Production Chain in the Automobile Industry- Essay Solution

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Production Chain in the Automobile Industry

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The stagnation of the automobile market in some countries is not simply a cyclical. It reflects a relative saturation of demand for cars with the rate of growth in these markets (Busser & Sadoi 2001). As far as demand for automobile products is concerned, the saturation of the mature markets in the industrialized countries stands in contrast to the recent dynamism of the newly emerging countries. The success of the car becomes a threat for its industry in the sense that the car is criticized as a cause of the ills of modern society (Humphrey, Lecler & Salerno, 2000). New actors are emerging in the industry. These actors may better be able to rethink, and thereby save, the principle of a self-propelled individualized vehicle that is diffused to the masses. Intense competitive rivalries among car producers tend to favor retention of their traditional paradigm. They are obliged to respond to the saturation of demand with an increased segmentation of markets, offering vehicles that are better adapted to new consumer attitudes such as the combination of comfort and practicality (Berger 2001). The changing situation in the automobile industry created the need for the use of better strategies to maintain the industry’s status and the income generating capabilities of automobile companies. One strategy is the use and improvement of production chains. This paper will provide an analysis of the production chain of the automobile industry. It will determine how globalization has influenced the management of the production chain and how the people in the production chains are managed.  It will take a look at how globalization has affected the management of production chain personnel.


Literature Review

The production chain and its management


The goal of Supply chain management (SCM) or production chain management is to improve the efficiency of a company’s supply chain operations. The supply chain runs from raw material suppliers at one end, right through all the intermediate processing stages, to the customer at the other (Mcmenamin 1999). The focus of SCM is on adding value and eliminating inefficiencies at each stage of a company’s supply chain. This will include the optimization of stock or inventory movements; planning for peak activity periods; and the organization of transport and distribution systems (Summers 1998). The process seeks to ensure that the right materials, supplies and personnel are in the right place at the right time (Nersesian 2000). The emphasis of SCM on adding value at each stage, has given rise to the term value chain. Supply chain emphasizes the strategic value-adding and financial role of a company’s entire logistics management process (Thierauf 2001). In recognition of the new emphasis on providing the best net value for the customers, logistics represents a key bundle of resources that can be applied successfully to this end (Bounds & Stahl 1991). The supply chain is an important part of business because through it a raw material can be transformed into a finished product, this product is then sold to clients for the company to gain profit.  The supply chain management like other aspects of a business is affected by global issues such as climate change and environmental awareness. The supply chain management is constantly asked to participate and change its approach on the world issues.  A supply chain needs to be sustainable for it to be effective. The concept of sustainability emerged in the early 1980s. Since then the ideas of a sustainable society and sustainable development have played a key role in policy statements by national governments and the United Nations. Despite this widespread attention there is still no agreed definition of the concept, and perhaps more critically, little progress towards translating the idea of sustainability into clear policy targets (Ekins 2000). A widely quoted definition of a sustainable society is one that meets the needs of the present without compromising the ability of future generations to meet their own needs (Banister 1998). The development of a coherent and systematic strategy towards a sustainable supply chain must consider not only the objectives to be pursued and an evaluation of possible policy initiatives, but also the appropriate response and role of different institutions (Doob 1995). The scope of institutions in the context of sustainability has its range from groups like national governments, local governments, private companies and individuals.  If people will accept that the idea of that sustainable supply chain must address the increasing average haul then individuals could contribute by increasing the proportion of locally sourced goods. A major problem is the lack of information provided and the complexity of information that would be needed (Banister 1998). Sustainability is said to be the act of maintaining supplies for future generations.  Supplies do have its own limitation; it will run out of stock eventually. Through the use of sustainability companies can make sure that there can be supplies for the present and the future.  In the management of supply chain, the availability and longevity is important so that other problems will not emerge.


The role of new technologies in the production chain

Traditional global sourcing decisions paid relatively little attention to variance because they were made on the basis of direct costs with lesser attention to risk. Yet predicting how supply chains will evolve as well as prescribing what policies developing nations should pursue in regard to those supply chains must take into account the factors that affect variability in time and speed (Boone & Ganeshan 2002). This places factors such as the reliability of national transportation and communication infrastructures, political stability, and the adequacy of national security systems on increasingly equal footing with traditional factors like input prices and tariff and quota agreements as location determinants (Elliott, Herbane & Swartz 2002). To organize rapid replenishment, some parties in the supply chain undertake the increasingly complicated task of using information on consumer sales to determine the allocation of production across supply chains with different cost, product variety, quality, lead time, and risk characteristics (Florida & Kenney 2004).


Currently, many companies are charging their application development teams with refining existing business processes through the use of specialized optimization tools. These tools are based on sophisticated software optimization algorithms, which traditionally required the skills and expertise of highly trained mathematicians and operations research professionals. However, vendors, such as supply chain management, are including these algorithms in their products, thereby adapting them to their customers’ industries. In the process, optimization techniques have become more accessible to developers who may or may not have stellar programming or mathematical skills, but who have keen business acumen and a drive to improve the company’s bottom line (Banfield 1999). Decision makers utilize the appropriate resources such as information systems data warehousing, smart software and computer networking that smart business systems draw upon for optimizing a company’s operations. They also use smart business systems to close the loop within and outside the organization, thereby making sure that the organization learns from experience (Hoctor & Thierauf 2003).Business-critical decisions whether proactive or reactive help an organization adapt to change rapidly and also help decision makers assess quickly how changes are affecting their organizations, customers, and supply chains, so that they can make optimum decisions currently and in the future. Business advantage to a typical company comes not from the real-time computing system or the data warehouse, but in the seamless and organized delivery of optimized business solutions to assist decision makers on a routine basis (Boyson, Corsi & Harrington 2004). Overall, the successful employment of smart business technology by decision makers makes a significant difference in the financial results of any company (Boyer, Frohlich & Hult 2005).  The new technologies provide easier means for a production chain to achieve its goal. Technologies such as the internet, enterprise resource planning and others help in making sure that an automotive firm will have enough supply and can create products even if there has been short notice or there is a sudden demand for the automobile products.


Globalization and the management of production chain

Globalization of business has been one of the dominant characteristics of the past two decades but will develop even faster in the future. Many companies from both developed and developing countries have become multinational players seeking market opportunities across nations. Globalization has become the cornerstone of firms’ overall business strategies (Dunning 2003). Globalization is no longer only a business option but also a part of effective corporate strategizing. In other words, present business strategy is increasingly global. Today’s global scope of business is markedly different from yesterday’s business pattern (Tabb 2004). Presently, numerous goods and services are available across borders even in those countries that were closed markets of command economies. World consumers have been exposed to a variety of products and services that had only been available to affluent consumers in industrialized countries. When customers across nations started demanding products and services for better living, companies strived to meet such demands by competing not only with local firms but also with other multinational firms (Culpan 2002).


Globalization for automobile companies and their production chains means that it has to align themselves with other companies. The need for strategic alliances in the auto industry is becoming more and more critical, with computers, electronics, and other high-tech innovations being increasingly integrated into the auto manufacturing process. Three or four decades ago, such alliances were practically nonexistent, because the world automobile industry was dominated by less than a dozen producers. These companies only assembled outside their national boundaries to enter foreign national markets. They limited their competition to third countries while retaining dominance in domestic markets (Porter 2002). Strategic alliances have become possible only when both sides have something to contribute, especially in the area of technology. In pursuit of competitiveness in technology, innovative and strong auto companies increasingly turn to strategic alliances with their counterparts of equal capabilities. This has led to techno globalism, resulting in a difficulty in identifying a product in this industry as having 100 % domestic content. As brand names have evolved, they no longer coincide with national identity. On the other hand, techno nationalism insists on promoting national competitiveness. It resents the growing separation of brand names from national identity (Morris Jr 1996).


Corporations would like to pursue economic rationality in the context of an increasingly global economy. They generally base their decisions to form strategic alliances and joint ventures on market considerations. In fact, corporations care more about freedom to invest and market their products than about the nature of the political system or the relationship of a particular government with its own citizens. The needs of the global economy, therefore, are always under some tension from the needs of national and foreign policy objectives (Shiomi & Wada 1995). Certainly, this tension has been a major force in promoting ambivalence in national policy, as well as contradictory statements and results. One example of a firm engaging in strategic alliance is Toyota. Toyota had relied on its own capacity in product and process innovation, developed partly through forging a new paradigm in interfirm relationships (Yang 1995). Automobile businesses try to configure their production chain to meet the demands of  Business systems are distinctive patterns of economic organization that vary in their degree and mode of authoritative coordination of economic activities, and in the organization of, and interconnections between, owners, managers, experts, and other employees (Bomann-Larsen & Wiggen 2004). Differences in the nature of relationships between five broad kinds of economic actors are particularly important in contrasting business systems. These vary in both the extent of organizational integration and whether this is achieved primarily through ownership-based hierarchies, formal agreements, personal obligations, informal commitments; etc (Pietrobelli & Sverrisson 2003).Ownership can be exercised directly over economic activities and resources as in the owner-managed firm, or may be delegated to trusted agents with varying degrees of interdependence and commitment. It may also integrate whole production chains through formal authority systems or be much more narrowly specialized (Whitley 1999). The use of strategic alliances helps managers of Automobile business production chains to have a comprehensive stand against globalization. The strategic alliances foster a better understanding of world standards and drive the production chains to higher rates of efficiency and productivity.  The use of strategic alliances helps production chains to gain their goals.


Management of people in automotive production chains

The auto industry is an especially important one in which to consider the development of occupational safety and health issues in countries for several reasons. First, by virtue of its size alone, the automotive industry plays an important role in labor-management relations in a countries’ economy. Second, developments in the area of occupational safety and health in this industry have reflected and, to a certain extent, foreshadowed trends in the wider economy. The tendency of other industries to follow precedents set in the auto industry is readily apparent to those who have observed developments in the areas of wage settlements and employee participation in decision making (Barrett 1998). The employee wage concessions negotiated in auto industry contracts during the depths of the last recession were followed by similar agreements in other industries. In the auto industry, employee participation in decision making in the realm of product quality, productivity improvement, and quality of work life have been widely publicized by the automotive firms themselves and by the news media. This publicity, no doubt, has influenced other industries to adopt similar practices (Kleiner & Roth 2000).


Not so widely reported has been the participation by labor in safety and health matters. However, the potential exists for automotive industry arrangements in these matters to serve as a model for other industries as well. The degree of labor-management cooperation on occupational safety and health that has developed in auto industries in recent years is indeed significant. Although the problem of injury under recording clouds the matter, the safety and health performance of the auto industry seems to have improved substantially under these cooperative agreements. An issue that was once seen as predominantly adversarial has developed into a model for cooperation in other areas. Nevertheless, both labor and management maintain their assertiveness along with their cooperative orientation in handling safety and health conflicts. There are certainly a great many safety and health issues on which the interests of management and workers are the same, but there remain others on which they presently diverge and probably always will. Potential health and safety hazards of accelerated work pace are an example (Jacoby 2004). Divergent interests also include the use of personal protective devices as opposed to more expensive engineering controls to eliminate hazards such as exposure to noise and dust. Regardless of their effectiveness compared with engineering controls, they may be uncomfortable, and, like seat belts, not worn by some, although the evidence of their life-protecting value is overwhelming (Wokutch 1990).


Management will, in almost every case, be concerned with the impact of safety and health measures on profits whereas this impact may be of little importance to workers concerned with their own safety and health or even their own convenience. Also, managers who are rewarded for short-run performance are not likely to recognize or be concerned with long-run cost savings of certain safety and health measures. Responsibility and concern for safety and health has, for the most part, been assumed by safety and health professionals in the firms. Efforts to make line managers more responsible for these functions are being undertaken within the industry but with mixed results so far. Also, workers are becoming more aware of the financial implications of safety and health. Workers have, in recent years, become more concerned with the possibility of job loss or smaller wage increases due to poor financial performance by the firm. This concern improves the prospects for cooperation between labor and management on a wide range of issues, including safety and health (Debrah & Smith 2002). High-involvement work practices are of particular significance to the auto industry because of its high labor requirements. Automobile assembly plants around the world produce quite similar products using comparable processes, thus making it a good industry to study location effects on the use of work practices. Despite the importance of high-involvement work practices for competitiveness and the general acceptance of the link between such practices and performance, we will see that the adoption of high-involvement work practices has been far from uniform across automobile assembly plants (Cappelli 1999).  The management of people in automotive industry production chains is the same as other industries wherein there are laws that make sure that the rights of the personnel are given attention and the welfare of all personnel involved in automotive production chain would be taken care of.  Globalization intensifies the management of people in automotive industry production chains because it provides certain rules and regulations that help in creating personnel that are globally competitive and adaptive to global standards.  It sets the criteria of personnel that would be accepted in an automotive production chain.



Globalization affects the management of automobile industry production chain positively.  Globalization introduced the concept of strategic alliances to automobile supply chain. The use of strategic alliances helps managers of Automobile business production chains to have a comprehensive stand against globalization. The strategic alliances foster a better understanding of world standards and drive the production chains to higher rates of efficiency and productivity. In managing the automobile supply chain the welfare of the personnel is a consideration. The management of people in automotive industry production chains is the same as other industries wherein there are certain policies and procedures that make sure that the rights of the personnel are given attention and the welfare of all personnel involved in automotive production chain would be taken care of.  Globalization intensifies the management of people in automotive industry production chains because it provides certain rules and regulations that help in creating personnel that are globally competitive and adaptive to global standards.   For the automotive industry to maintain its status it needs to maintain and improve its production chain so that it will not cause other problems.  The automotive industry needs to make sure that it inter relates with other companies so that it can adjust to global trends and maintain its global competitiveness. The automotive industry needs to maintain and continually improve its policies on personnel so that they will be motivated to create products that people will buy. Lastly the automotive industry needs to make sure that the future products will be compatible to changing demands of the environment.



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