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(Mt) – QSO 300 SNHU Operations Management Functions Discussion

QSO 300 Final Project Guidelines and Rubric Overview The final project for this course is the creation of a comprehensive case study analysis. Every business whether a beauty salon, automobile manufacturer, or professional baseball team has an operations component that creates goods and services by transforming inputs into outputs. There are a wide variety of tools and techniques that operations managers draw upon to increase efficiency and effectiveness, creating value for customers. Operations management professionals are in high demand across a variety of industries. Having basic knowledge of operations functions and their integration capabilities is critically important in the world of business. For example, applying the limitations of production in marketing and sales is a routine task. Managing the equipment and supplies needs of operations management is a basic skill looked for in finance and accounting workers. For your final assessment in this course, you will analyze a case study that addresses several key operations management fundamentals. You will use the tools and techniques that operations managers use and incorporate your instructor s feedback into the final summative analysis. You will address the typical problems that operations managers face using the knowledge you have gained from this course. Finally, you will discuss the emerging concepts of sustainability in business management, specifically the topics of corporate responsibility and environmental compliance. The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Two, Four, and Five. The final project is due in Module Seven. In this assignment, you will demonstrate your mastery of the following course outcomes: Evaluate the influence of operations functions on generating value for a firm and its customers Explain theories and techniques used by operations managers for informing production processes Accurately apply problem-solving and decision-making skills to real-world problems using quantitative and qualitative methodologies Integrate emerging principles into operations management functions by addressing corporate responsibility and environmental sustainability Prompt Using the knowledge you have gained from this course, you will write a comprehensive analysis of the case study we have been analyzing throughout this course (located in the Reading and Resources area of Module One) by addressing the critical elements below. Imagine that you are hired into the role of the operations manager at the company described in the case study. Although there are many issues facing the company, you have some experience and are well qualified to provide direction in solving these problems. To address many of the questions below, you will want to review your submissions from previous modules and incorporate instructor feedback. Using the case study, course materials, and outside sources, prepare a cohesive case study analysis for submission as one document. Specifically, the following critical elements must be addressed: I. Generating Value A. Evaluate how the company in the case study uses operations management functions to provide products and generate value for its customers. Support your claims with examples from the case study or outside sources. B. Assess how this company achieves a competitive advantage using operations management. Provide examples found in the case study or outside sources to support your reasoning. C. Compare and contrast service operations and manufacturing operations at the company in the case study. How are they the same? How do they differ? How does each of these operations provide value for their customers? II. Theories and Techniques A. Explain how gross-to-net calculations are processed for material requirements planning (MRP). What specific input files would the company in the case study 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 this company? B. Compare and contrast the critical path method (CPM) and the program evaluation and review technique (PERT). What types of projects at this company would favor PERT over CPM? Why? What types of projects at this company would favor CPM over PERT? Why? C. Explain the four primary priority rules for job sequencing. In what instances at the company might each rule be most advantageous? When would each rule be most disadvantageous? Support your claims with citations from your textbook or outside sources. D. Explain the five steps of the theory of constraints (TOC) process. To what processes might the company in the case study apply TOC? Why would applying TOC to these processes be advantageous? E. Explain the steps used to develop a forecasting system. How would these steps be specifically utilized by this company? What do you predict would be the result of implementing a forecasting system for the top-selling product line at this company? F. List the major categories of supply chain risk and associated risk-reduction tactics. How could the company mitigate exposure to supply chain disruptions caused by natural disasters? 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 the company presented in the case study. H. Describe how total quality management (TQM) principles and tools can be used to improve quality in the latest line of products in the context of the case study. III. Data Analysis A. Draw a hypothetical process (time-function) map for producing a recently released (within the past two years) product manufactured by the company. As an operations manager, how will you use the value map? Be sure to include your process map within your case study analysis. B. Draw a cause-and-effect diagram that assesses why some of the company s supply chain partners might have struggled to implement some of the company s newly developed materials. Summarize your findings from the diagram. C. Considering the data and options below, determine where the company should locate its new manufacturing plant. Explain why this would be the favorable location. Factor Political Risk Transportation Costs Labor Productivity Rental Costs Labor Costs Taxes Weight .25 .20 .20 .15 .10 .10 Mexico City 70 40 85 90 80 90 Columbia, SC 80 90 75 55 50 50 D. The company believes that it might have some inefficiencies in its inventory management process. Develop an ABC classification system for the following 10 items. Based on this information, what do you recommend for improving inventory management? Item I5 D1 A2 E9 J8 C7 B8 G2 H2 F3 IV. Annual Demand 1750 6000 3000 1000 2500 1500 4000 300 600 500 Cost/Unit 10.00 10.00 50.00 20.00 5.00 45.00 12.00 1500.00 20.00 500.00 Sustainability A. Describe how the emerging concept of the triple bottom line can be used to enhance operations management at the company. Be sure to address each component of the triple bottom line. B. Explain how the company integrates ISO 14000 standards in its manufacturing plants. Support your explanation with citations from your textbook or outside sources. C. Describe ways through which the company can integrate corporate responsibility principles into their operations. Which of these do you believe to be the most effective? Why? Support your opinions with citations from your textbook or outside sources. Milestones Milestone One: Managing Operations In Module Two, you will submit a managing operations case study analysis, which evaluates how the company featured in the case study uses operations management functions to provide products and generate value for its customers and how it achieves a competitive advantage using operations management, among other critical elements. To complete this milestone, you will use the case study, your own independent research, and the course materials. This milestone is graded with the Milestone One Rubric. Milestone Two: Quality, Process, and Location Analysis In Module Four, you will submit a quality, process, and location analysis case study analysis that addresses the typical problems that operations managers face. To complete this milestone, you will use the case study, your own independent research, and the course materials. This milestone is graded with the Milestone Two Rubric. Milestone Three: Sustaining Operations In Module Five, you will submit a sustaining operations case study analysis that discusses the emerging concepts of sustainability in business management, specifically the topics of corporate responsibility and environmental compliance. To complete this milestone, you will use the case study, your own independent research, and the course materials. This milestone is graded with the Milestone Three Rubric. Final Submission: Comprehensive Case Study Analysis In Module Seven, you will submit your final comprehensive case study analysis. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course. If you have not included it already, be sure that this final submission includes an introduction section, which provides an overview of the company and some of the key challenges that it is facing. Also, be sure to include a summary/conclusion section that highlights some of your most important recommendations for improving operations at the company. This will be graded using the Final Project Rubric. Deliverable Milestones Milestone Deliverables Module Due Grading 1 Milestone One: Managing Operations Two Graded separately; Milestone One Rubric 2 Milestone Two: Quality, Process, and Location Analysis Milestone Three: Sustaining Operations Four Graded separately; Milestone Two Rubric Five Graded Separately; Milestone Three Rubric Final Product: Comprehensive Case Study Analysis Seven Graded separately; Final Project Rubric 3 Rubric Guidelines for Submission: Written components of projects must follow these formatting guidelines when applicable: double spacing, 12-point Times New Roman font, one-inch margins, and citations in APA style. This assignment should be 10 12 pages in length, not including cover page and resources. Critical Elements Generating Value: Functions Generating Value: Competitive Advantage Generating Value: Compare and Contrast Exemplary (100%) Meets Proficient criteria and directly ties specific OM activities to actual measures of customer satisfaction related to the case study Meets Proficient criteria and provides additional real-world examples of times when the company in the case study outperformed a competitor Meets Proficient criteria and addresses implications of strategic OM decisions for both service and manufacturing Theories and Meets Proficient criteria and Techniques: Gross- integrates additional to-Net organizational functions that affect inputs to and outcomes of MRP Theories and Techniques: Compare and Contrast Theories and Techniques: Four Primary Meets Proficient criteria and supports explanation with concrete real-world examples Meets Proficient criteria and explains a situation where a hybrid approach might work best Proficient (85%) Evaluates how the company in the case study uses OM functions to provide products to customers and to generate value and provides support Accurately assesses how the company in the case study achieves a competitive advantage using OM and provides support Needs Improvement (55%) Evaluates how the company in the case study uses OM functions to provide products to customers and to generate value but does not provide support Assesses how the company in the case study achieves a competitive advantage using OM but assessment is inaccurate or does not provide support Compares and contrasts service Compares and contrasts service and manufacturing operations and manufacturing operations but and includes how each operation does not include how each provides value for its customers operation provides value for its customers Correctly explains how gross-toCorrectly explains how gross-tonet calculations are processed for net calculations are processed for MRP and identifies the specific MRP but does not identify the input files needed and how the specific input files needed or how company uses the MRP the company uses the MRP information information Compares and contrasts CPM and Compares and contrasts CPM and PERT and explains which projects PERT but does not explain which would favor each technique projects would favor each technique Accurately explains the four Accurately explains the four primary priority rules for job primary priority rules for job sequencing, explaining where sequencing, but does not explain each rule would be most where each rule would be most advantageous/disadvantageous advantageous and and provides support disadvantageous or does not provide support Not Evident (0%) Does not evaluate how the company in the case study uses OM functions to provide products to customers Value 5 Does not assess how the company in the case study achieves a competitive advantage using OM 5 Does not compare and contrast service and manufacturing operations 5 Does not correctly explain how gross-to-net calculations are processed for MRP or explanation is incorrect 5 Does not compare and contrast CPM and PERT 5 Does not explain the four primary priority rules for job sequencing or explanation is inaccurate 5 Theories and Meets Proficient criteria and Techniques: Theory predicts the results of applying of Constraints TOC to specific processes in the case study Theories and Techniques: Summarize Meets Proficient criteria and describes how a specific process could be leaned at the company Theories and Techniques: Total Quality Management Data Analysis: Process Map Meets Proficient criteria and integrates Deming s points into the discussion Correctly explains the five steps of TOC but does not explain why it would be advantageous to apply TOC to specific processes in the case study Accurately describes the steps used to develop a forecasting system but does not predict the results of using a forecasting system in the context of the case study Correctly lists the major Correctly lists the major categories of supply chain risks categories of supply chain risks and associated risk-reduction and associated risk-reduction tactics and explains how the tactics but does not explain how company could avoid exposure to the company could avoid supply chain disruptions exposure to supply chain disruptions Summarizes JIT, TPS, and Lean and Summarizes JIT, TPS, and Lean but explains how the concepts are does not explain how the related, integrating the concepts are related, integrating advantages/disadvantages of the advantages/disadvantages of using each in the case-study using each in the case-study context context Describes how TQM can be used Describes how TQM can be used to improve quality in the context to improve quality but does not of the case study provide context in the case study Meets Proficient criteria and description of map s use demonstrates insight into the importance of OM tools Accurately draws and includes a process map for product and thoroughly describes how it would be used by an OM manager Theories and Meets Proficient criteria and Techniques: defends prediction with support Forecasting System Theories and Meets Proficient criteria and Techniques: Supply provides support for explanation Chain Risk Data Analysis: Diagram Correctly explains the five steps of TOC and explains why it would be advantageous to apply TOC to specific processes in the case study Accurately describes the steps used to develop a forecasting system and predicts the results of using a forecasting system in the context of the case-study Draws and includes a process map for product, but drawing is inaccurate, and description of how it would be used by OM manager is either not thorough or missing Meets Proficient criteria and Properly draws a cause-and-effect Properly draws a cause-and-effect explains what could be done to diagram assessing the struggle to diagram assessing the struggle to encourage supply chain partners implement newly developed implement newly developed to comply with new requirements materials and summarizes findings materials but does not summarize findings Does not explain the five steps of TOC or explanation is incorrect 5 Does not describe the steps used to develop a forecasting system or description is inaccurate 5 Does not list the major categories of supply chain risks and associated risk-reduction tactics or list and associated risks are incorrect 5 Does not summarize JIT, TPS, or Lean 5 Does not describe how TQM can be used to improve quality 5 Does not draw and include a process map for a product 5 Does not properly draw a causeand-effect diagram 5 Data Analysis: Data Meets Proficient criteria and explains additional criteria that might also need to be considered Data Analysis: Inventory Management Meets Proficient criteria and justifies improvements with logical reasoning or support from outside sources Meets Proficient criteria and provides support Sustainability: Triple Bottom Line Sustainability: ISO 14000 Meets Proficient criteria and describes additional environmental policies and standards Sustainability: Corporate Responsibility Meets Proficient criteria and support includes research on the best practices in corporate responsibility Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-to-read format Correctly determines where the new plant should be located and explains why this is a favorable location Correctly develops an ABC classification system and recommends improvements in inventory management Describes how the triple bottom line can enhance OM and addresses each component of the triple bottom line concept Accurately explains how the company integrates ISO 14000 standards in the manufacturing plants and provides support Describes ways the company can integrate corporate responsibility principles into operations and defends opinion of the most effective way with support Submission has no major errors related to citations, grammar, spelling, syntax, or organization Correctly determines where the new plant should be located but does not explain why this is a favorable location Correctly develops an ABC classification system but does not recommend improvements in inventory management Describes how the triple bottom line can enhance OM but does not address each component of the triple bottom line concept Explains how the company integrates ISO 14000 standards in the manufacturing plants but does not provide support or explanation is inaccurate Describes ways the company can integrate corporate responsibility principles into operations but does not defend opinion of the most effective way with support Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not correctly determine where the new plant should be located 5 Does not correctly develop an ABC classification system 5 Does not describe how OM can enhance triple bottom line 5 Does not explain how the company integrates ISO 14000 standards in the manufacturing plants 5 Does not describe ways the company can integrate corporate responsibility principles into operations 5 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total 10 100% Page 19 BYD OF CHINA: ELECTRIFYING THE WORLD S AUTOMOTIVE MARKET Charles A. Rarick, Purdue University Calumet Kasia Firlej, Purdue University Calumet Arifin Angriawan, Purdue University Calumet CASE DESCRIPTION The primary subject matter of this case concerns the move towards utilizing electricity to power automobiles and the potential of a Chinese company to become the world s largest automaker, as well as the strategic fit of its innovation with the current external environment. Secondary issues examined include issues of trade, public policy, and the environment. The case has a difficulty level appropriate for junior level students. The case is designed to be taught in one class hour and is expected to require three hours of preparation by students. CASE SYNOPSIS The Chinese company BYD hopes to soon become the world s largest car company. With the support of American Warren Buffett, the company which has only been in existence for a few years, mostly making batteries, has caught the attention of not only Mr. Buffett, but also many in the auto industry. This case examines the favorable conditions that are propelling the Chinese company to the forefront of the not so distant future of the auto industry. BYD OF CHINA Many Americans have never heard of the Chinese firm called BYD. In fact, it isn t really clear what the letters representing the company s name stand for, although some joke that recently it has meant Bring Your Dollars. The company s latest PR message states that BYD stands for Build Your Dreams. BYD is a privately owned company which started making batteries in 1995. Although Chinese-made batteries were already available, they were of poor quality. Imports of higher quality batteries were available in China mostly from Japan, but they were quite expensive. To satisfy the need for high quality and low cost batteries, Wang ChuanFu started BYD. Wang, who was a graduate of the Beijing Non-Ferrous Institute, found his competitive advantage by studying Japanese batteries and finding creative ways of making similar batteries at a lower cost. Wang had been fascinated with batteries as a graduate student at the Institute and now seeks to take that passion to the global automobile market. Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 20 ELECTRIC AND HYBRID CARS Electric cars (also known as electric vehicles or EVs) rely exclusively on battery power. With an EV there is no internal combustion engine, muffler, gasoline tank, air and fuel filters, and other parts needed to run a gasoline powered system. The vehicle itself also produces no tailpipe emissions, and by getting its power from a more efficient utility company, overall it produces fewer greenhouse gases. This is especially true if the electricity is produced with nuclear power. EVs are also less expensive to fuel on a per mile basis. Electric cars, however, have a shorter driving range and are difficult to operate with long distance travel (Figure 1). There are also some safety concerns associated with using a lithium ion battery, as lithium is a highly reactive material prone to explosion. FIGURE 1 Source: www.hybridcars.com Hybrid vehicles run on battery power until the battery reaches exhaustion and then a gaspowered engine kicks in to power the vehicle and to recharge the battery. Given the relatively short driving range of electric vehicles, hybrid vehicles have been the logical first step towards all electric cars and the replacement of the internal combustion engine. Hybrid cars became hot selling items when the price of gasoline soared in 2008, and then fell back sharply as the price of gasoline fell. Gasoline prices appear to be rising as the world s economy slowly rebounds from the economic slowdown and the appetite for oil increases worldwide. Some have proposed that electric vehicles can save the struggling U.S. auto industry. According to Andy Grove (of Intel fame), batteries will become a competitive advantage for the automakers of the future. He supports a position whereby the government takes a more active role in promoting and protecting an infant industry in new battery technology. The Obama administration took steps in 2009 to provide significant funding of battery research and the production of environmentally friendly Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 21 automobiles. New mileage standards were also proposed that will make electric vehicles more attractive to consumers. Many companies have begun to think electric automobiles will have a promising future. In addition to the world s largest automakers who have begun to develop electrical cars, some upstarts have been established. One of these companies is Detroit Electric. The company represents an auto brand from the past and has teaming up with Proton of Malaysia to manufacture electric cars under the Detroit Electric name. Detroit Electric is a privately held company that got its brand name from a defunct 1907 company. The company hopes to sell its cars in China, Europe and the United States. Planned prices for the new all electric cars will be $23,000-25,000 range for the entry models, with a driving capacity of a little over 100 miles on a single charge. More expensive models will be available for $29,000-33,000 with a driving range of a little under 200 miles before needing to be recharged. GM, Ford, Toyota, Daimler Benz, Volkswagen all have moved into the electric or hybrid market. It is likely that most of these companies will offer electric vehicles soon. Troubled auto maker, Chrysler, showcased five electric concept cars at its recent Detroit Auto Show and is working with battery manufacturer A123 Systems and other suppliers to attempt to produce an electric vehicle. With its financial troubles and other obstacles Chrysler, it doesn t seem likely that the company will be producing electric vehicles anytime soon. The success or failure of electric cars and the companies that enter this market is strongly related to the batteries that will power the vehicles. Troubled General Motors, who used to dominate the automobile market is touting the introduction of its electric-gasoline-ethanol hybrid in late 2010. The catch, however, is the price tag: the Chevy Volt will be offered at the hefty price of $30,000 to $40,000 at the retail level and will only be able to run about 40 miles on a single charge before switching over to the gasoline or ethanol powered engine. IT S ALL ABOUT THE BATTERY Lithium ion is the current choice for batteries to power electric cars. Lithium ion batteries are lighter and more powerful than traditional batteries. Lithium, a metal compound, can be found in large quantities in South America, especially in Bolivia, Chile, and Argentina. Chile is currently the world s largest producer of lithium, however, Bolivia has the largest known deposits of lithium in the Salar de Uyuni region. It is estimated that the lithium supply in Bolivia is somewhere around 5.4 billion tonnes. Significant deposits of lithium can also be found in China. The Chinese government has declared the lithium battery industry to be a strategic industry and will likely support its development. While lithium batteries are currently the most popular option for automobiles, they are still heavy and expensive. For example, GM s electric car, the Volt, has a battery that is six feet long and weighs around 400 pounds. The cost of an electric car battery is in the range of $10,000-$20,000 each. Lithium batteries can store up to three times the power of nickel-metal Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 22 hydride batteries. They are clearly superior to conventional batteries. Further advances in lithium battery production may be able to produce smaller, lighter, and faster charging batteries. At least one reported research study shows this promising development. BYD s advantage in this technology is the productions of ferrous lithium ion batteries, which are safer and cost about half of those of the competition, according to BYD s general manager of its Export Trade Division, Henry Z. Li. With a big shift towards lithium batteries as a power source for vehicles is the possibility of supply problems. Bolivia, the largest potential source of lithium has a socialist president and an indigenous population not keen on development of the region. The possibility of undersupply, and or a cartel similar to OPEC would reduce the viability of electric cars. The United States is behind Asia in battery production and research. Sanyo, NEC, and LG have created core competencies in batteries and achieved economies of scale that will require the Americans some time to catch up U.S. firms in the industry are relatively small upstarts such as A123 Systems and Ener1 (ENERDEL). Even GM s proposed electric car, the Volt, is powered by the Korean company, LG. American automakers have yet to establish firm strategic alliances with American lithium-ion battery producers. Serious movement into electric vehicles will require investment money, long term commitment and strategic alliances. Nissan has partnered with NEC to allocate $1B towards battery development. Toyota-controlled Panasonic EV Energy recently bought Sanyo for its battery making ability. While the U.S. is behind Asia in battery technology, a number of promising companies have arisen to research and develop batteries needed to fuel electric cars. Ener1 already operates two factories in Indiana and one in Korea, and is building another factory in Michigan. The Big Three: General Motors, Chrysler and Ford, have been considering alternative vehicles since the 70 s, however there is still a lack of knowledge about this technology and its useful application in the automotive market. An Indiana based company, Bright Automotive, has been working on a commercially viable plug- in electric vehicle, but does not anticipate rollout of the all electric powered vehicle until late 2012 or early 2013. Another Indiana based company, EnerDel, sees its primary focus as the automotive market, but is also actively working with the aviation, aerospace, and industrial markets. EnerDel works closely with the automotive industry and is excited about the prospects of its lithium ion battery, which is 100% recyclable, but the company representative admits that the batteries are still fairly expensive to produce and the firm continues to work on issues of energy storage and offloading electricity. It seems that BYD is moving much faster and much more aggressively in the direction of introducing an all electric car. Its e6 model is scheduled to be released at the end of 2009 and is much more competitively priced than the offerings of its Western competitors. Furthermore, BYD has tapped into a cost innovation strategy by reducing manufacturing costs through reverse engineering the expensive Japanese battery models and substituting the expensive raw materials with cheaper substitutes. Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 23 FIGURE 2 Key Players in the Electric Auto Battery Industry A123 (USA) M.I.T. spin-off with $250M in venture capital AESC (Japan) Joint venture between Nissan and NEC BYD (China) Largest battery producer in China ENERDEL (USA) Once part of Delphi. Invested $200M in Indiana plant Johnson Controls/SAFT (USA/France) Joint venture with plant in France LG (Korea) Leading producer of lithium-ion batteries for cell phones Panasonic (Japan) Owns Sanyo Electric, the largest producer of rechargeable batteries. Source: Business Week, February 23, 2009. BYD Perhaps the most interesting player in the electric car arena is BYD. While most Americans had never heard of the company with its headquarters in Shenzhen, China, the company captured international attention when Berkshire Hathaway bought a 10% interest in the company. Warren Buffett wanted to buy 25% of the company, but BYD refused the offer. A company known for being cost-conscious and frugal, BYD has consistently been profitable. Located in Shenzhen, a manufacturing megacity better known for electronics, the company gained a competitive advantage by finding creative and innovative ways to manufacture batteries of high quality at costs lower than rival Japanese and American brands. The founder of the firm has bet on the substitution of low-cost labor for expensive machinery, and attention to detail, and these strategies have proven to be successful. By 2000, BYD had become the biggest producer of cell phone batteries. BYD raised capital through a public stock offering on the Hong Kong Stock Exchange in order to increase the size of its battery business. In 2003 company founder, Wang had the opportunity to purchase a failing state-owned automobile manufacturer. He thought that the company could leverage its battery competence in the auto industry by producing electric cars. While many thought that BYD was making a mistake in moving into automobiles, others thought differently. As Joann Muller of Forbes magazine stated in 2004: In the vast and looming Chinese automobile market now dominated by foreigners, a small Chinese company called BYD is barely noticeable Amateur hour maybe, yet it would be foolhardy for General Motors, Volkswagen and other foreign makers to ignore Chinese companies like BYD. (Muller p. 76). It appears that she was right. With the capital injection from Berkshire Hathaway and a focus on an increasing share of the auto market, BYD has positioned itself well to compete internationally. BYD seeks to position itself as an innovator and to tap into the growing green business by not only producing electric automobiles, but also making its batteries environmentally Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 24 friendly. BYD is producing batteries that contain nontoxic fluids and thus do less harm to the environment, if the battery is discarded instead of being recycled. In addition to being environmentally friendly, BYD believes that it has made a major breakthrough in battery technology which will produce a longer lasting charge and allow the battery to be recharged numerous times, at the same time keeping the costs significantly lower than those of its competition. The U.S. Department of Energy is studying the claim made by BYD concerning its new battery technology. BYD operates eleven factories and employs 130,000, with most production facilities in China, but also operates factories in India, Hungary, and Romania. BYD employees, including engineers and scientists typically live on the company grounds with BYD providing housing and other living expenses. The labor cost is a fraction of the costs found in the United States or Europe. BYD has two offices in the United States, both close to important customers. BYD offices can be found in Elk Grove, Illinois and San Francisco, California, based on the location of its two major U.S. customers, Motorola and Apple. Most of the firm s revenue comes from cell phones, components, and batteries, but automobile sales have been playing an increasingly significant role (Figure 3). FIGURE 3 Source: Fortune April 27, 2009 Revenue has increased consistently, and with the exception of 2005, BYD has had consistent profitability (Figures 4 and 5). BYD has achieved an impressive record in its short life utilizing low labor costs, little outsourcing, and successful innovation. The company is transferring its cutting edge technology innovation to the automotive market and at the same time closely following the global trends in green marketing that focus on a higher level of cost consciousness. BYD was named the second most innovative company in China in 2009 by Fast Company magazine. Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 25 FIGURE 4 FIGURE 5 Source: Fortune April 27, 2009 BYD currently produces a number of vehicles including the F3DM : DM stands for dual mode, which means that the car can run on dual energy sources. The environment-friendly battery can be fully charged in as little as an hour. This model sells in China for around 22,000 USD. This hybrid car can travel 62 miles on a single charge and is the first mass produced plug in hybrid in the world. The difference between it and the Toyota Prius is that it is less expensive, has a very small engine and relies significantly on battery power, cutting down the costs of utilization and its carbon footprint. The F6 CVT has been widely distributed in the European market since 2008. BYD prides itself on equipping this particular model with a gasoline engine that possesses an innovative electronic fuel injection system that features high power to oil ratio, compact structure, low oil consumption and low emissions. The e6 is the latest addition to the BYD lineup of models. According to optimistic BYD predictions, it is slated for introduction the at the end of 2009 and could be sold in the United States as early as 2011. The e6 is an all electric vehicle that offers zero pollution, low noise, and guarantees that all the chemical substances in its battery can be recycled. It also offers 0 to 60 MPH acceleration in 8 seconds and is roomy enough to seat five adults. The best part of the vehicle utilization is that it can be plugged into a household socket to obtain a charge, and doesn t have to rely on special juicing stations and can drive almost for almost 250 miles on a single charge. The estimated cost of this groundbreaking vehicle would be $30, 000 to 40,000. Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 26 CONCLUSION With the American auto industry in a tail-spin, and the world s supply of oil limited, BYD hopes to position itself to become the world s largest car manufacturer. The Company is attempting to leverage its core competencies in battery production and development to meet the future needs of the driving public. It believes that the future of the auto industry will be in electric vehicles. In order for electric cars to replace gasoline powered one, infrastructural changes will have to be made to quickly charge depleted batteries, much like present day gasoline stations. Another possibility would be a battery replacement station in which a depleted battery is quickly replaced with fully charged one. Such battery changing stations are currently being developed in Japan, Denmark, and Israel. While Mr. Buffet may agree with BYD s vision of the future, the company faces many challenges as it attempts to compete with the world s largest automakers. DISCUSSION QUESTIONS Do you think electric cars are a viable alternative to gasoline-powered vehicles? What is the future of the electric car? Explain your answers. What are the strengths, weaknesses, opportunities, and threats of BYD? What suggestions would you make to BYD in order for it to achieve its goal of becoming the world s largest automobile manufacturer? REFERENCES Balfour, Frederick (2008). China s First Plug-in Hybrid Car Rolls Out. Business Week, December 16, 13-13. Bulkeley, W. (2009). Obama administration sparks battery gold rush. The Wall Street Journal, May 26. Castaldo, J. (2009). The lithium deficit. Canadian Business, 82(7), 17-18. Engardio, P., K. Hall, I. Rowley, D. Welch, and F. Balfour. (2009). The electric car battery war. Business Week, February 23, 52-54. Garthwaite, J. (2009). Battery breakthroughs: Progress on electric cars. Business Week, March 18. Grove, A. (2009). Andy Grove on battery power. Fortune, April 27, 62. Gunther, M. (2009). Buffett takes charge. Fortune, April 27, 45-50. Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011 Page 27 Haung, K. (2008). China s BYD plans U.S. hybrids. Automotive News, November 27, 6. Kahya, D. (2008). Bolivia holds the key to electric car future. BBC News, November 9. Keegan, P. (2009). Recharging Detroit. Fortune, April 27, 55-60. Lee, A. (2009). Most innovative companies in China. Fast Company, February 11. Muller, J. (2004). Thanks, now more over. Forbes, July 26, 76-78. Raymond, C. and N. Shirouzu. (2009). Volkswagen, BYD may team up on plug-in cars. The Wall Street Journal, May 26. Reed, J. (2009). Proton to build cars for Detroit Electric. Financial Times, March 30. Vlasic, B. (2009). Detroit goes for electric cars, but will drivers? The New York Times, January 11. Wernle, B. (2009). Chrysler is several steps away from electrics. Automotive News, January 1, 10. White, J. (2009). Kiss the guzzler goodbye. The Wall Street Journal, May 26. Winter, D (2009). China s BYD Promises EVs in U.S. by 2011. Ward s Auto World, February Walters, J., Kamischke, R. (2009). New Economy, New Rules (webinar), June 4. Williamson, P. Zeng M., (2009) Value-for-Money Strategies for Recessionary Times, Harvard Business Review, March. Accessed on May 14, 2009. Accessed on May 14, 2009. Accessed on May 14, 2009. hybridcars.com. Accessed on May 14, 2009. Accessed on May 20, 2009. Journal of the International Academy for Case Studies, Volume 17, Number 1, 2011

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