrutinized several geographic areas. Of primary importance to the relocation decision were the availability of adequate transportation facilities, state and municipal tax structures, an adequate labor supply, positive community attitudes, reasonable site costs, and financial inducements. Although several communities offered essentially the same incentives, the management of Southern Recreational Vehicle Company was favorably impressed by the efforts of the Mississippi Power and Light Company to attract “clean, labor-intensive” industry and enthusiasm exhibited by state and local officials, who actively sought to bolster the state’s economy by enticing manufacturing firms to locate within its boundaries.             Two weeks prior to the announcement, management of Southern Recreational Vehicle Company finalized its relocation plans. An existing building in Ridgecrest’s industrial park was selected (the physical facility had previously housed a mobile home manufacturer that had gone bankrupt due to inadequate financing and poor management); initial recruiting was begun through the state employment office; and efforts to lease or sell the Stylus property were initiated. Among the inducements offered Southern Recreational Vehicle Company to locate in Ridgecrest were 1.      Exemption from country and municipal taxes for 5 years. 2.      Free water and sewage services. 3.      Construction of a second loading dock – free of cost- at the industrial site. 4.      An agreement to issue $500,000 in industrial bonds for future expansion. 5.      Public-financed training of workers in a local industrial trade school. In addition to these inducements, other factors weighed heavily in the decision to locate in the small Mississippi town. Labor costs would be significantly less than those incurred in St. Louis; organized labor was not expected to be as powerful (Mississippi is a right-to-work state); and utility costs and taxes would be moderate. All in all, management of Southern Recreational Vehicle Company felt that its decision was sound.             On October 15, the following announcement was attached to each employee’s paycheck:             To: Employees of Southern Recreational Vehicle Company             From: Gerald O’ Brian, President             The management of Southern Recreational Vehicle Company regretfully announces its plans to cease all manufacturing operations in St. Louis on December 31.Because of increased operating costs and the unreasonable demands forced upon the company by the union, it has become impossible to operate profitably. I sincerely appreciate the fine service that each of you has rendered to the company during the past years. If I can be of assistance in helping you find suitable employment with another firm, please let me know. Thank you again for your cooperation and past service.       Instructions 1.      Evaluate the inducements offered Southern Recreational Vehicle Company by community leaders in Ridgecrest, Mississippi. 2.      What problems would a company experience in relocating its executives from a heavily populated industrialized area to a small rural town? 3.      Evaluate the reasons cited by O’Brian for relocation. Are they justifiable? 4.      What legal and ethical responsibilities does a firm have to its employees when a decision to cease operations is made?

Management of Southern Recreational

Case Study: Southern Recreational Vehicle Company In October 2005, top management of Southern Recreational Vehicle Company of St. Lou...

Management of Southern Recreational

Management of Southern Recreational

Case Study: Southern Recreational Vehicle Company In October 2005, top management of Southern Recreational Vehicle Company of St. Lou...

Procurement function

Introduction The supply chain process is a complex systematic flow of events that captures a segment of the operations of the business from the procurement of suppliers and supplies to the manufacturing of products in anticipation of demand or based on actual orders to the storage of manufactured products to the pull-out of store products for delivery to distributors or dealers and to customers until the receipt of feedback from the customer.             Supply chain process is basically an important process involved in the supply chain management because it encompasses every effort in producing and delivering a final product or service, from the supplier’s supplier to the customer’s customer ( 2002). Therefore, the supply chain of an organization is composed of interdependent processes that are important in the production and delivery of goods. It does not only involved knowing how to produce products but to know how and where to obtain the needed materials and supporting materials in order to produce the products, how much to produce and to whom the products are produced . It also involved knowing the right process of delivering the final product to the customers on time and at its best form. Therefore, supply chain management includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across al channels, and delivery to the customer ( 2002).                         In order to do the activities involved in managing the supply chain, it is important to determine and be familiar with the activities within the different process in the supply chain. One of the key processes in the supply chain is procurement. In this report, the different activities and the value-added elements in the activities in the procurement function is examined and measured. The paper includes defining procurement and its function before enumerating the activities involved in the process. This study is conducted in order to determine the crucial activities that make up the procurement process and to describe the importance of these activities in a business organization.   Procurement Defined             Procurement can be simply defined as the purchasing of materials needed by an organization. In a business organization, purchase of goods or materials is not as simply as just buying it to the vendor and then using it in the business process to whatever purposes they served. According to  (1992)  (1994), procurement includes all of the activities involved in acquiring goods or services and managing their flow from the supplier to the different areas of the company purchasing the goods or services. These goods are the raw materials needed in the manufacturing of the company’s products, and the support materials such as computers and office supply products that the company uses.               The definition above means that procurement process does not end when the goods are already purchased; it also involves management of the flow of the goods purchased. When we say management of the flow, it means knowing the demand of goods in the company or determining how many of the materials to be purchased are needed to produced a particular number of products; and determining the number of suppliers and who among them can provide the needs of the company thus procurement involves establishment of good business relationship to the suppliers.             Moreover, in many organizations especially the manufacturing companies, procurement function is categorized into two: direct or production-related and indirect or non-production-related procurement ( 2001).   Direct Procurement Direct procurement refers to the purchasing of items that immediately enter a manufacturing process ( 2001). Items bought in direct procurement become part of an end product, such as the processor for computers or engine for car manufacturing. Since this kind of procurement is directly related to the production of products, it is considered to be critical and is often the center of attention of researchers, managers and engineers who are the ones responsible for making direct procurement efficient and effective. They are focused on how they reduce the cost of the material but at the same time acquire high quality materials that are used in making high-quality products.             Some of the issues related to direct procurement that has captured the attention of organizations include relationship and communication with the suppliers, product life cycle, inventory period, innovation, and cost reduction. These issues are actually related to each other. Having a good relationship and communication with the suppliers helps a company determine the latest development and technology in the materials or parts they used. This will help a company in product innovation, helps shorten its products’ life cycle and helps achieve timely inventory and delivery. A good example of this Dell Computer; In order to build its computers and sell it directly to the customers, the company is required to depend heavily on close relationship with its suppliers that resulted to just-in-time inventory and shorter delivery period.   Indirect Procurement             Indirect procurement refers to the non-production-related purchases but supports the manufacturing process and other processes in the company such as clerical works, information systems management, marketing and sales. Indirect procurement includes purchase of maintenance, repair and operations supplies that are require to keep up the manufacturing process, as well as items such as office supplies, computer equipment, promotional material, travel and other services as well as capital goods ( 2000, 2001). Indirect procurement also involves the procurement of capital goods which have significant value, are purchased less often and are not included in a company’s regular procurement but involves greater risk thus all of the necessary information regarding both the potential supplier and the good to be purchased must be gathered (1998). Examples of capital goods are equipments, machineries, robots and other related equipments and technology. The demand involved in indirect procurement depends on the needs of the employee unlike in direct procurement that depends on the demands of external customers thus it covers a wider range of products and services with less predictability with respect to volume and frequency ( 2001).    Procurement Activities             Procurement, as noted above, includes various activities that are needed to be performed in order to have efficient and effective procurement function in an organization. According to  (2000) and  (2006), the stages of the procurement process in businesses today are: (1) the need to procure a particular good or service/identifying the needs of the company/information gathering; (2) the search for potential suppliers and the definition of other possible alternatives; (3) evaluation of the alternatives; (4) contact with suppliers to begin the negotiating process which may involve requesting for information, bids, quotes or proposals; (5) background review on the suppliers and evaluation of the offers; (6) negotiation and agreement on the type of supply; (7) contract signing and sending of orders; (8) fulfillment which involved receiving the order, managing the transaction, warehouse management, managing transportation, customer response, and reverse logistics management (2000 , 2002); (9) consumption, maintenance and disposal; and (10) renewal or the reordering of the products with consideration to whether to continue being supplied by the same supplier or to order to other suppliers.             In some sources like that of  (2000), procurement process end at stage 7 and regards stage 8 to 10 as another process in the supply chain. However, since we defined procurement as the purchase of goods, it thus somehow involved stages 8 to 10 because procurement, aside from the purchasing department, has also impacted other organizational areas in a company that perform stages 8 to 10. The procurement of materials, components, production machinery and equipment, and services required to manufacture a product as well as production of indirect materials is commonly performed by the purchasing department of a company while the logistics and production planning arrange the delivery; the receiving department receive and inspect the goods delivered and is responsible for storing/staging inbound items as well as initial quality and quantity checks; and the accounts payable department is responsible for processing the invoices received form suppliers and then releasing payment to the suppliers under agreed-upon terms (1999).   Classification of Procurement Activities             According to  (2001), procurement activities can be categorized according to their “reach”: either long-term-oriented, strategic or short-term-oriented, transactional activities. Long-term oriented, strategic include tasks sourcing activities, identifying vendors and requirements, assuring quality, and establishing and managing supplier relationships, as well as contract negotiations and management, design and implementation of buying procedures, and financial and asset management ( 2001). These activities aimed to strategically build close and longer relationship to the supplier for the advantage of the company.             Short-term-oriented, transactional activities are those activities that involved immediate results such as just-in-time arrangements, supply chain management, standardizing buying procedure, and streamlining buying and approval processes that meet basic requirements.             These procurement activities primarily aimed to reduce cost in the part of the company. However, these procurement activities are considered to be traditional in modern businesses today and needed to be upgraded or added with elements that create more value to these activities.   Value-Added Elements of the Procurement Function             The procurement activities mentioned above are not enough to create value; that is every company are expected to perform the same activities thus it does not ensure competitive advantage. Industry leaders today, according to  (2005), focus on four areas that create value to procurement function: innovation and growth; value chain optimization; advanced cost-management; and risk management and supply continuity.             Innovation and growth is driven by customer demands for new products and features, and improved customer service. Traditionally, the research and development department of a company is the sole responsible for innovation but since procurement functions as the interface between the supplier and the people in the company, it has been found out hat close collaboration between the R&D, procurement and supply chain processes lead to better product innovation. This is because the suppliers are the ones who developed the parts needed by the company while the R&D knows which particular parts should be assembled with the latest product of the company.   A good example of close collaboration of a company’s R&D, procurement department and suppliers is that of Dell Computer. Dell Computer’s R&D is known to have close collaboration with its suppliers that Dell considered them as its business partners. Dell leverages its partners by linking suppliers’ planning and execution activities with Dell’s system; Dell and its suppliers share data on supply and demand trends to forecast how many supplies the suppliers should provide Dell to address just-in-time inventory and to forecast also the demands of customers in terms of innovation. Dell gathers real-time information about the suppliers’ inventory level, capacity outlook and new technology drivers to determine the suppliers’ latest products that can be used and be included with Dell’s products and new designs (2004).             With close collaboration of a company’s R&D, procurement department and suppliers, information such quantity, quality and technology requirements are readily available for the procurement process to be conducted fast and easy. Additionally, with close collaboration, a company can determine its suppliers’ potential to innovate. Potential to innovate is frequently used as a key criterion for selecting suppliers, and track and evaluate contributions to innovation as part of the supplier development process (2005). This is important to most companies because suppliers can assist them in new product development, help to improve processes, quality and responsiveness (2005).                Value chain optimization involves determining what process and activities are truly essential for the company’s strategy ( 2005). This is important when choosing suppliers. There are suppliers that are worth to build close and long-term relationship with but there are also some that are for short-term, transactional relationship only, depending on the company’s activities.             Advanced Cost-management can be done by applying different strategies properly such as value-based which is using supplier capability to generate other kinds of value such as shorter time to market or innovation (just like what Dell did); collaborative cost reduction  which is generating and implementing cost reduction ideas with suppliers; demand management which is rationalizing requirements, controlling approvals and reducing or eliminating non-essential purchases in certain categories (2005); and many other strategies that involved supplier in the cost management which will both benefit the company and the supplier.             Since it is the responsibility of the procurement to supply the needed materials by purchasing it to the suppliers, it is also its responsibility to anticipate and manage risks by planning for contingency in case supply disruption happens. Therefore, it must be included in the procurement activities the ensuring that there are multiple suppliers for certain parts or there is single supplier but with multiple locations aside from demanding that key suppliers create contingency plans or better yet, choose suppliers with contingency plans already (2005) . Discontinuity of supplies can result to significant lost in the part of the company.             Another value-added element that has now become an important tool in performing procurement activities is the use of information technology. IT supports real-time integration of suppliers’ inventory and a company’s applications, real-time collaboration and communication, better management of information needed in the procurement process, web-based purchasing, and on time inventory and delivery.             These elements importance have been measured in terms of what and how it can help procurement in a company better with criteria including responsiveness, reliability, reflection of best practices, alignment with the people and the companies overall strategies and on the quality it can provide directly on the products or on other processes affected by the procurement. Conclusion             Procurement, although considered by others as supporting activity only, it has been proven with this study that it plays important role in an organization thus the activities involved in it should not only be performed in a way the company is comfortable with but there should be value-added elements associated with the procurement activities that help a company become more competitive. The addition of these elements with the procurement activities requires some measurement against the criteria set by the company itself to determine how it can improvement the procurement function of the company.

Procurement function

Introduction The supply chain process is a complex systematic flow of events that captures a segment of the operations of the business fr...

Strategic Management of Proton, Malaysia

Strategic Management: Proton, Malaysia   Table of Contents  TOC \o "1-3" \h \z \u 1.    Introduction. PAGEREF _Toc226437728 \h 3 2.    Background of Proton. PAGEREF _Toc226437729 \h 3 3.    Macro-Environment Analysis. PAGEREF _Toc226437730 \h 5 3.1      Political PAGEREF _Toc226437731 \h 7 3.2      Economic. PAGEREF _Toc226437732 \h 8 3.3      Social PAGEREF _Toc226437733 \h 8 3.4      Technological PAGEREF _Toc226437734 \h 9 4.    Micro-Environment Analysis. PAGEREF _Toc226437735 \h 10 4.1      Strengths. PAGEREF _Toc226437736 \h 11 4.2      Weaknesses. PAGEREF _Toc226437737 \h 11 4.3      Opportunities. PAGEREF _Toc226437738 \h 12 4.4      Threats. PAGEREF _Toc226437739 \h 13 5.    AFTA Compliance Problems. PAGEREF _Toc226437740 \h 13 6.    Industry Analysis. PAGEREF _Toc226437741 \h 15 6.1      Threats of New Entry. PAGEREF _Toc226437742 \h 16 6.2      Threat of Substitution. PAGEREF _Toc226437743 \h 16 6.3      Buyer Power PAGEREF _Toc226437744 \h 17 6.4      Suppliers Power PAGEREF _Toc226437745 \h 17 6.5      Competitive Rivalry. PAGEREF _Toc226437746 \h 17 7.    Recommendation. PAGEREF _Toc226437747 \h 18 8.    The Strategic Triangle. PAGEREF _Toc226437748 \h 18 9.    Aligning Organization Wide Strategies. PAGEREF _Toc226437749 \h 19 10.      Adaptive Processes. PAGEREF _Toc226437750 \h 20 11.      Metrics/Performance Measures. PAGEREF _Toc226437751 \h 20 12.      Conclusion. PAGEREF _Toc226437752 \h 21 13.      References. PAGEREF _Toc226437753 \h 23 14.      Appendices. PAGEREF _Toc226437754 \h 25 14.1       Appendix A: Strategic Triangle. PAGEREF _Toc226437755 \h 25 14.2       Appendix B: Balance Score Card Dimension of Proton. PAGEREF _Toc226437756 \h 26 Table of Table  TOC \h \z \c "Table" Table 1 PEST Analysis. PAGEREF _Toc225758233 \h 6 Table 2 SWOT Analysis. PAGEREF _Toc225758234 \h 11   Table of Figures  TOC \h \z \c "Figure" Figure 1 Porter's Five Forces. PAGEREF _Toc225758249 \h 16     1.      Introduction   The automotive industry in Malaysia is considered as one of the most vital and significant strategic industries in the manufacturing sector (ESCAP 2009). Malaysia is predominantly a passenger car market and the industry is considered as a domestic market-oriented (ESCAP 2009). The primary reason why passenger care market is prominent in the country is because of the economic status of the country. The objective of this paper is to focus on the case of Proton in terms of facing different dilemmas in the local and global automotive industry. Furthermore, it will use the Delta model in order to analyze the performance and recommend different actions to be done in order to maintain the position of the company in the market. 2.      Background of Proton   Proton or synonyms for Perusahaan Otomobile Nasional Berhad was incorporated on May 7, 1983 in order to manufacture, assemble and sell different motor vehicles and other related products which include different accessories, spare parts and other important components (PMProject n.d.). Based on the technology and parts from Mitsubishi, the production of the first model or the Proton Saga began in September 1985 at its first manufacturing plant in Shah Alam Selangor by the Malaysian Prime Minister Dato’ Seri Dr. Mahathir Mohamad (Histomobile n.d.; PMProject n.d.). At first, all of the components of the car were entirely manufactured by Mitsubishi, but the local part has been able to be used, as technologies were transferred and skills were gained. In January 1989, the 100,000th of Proton Sage was produced (Histomobile n.d).      At the end of 1990s, the logo of the car was changed from the Malaysia’s coat of arms and a fourteen-pointed star to a stylized tiger head. In 1993, a new model called Proton Wira was introduced that was based on the design and engineering of Mitsubishi Lancer/Colt where in more than 220,000 units were sold from 1996 to 1998. Together with that, the Proton Perdana that was based on the Mitsubishi Eterna was produced in 1994 that was intended for higher market (Histomobile n.d.). In 1996, an acquisition of Lotus technologies form Bugatti, Proton helped the company to have an additional source of engineering and automotive expertise which enables the company to produce the Proton Gen-2, to become the first of cars to be manufactured and assembled at the new manufacturing plant in Tanjung Malim, Perak which is part of Proton City development project, which was opened in 2004 (Histomobile n.d.). In 2004, the company purchased a major stock in MV Agusta of Italy which is the manufacturer of MV Agusta, Husqvama and Cagiva motorcycles. Later on, the company sold off its 57.7% share to MV Agusta to another Italian company for a token of one Euro. Because of the heavy debt by MV Agusta, the selling gives Proton the opportunity to write off the losses off its book. During the same year, the company announced about their planned partnership with the Volkswagen AG of Germany. Under the said partnership both of the company will be able to take advantage of both their strengths. For the company, Volkswagen will be able to share knowledge, expertise and technologies, while the company can offer spare capacity at the latter’s Tanjung Malim in order to assemble cars for export o the South East Asian market, where in the German auto giant has a weak presence. However, on January 13, 2006, Volkswagen had announced that the negotiation of the partnership has failed due to the different reasons, primarily the fact that the plans of the company were different and clashes with the terms and conditions that are being offered by Proton (Histomobile n.d.). In 2002, Proton held a high market share of more than 60% in Malaysia. However due to the different factors such as the economic and social aspects, the said share was reduced to 30% by 2005. The said number will further reduce in the next years due to the AFTA which mandates reduce tariffs to maximum of 5% (Histomobile n.d.). 3.      Macro-Environment Analysis   Every industry is being affected by the developments in the macro-environment. Fundamentally, all organizations are affected by the same developments; however, the extent to which organizations successfully cope or take advantage of these developments differs in substantial manner. Furthermore, developments may potentially influence one industry more severely than other. Therefore, it is vital for organizations to identify or anticipate the macro-developments in order to assess their potential impact on the industry and the organization (Nijssen & Framback 2000, p. 53).         Table  SEQ Table \* ARABIC 1 PEST Analysis   	 		 		 		  		 		PEST Analysis 		 		  		 		  	 	 		 		 		Political 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			AFTA;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			different environmental Policies</li> 		</ul> 		 		  		 		 		Economic 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal" style="text-align: justify"> 			global 			and local economic crisis;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal" style="text-align: justify"> 			 			slowing growth of Malaysian economy;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal" style="text-align: justify"> 			poor 			consumer sentiment and changing buying behavior of the consumer;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal" style="text-align: justify"> 			 			increasing competition;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal" style="text-align: justify"> 			huge 			total labor force;</li> 		</ul> 		 		  		 		  		 		  	 	 		 		 		Social 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			huge 			population;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			car 			ownership (1:5);</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			set on 			big-ticket items;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			growing knowledge and concern of the people towards the environment;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			impact 			of the image of the brand;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			slowing/decreasing buying pattern of the consumer. </li> 		</ul> 		 		 		 		Technological 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			competing development in technology;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			maturity of technology;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			intellectual property;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			potential for innovation and development;</li> 		</ul> 		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			maturity and capacity of manufacturing</li> 		</ul> 		 		  		 		  		 		  		 		  	               Table 2 shows the different factors which affect the operation of Proton and other major players in the industry in the country. Thus, all of the factors can be grouped into 4: political, economic, social and technological.   3.1      Political               One of the important factors to consider is the presence of AFTA or ASEAN Free Trade Area. Currently, most of ASEAN region are free trade or 96% of the entire ASEAN trade. AFTA was established in January of 1992 in order to eliminate tariff barriers among the Southeast Asian countries. It planned to reduce tariffs to zero to 5% in 15 years among the six nations through a common effective preferential tariff (Ghani & Zainuddin 2008). Because Malaysia has two national carmakers which are Proton and Perodua, and the government wants to protect their interests. Unfortunately, the said development could prove to be a temporary solution. If we are going to check on the high selling prices of the national cars of Malaysia because of high production costs and lack of vendor efficiency, there is a big possibility that the local market will be ruled by imported cars. As a result, there will be increase in the number of the vehicles on the road and there will be a glut of used cars in the market, because people will tend to trade their cars for cheaper and imported brands (Frost & Sullivan 2002). On the other hand, the issue regarding the environment is vital because it is considered as one of the most talk about topics in the world. The environmental regulation in Malaysia can be traced back during the colonialism of British which introduced the environmental standards about the mineral and agricultural resources to Europe.       3.2      Economic               The vehicle sales in the country is expected to fall by 12.4% in 2009 due to different economic aspect, primarily the issue of global financial crisis, which affected the local financial status of the country (AseanOneMonitoring 2009). As a result, the government of the country is expecting a slow economic growth for the country, which can affect the buying behavior of the customers. Furthermore, due to the AFTA, it had increased the competition, which will impact the performance of Proton. However, the performance of the automobile industry will be maintained and managed due to the huge total labor force. Despite of the slower economic growth in 2003, the unemployment rate was only 3.5%, which shows an almost full employment (PriceWaterHouseCooper 2005). 3.3      Social               The growing population in the country is one of the factors which can affect the automobile industry. In 2008, the country has a total of 27.5 million citizens (US Department of State n.d.). This will give a greater number of markets. Furthermore, the ratio of car ownership in the country is somewhat high or total of 1:5, which signifies that people are considering cars as important things in their lives. Furthermore, people will also set on big-ticket items or consumers are expected to put off buying different motor vehicles because of the employment market uncertainty because of the global and local financial crisis (AseanOneMonitoring 2009). Another factor to consider is the growing knowledge and concern of the people regarding different environmental issues. Furthermore, the impact of the image to the loyalty of the customer is also another factor. 3.4      Technological               Technology is considered as one of the most important factor in the automotive industry. Due to the increasing competition, the development in technology is growing and affecting the performance and position of each and every company in the automobile industry. It is also important to consider the maturity of technology, together with the maturity and capacity of manufacturing, which affect the innovation process of any company. The intellectual property is also important factor, because it is considered as a sign of authenticity and uniqueness. Due to the different technologies, primarily the help of computer and the Internet, the potential for innovation and development is increasing.    4.      Micro-Environment Analysis   Table  SEQ Table \* ARABIC 2 SWOT Analysis 	 		 		 		  		 		SWOT Analysis 		 		  		 		  	 	 		 		 		Strengths 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			strong 			support from the government;</li> 			<li class="MsoNormal"> 			strong 			brand;</li> 			<li class="MsoNormal"> 			 			reputation;</li> 			<li class="MsoNormal"> 			 			flexible manufacturing capability</li> 		</ul> 		 		  		 		 		Weaknesses 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal" style="text-align: justify"> 			lack 			of R&D;</li> 			<li class="MsoNormal" style="text-align: justify"> 			over 			reliant on the government;</li> 			<li class="MsoNormal" style="text-align: justify"> 			not so 			competitive;</li> 			<li class="MsoNormal" style="text-align: justify"> 			higher 			costs than competitors;</li> 			<li class="MsoNormal" style="text-align: justify"> 			lack 			of international operations;</li> 			<li class="MsoNormal" style="text-align: justify"> 			lack 			of original products/services;</li> 			<li class="MsoNormal" style="text-align: justify"> 			 			limited product line;</li> 			<li class="MsoNormal" style="text-align: justify"> 			 			existing quality issue;</li> 			<li class="MsoNormal" style="text-align: justify"> 			human 			resource issue</li> 		</ul> 		 		  		 		  		 		  	 	 		 		 		Opportunities 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			 			“Green” Cars;</li> 			<li class="MsoNormal"> 			 			available government support;</li> 			<li class="MsoNormal"> 			 			available technological innovations;</li> 			<li class="MsoNormal"> 			 			entering new markets;</li> 			<li class="MsoNormal"> 			gain 			online/e-commerce presence;</li> 			<li class="MsoNormal"> 			 			strategic alliances and joint ventures</li> 		</ul> 		 		 		 		Threats 		 		  		<ul style="margin-top: 0in; margin-bottom: 0in" type="square"> 			<li class="MsoNormal"> 			slow 			growth of automotive market;</li> 			<li class="MsoNormal"> 			change 			in the consumer lifestyle;</li> 			<li class="MsoNormal"> 			 			changes in regulation (AFTA);</li> 			<li class="MsoNormal"> 			 			changing technology;</li> 			<li class="MsoNormal"> 			 			competition from the foreign markets;</li> 			<li class="MsoNormal"> 			new 			competitors entering the market;</li> 			<li class="MsoNormal"> 			price 			war between competitors</li> 		</ul> 		 		  		 		  	             Table 2 shows the internal and external factors that are important for the growth of the company such as its strengths, weaknesses, opportunities and threats. 4.1      Strengths               One of the important strengths of the company is its reputation or strong brand image due to the long years it had stayed in the industry. Because of that, the Malaysia people have become familiar and loyal to the brand, aside from the fact that Proton had become the national car brand in the country. Due to that, the car manufacturer has a strong support or back-up from the government, which is considered as an important entity in any business environment. Above all, the company has a manufacturing capability at Tg. Malim to consolidate all models, as well as the existing tariff structure (BuildBoard n.d.). 4.2      Weaknesses               There are also different weaknesses which must be improved by the company in order to maintain their position in the government. First is the lack of R&D or innovation as well as lack of original products and limited products because of the inability of the company to introduce real new models, which lead them to cannibalize their screwed up line of products (BuildBoard n.d.). This is because some of the products or models of Proton were based on the model of other international leading brand. It is also important to consider that the company is lacking in international operation, due to the different factors, primarily because of huge competition in the global market. The reputation or image of the company is also facing difficulties because of the current quality issue due to active service units and low plant utilization (BuildBoard n.d.).Furthermore, company is having different human resource issue due to their inability to retain and cultivate talent. Because of all these reasons, the company is lacking in international operations. Above all, due to it’s over reliance to the government, without the strong support from the government, Proton could lose out to major players in the industry that can cause serious impact on the different supply chain (AseanAffairs 2009). 4.3      Opportunities               The support of the government to the company is an important opportunity, because the government considers the company as their partner, therefore majority of cars needed by local and national government will be Proton. Furthermore, the company can also take advantage of the different technological developments, particularly the different Information Technology (IT) or Information System or IS which can help the company to manage their information that can help them in the decision-making process. Entering new markets will also help the company to expand their business in terms of size; therefore can help to gain more turnovers. It is also important to consider the ongoing popularity of e-commerce or online selling of goods. This will help the company to target more market in more reliable, fast and cost-effective manner. Furthermore, the changing perspective and concern of the people towards the environment also created opportunities for different automotive industry, and that is to offer different “Green” cars or hybrid cars.   4.4      Threats               The most crucial threats to be faced by the company are the global financial crisis which affects the economy of Malaysia, and affect the lifestyle and buying behavior of the consumer. As a result, as of October of 2008, new-vehicle deliveries slipped by 13% from 42,915 of last year to 37,512 units (Chrysler 2008). The changing and maturing of the technology is also another important factor to consider, together with the growing number of competitors who are entering the market, which result to the price wars. The main reason behind this situation is the AFTA which focus on reducing tariffs from zero to 5% in 15 years among the six nations through a common effective preferential tariff It planned to reduce tariffs to zero to 5% in 15 years among the six nations through a common effective preferential tariff (Ghani & Zainuddin 2008). 5.      AFTA Compliance Problems            The ASEAN Free Trade Area or AFTA is a collective effort by the member countries in order to eliminate tariffs on intra-ASEAN trade in the goods sector. The main target is to achieve tariff between 0 – 5% in 2003 for the six original member countries, Vietnam by 2006, Lao PDR and Myanmar by 2008 and Cambodia by 2010, at the same time remove quantitative restrictions and other non-tariff barriers. The reduction or elimination of tariff is undertaken through the Common Effective Preferential Tariff Scheme (Ministry of International Trade and Industry 2008).          The main impact of AFTA to the economy of Malaysia is the increase intra-ASEAN competition from lower cost producers; declined competitiveness of traditional export industries which include the high labor cost, lack of resources and expertise and technology obsolescence; removal of protection such as quota system and monopoly status; complying with 40% local content rule; develop competitive local small and medium industries which will focus on the domestic market, dependent on single or few buyers and lack of expertise and backward technology. As a result there are different sectors that might face strong competition primarily the ceramic tiles, cement, plastic products and automotive industry (Ghani & Zainuddin 2008).          AFTA will result to higher economies of scale in the automotive industry in Malaysia. Higher economies of scale will mean lower unit production costs. This will help to translate into lower retail prices and a bigger market. Therefore, AFTA could translate into price cuts of about 20% to 50% on vehicles. Competitive producers can export their products throughout the region at very low import duties and pass on cost savings to consumers. As a result, consumers can exercise a wider and better product choice at very competitive prices (Dey 2002).     6.      Industry Analysis Figure  SEQ Figure \* ARABIC 1 Porter's Five Forces                                                                                                   Figure 1 shows the industry analysis of the automotive industry in general. According to Porter, there are 5 important factors which show the attractiveness or value of the structure of the industry: entry of competitors, threat of substitutes, bargaining power of suppliers, bargaining power of buyers and rivalry among the existing players. 6.1      Threats of New Entry               The threats of new entry pertain on how easy or difficult for new entrant to start competing (12Manage n.d.). The primary barriers of new entry are the high capital and investments that are needed in order to enter the industry. This is because it mainly focuses on the different technologies that are needed in order to come up with the quality and services that are being offered by the long time players in the industry. Aside from that, it is also important to consider the availability of the distribution channel which is very important in connecting with the customers. Furthermore, because there is long time player in the industry, brand loyalty of the customers is considered as inevitable. However, due to AFTA, the government offers friendly entrance policies for the possible new entrants. 6.2      Threat of Substitution               The threats of substitution pertain on the ability of the customers to go for substitute products that might be cheaper and accessible. In terms of the passenger car industry, the growing demands for bikes and motorcycles. More and more people are switching from using the passenger cars into using bikes and motorbikes due to two reasons, first is that it helps them to save money because of gasoline, at the same time, the consumer are becoming more aware of their environmental benefits. Thus, the quality of the substitute’s products, the willingness of the customers and the low costs of switching enables the threats of substitution high. 6.3      Buyer Power               The bargaining power of the customers in this industry is somewhat high due to the homogenous or almost the same products, which divide the number of sales from huge number of competitors. But it can be maintained due to the huge number of buyers, primarily in developed countries, aside from the fact that the buyers are fragmented. Above all, the importance of quality of the products and services are important factors which affect the power of the buyer. 6.4         Suppliers Power   The supplier has a neutral power over the industry. This is because there are few dominant suppliers in the industry who are well known for quality and brand image. This is affected by the high role of quality and service in the industry, because the industry is directly connected to safety and quality of life of the customers. The most important factor which add up to the influence of the suppliers is the high cost of switching. 6.5      Competitive Rivalry   The competitive rivalry pertains on the intensity of rivalry among the competitors in the industry. it is important to consider the improving product differentiation due to the extensive effort of each and every automobile company in the world to become unique and have the stronger market position in the industry. This is the major impact of the large number of firms of organization competing in the global market including local players from Korea, China and Japan which result to diversity of cultures and organizational behaviors of the rivals. The low switching cost from one brand to another intensifies the competition in the market and pushes all of the major and minor players to focus on R&D and innovation processes in order to improve their overall performance in the market. Above all, the competition is increased due to high exit barriers due to the human resource and facilities. 7.      Recommendation   It will be important for the company to focus on the Delta model in the process of planning and implementing their strategy. The Delta model is a strategy framework that was developed by Dean Wilde together with the members of Dean & Company and Arnoldo Hax of MIT/Sloan School of Management (Value Based Management.net n.d.). 8.      The Strategic Triangle   There are three options that are represented in Triangle which are considered as the starting point o the dialogue for the development of a strong vision (see Appendix A) (Hax & Wilde II 2003). Due to the current condition of the company regarding their competitive advantage which pertains on the quality of their products, it will be important to focus on the Best Product positioning. This is because of the fact that the best way to attract, satisfy and retain customers is through the inherent characteristics of the product itself. The position is rather inward and narrow, based upon the prevailing product economics. Thus, the major strategic driving forces are the development of an efficient supply chain that will guarantee low cost infrastructure; a proven internal capability for new product development. At the same time, it will help the proper renewal of the existing product line that will help to secure the distribution channels that will help to transfer the products to the targeted market segments (Hax & Wilde II 2003). This will focus on the R&D and innovation process for the company. In order to maintain the process of engineering and designing passenger cars which will suit the taste and preferences of the customers this is affected by different demographics, economics and social factors. Due to the growing problem of global economic crisis, it will be important to focus on low cost or differentiation of the products. 9.      Aligning Organization Wide Strategies   In this stage, it will be important to focus on organizational change, because it will focus on restructuring the current business rules and policies towards the strategies of the company. In the case of the company, it will be important to focus on the strong product base, solid supply chain infrastructure as well as internal innovation capabilities to match (Hax & Wilde II 2003).   10.   Adaptive Processes   Because of the fact that the strategies of the company focus on the R&D process of Proton, it will be important to focus on the Innovation as the strategic task. It ensures a continuous stream of new products and services in order to maintain the future viability of the business. It also helps to mobilizes all of the creative resources of the firm which include the technical, production and capabilities in the marketing field in order to develop an innovative infrastructure for the business. Furthermore, the company must not limit itself to the pursuit of the different internal product development, but must focus the sources of innovation from the suppliers, customers and key complementors. It maintains the focus on the renewal of the business to maintain its competitive advantage as well as superior financial performance (Hax & Wilde II 2003).      In this stage, it will be important for the company to know the reactions and opinions of the Malaysia customers regarding the design of their models, particularly the issue of almost identical design of each model. 11.   Metrics/Performance Measures   It is important to consider that metrics providing overview should be supplemented with granular metrics (12Manage n.d.). A balance score card dimensions for the firm and for each customer segment tier were identified that will allow Proton to monitor and analyze its current executions of customer targeting as well as innovative strategies which represent different changes of key cost drivers of the financial perspective, operational effectiveness, technology as well as customer perspective (Core.org n.d.) (see Appendix ).Based on the said balance score card dimension, as well as the Delta Model, it is important for Proton to focus on the changing preferences and demands of their current customers, which are their strategic partners from different parts of the globe, as well as their current loyal customers. It is important to focus on new services and products as well as the capability to deliver new car models to their partnership. As a result, the significant dimensions in the performance matrix must be percentage  of strategic/exclusive partnership acquisition, percentage of business volume from different strategic/exclusive partnership, as well as switching costs for complementor and customer (Core.org n.d.). 12.   Conclusion   Proton was considered as the national car manufacturer of Malaysia and considered as the major player in the industry. However due to the different factors, primarily the implementation of AFTA, the sales and market share of the company decline. In details, the growing competition enables the Malaysian market to have a wide choice of cars to be availed. On the other hand, due to the strong support of the government, as well as the strong position of the company in the market, it can be said that the company failed to focus on the most important aspect of a company in order to maintain competitive advantage, and that is innovation. Most of the customers are saying that the company is no longer offering real new models of cars. Aside from that, the company is also having a problem in their supply chain, which results to high pricing of Proton's car compare to other international brand in the market. In order to solve the current situation of the company, it will be important to focus on innovation or R&D process. This can be done by focusing on applying new IT or IS to speed up the process of designing. It is also important to focus on the HR aspect of the company in order ensure that the company has talented and skilled staffs to develop new and better products that will suit the ever changing preferences of the consumers.   13.   References 12Manage. Porter’s Five Forces Analysis. Available from: http://www.12manage.com/. [25th March 2009]   AseanAffairs (2009). Malaysia’s Proton Still Needs Government Support. Available from: http://www.aseanaffairs.com/page/malaysia%27s_proton_still_needs_government_support. [25th March 2009]   AseanOneMonitoring (2009). Malaysia Auto Sales to Fall 12.4 Percent on Slowing Economy. Available from: http://www.asiaone.com/Motoring/News/Story/A1Story20090122-116465.html. [Accessed 24th March 2009]   BuildBoard. Analysis SWOT Proton. Available from: http://g4.buildboard.com/images/attachpic/g4/B400/B400F1844T909_8195ded601b2dd2aaee71cb07bd4c006.pdf. [25th March 2009]   Core. DMK International (8) – Aggregate and Granular Metrics. Availabe from: http://www.core.org.cn/NR/rdonlyres/Sloan-School-of-Management/15-904Fall-2005/F43E8DBF-9AF8-4B07-BB61-2920E880D30F/0/dm_csstd_dmk8_2.pdf. [2nd April 2009]   Chrysler, M. (2008). Malaysian Auto Industry Facing Decline as Global Economy Slows. Available from: http://subscribers.wardsauto.com/ar/malaysian_industry_decline_081208/wall.html?return=http://subscribers.wardsauto.com/ar/malaysian_industry_decline_081208/. [25th March 2009]   Dey, A. (2002). The Impact of AFTA on the ASEAN Automotive Industry. Available from: http://www.frost.com/prod/servlet/market-insight-top.pag?docid=IMAY-58VK85. [25th March 2009] ESCAP (2009). V. Malaysia. Available from: http://www.unescap.org/tid/publication/part_two2223_mal.pdf. [Accessed 24th 2009]   Frost & Sullivan (2002). The Impact of AFTA on the ASEAN Automotive Industry. Available from: http://www.frost.com/prod/servlet/market-insight-top.pag?docid=IMAY-58VK85. [Accessed 24th 2009]     Ghani, K., Zainuddin, Y., Fereidouni, H. G. & Ziaee, A. (2008). ‘AFTA: Effect on Malaysian Economy’. Journal of Management and Social Sciences. vol. 4, no. 2, pp. 134 – 141. Available from: http://www.biztek.edu.pk/downloads/research/jmss_v4_n2/6.%20Afta.pdf. [25th March 2009] [Accessed 24th 2009]   Hax, A. & Wilde II, D. (2003). ‘The Delta Model- A New Framework of Strategy’. Journal of Strategic Management Education, vol. 1, no. 1. Available from: http://pesona.mmu.edu.my/~wruslan/MISP2/Readings/detail/Reading-37.pdf.   Histomobile. Proton (1985-). Available from: http://www.histomobile.com/dvd_histomobile/histomo/63/history2.asp. [Accessed 24th 2009]   Ministry of International Trade and Industry 2008. Malaysia and AFTA. Available from: http://www.miti.gov.my/cms/documentstorage/com.tms.cms.document.Document_7d9e2e2f-c0a81573-11c011c0-50afb270/afta.pdf. [25th March 2009]   Nijssen, E. J. & Frambach, R. (2000). Creating Customer Value Through Strategic Marketing Planning: A Management Approach. Springer   PMProject. The History of PROTON, Available from: http://pmproject.doubleukay.com/proton_history.html. [Accessed 24th 2009]   PriceWaterHouseCooper (2005). Malaysia. Available from: http://www.pwc.com/gx/eng/about/ind/retail/growth/malaysia.pdf. [Accessed 24th 2009]   US Department of State. Malaysia. Available from: http://www.state.gov/r/pa/ei/bgn/2777.htm. [Accessed 24th 2009]   Value Based Management.net. The Delta Model. Available from: http://www.valuebasedmanagement.net/methods_hax_wilde_delta_model.html. [Accessed 24th 2009]       14.   Appendices   14.1   Appendix A: Strategic Triangle                                               Source: (Hax & Wilde II 2003)               14.2   Appendix B: Balance Score Card Dimension of Proton   	 		 		 		Balance Scorecard Framework 		 		 		Shareholder Look 		 		 		Operational Effectiveness 		 		 		Organizational Learning 		 		 		Customer targeting 	 	 		 		 		Proton 		 		 		·       		Volume, revenue, gross margin by 		technology segment and market segment 		 		·       		Revenue and turnover by 		geographical segment (Asia, Europe, Middle East, Africa and Pacific) 		 		·       		Revenue and turnover by business 		domain such as capital, industrial and government. 		 		 		·      		Wholly-owned subsidiary Lotus 		Engineering UK – leading automotive engineering consultancy company 		 		·      		Application of Information 		Technology in the R&D and auto development 		 		 		·      		% of sales from new technology 		and models; 		 		·      		Training as a % of sales; 		 		  		 		 		·     		Customer market share by tier 		 		·     		Profitability by customer tier 		 		·     		Customer satisfaction by tier 	 	 		 		 		Strategic and Integrated Partner 		companies 		 		 		·       		Volume, revenue, turnover, gross 		margin by individual client 		 		·       		Year over year sales and 		turnovers growth by individual clients; 		 		·       		Return on business relationship 		investment 		 		 		·      		Cost to serve clients; 		 		  		 		 		·      		Number of clients on each 		country and partner; 		 		·      		Return on investment on 		collaboration tools per selected clients; 		 		·      		Return on % revenue on the 		center of excellence establishment 		 		 		·     		Customer satisfaction; 		 		·     		Joint revenue and turnover from 		complementor relationship 		 		·     		Relationship 	 	 		 		 		Body Shopper 		 		 		·       		Volume, revenue, turnover, gross 		margin by individual clients; 		 		·       		Return on investment per head; 		 		·       		% revenue and sales from new 		clients 		 		 		·      		Time needed in order to complete 		the transaction from start to finish per model or project; 		 		·      		Idle time of engineering; 		 		·      		Return on investment on 		collaboration; 		 		·      		% of revenue, volume, earnings 		by different channels: 		 		o  		Referral by clients; 		 		o  		Direct selling; 		 		o  		Cross selling 		 		·     		Cost of training per project 		 		 		·      		Cost of the collaboration tool 		in order to facilitate transfer of knowledge 		 		 		·     		Cost to serve clients per 		channel; 		 		·     		Customer satisfaction on the 		models, relationship and cost of products. 	   Adopted from: (Core.org n.d.)

Strategic Management of Proton, Malaysia

Strategic Management: Proton, Malaysia Table of Contents TOC \o "1-3" \h \z \u 1. Introduction . PAGEREF _Toc2264...