Analysis on Honda Operations Management

Abstract

This paper critically analyzes the elements of operation management, such as operation strategy, product design, process selection, supply chain management, quality control and operation improvement. In the meantime, emphasizes the importance of interaction between them to deliver the high quality of products and services to customer effectively and efficiently. Some theories are also cited and explained, for example, Total Quality Management, Just-in-Time, Porter’s Value Chain, and fishbone diagram which supply enough evidences to allocate the resources, control the capacity, inventory, and demand, reduce the cost based on the analysis of five forces, and address the problems according to the trance of the source. The market environment is dynamic. Operation management should have acute sensitivity to the changes and conduct some improvement to align with the environment.

Key word: operation management, quality control, operation improvement, environment change

Introduction

Operation management is to serve the business strategy implement as well as the guarantee of the performance, social responsibility and business ethics. Operation management is closely concerned with every activity carried out by an organization and facilitates an organization to produce the products and services effectively and efficiently. Current operation management environment would be analyzed.

Lean system is a practice to generate a good concept then integrate effective operations, such as Total Quality Management, capacity planning and control, operation improvement. Enterprise resource planning is a software system which is responsible for allocating and monitoring the resources to ensure the quality and cost of product of service delivery. Customer relationship management is software to record customer feedbacks and expectations. Cross-functional decision making is a type of decision making carried out among inter-department, which will reduce a lot risk and keep the information flow quickly.

Honda is an automobile manufacture. There is a wide range of products, for example, automobiles, motorcycles, power products, parts and other fields of mobility. Honda was spoken highly for its technology in low fuel consumption engine, product quality and safety and innovation.

By following a corporate policy that stress originality, and efficiency in every facet of its operation-from product development and manufacturing to marketing-Honda has striven to attain its goal of satisfying its customers. (Honda Annual Report, 1997).

1 Operation management

1.1 The definition of operation management

Operation management is the engine of the business to ensure the right direction, the right way, and right performance in the process of objective-achieving.

1.2 Operation in the organization

There are three core functions within an organization
·the marketing function-seeking the market opportunity by identifying the customers’ expectation.
·the product and service development function- improving existing products and creating new product and service to carter for the present and potential customers.
·the operation function- supplying the customers with high quality and low price products or services.
Operation management involves a lot of activity in terms of designing the product, arranging schedule, equipment and staff, planning and controlling capacity, inventory, project, and quality. An effective operation management refers to transfer the low cost resource to the high-valued products or services. Just-In –Time theory which was supposed to used to the manufacture can be applied to the operation management to ensure right resource to be allocated in right places with proper quantity. So operation management measurement and improvement should target towards high value added to the products and service efficiently (R. Dan Reid and Nada R. Sanders, 2007).

2. Operation Strategy

2.1 Definition

Operation strategy is the plan that specifies the design and use of resources to support the business strategy which includes company’s mission, environmental scanning and company core competencies.

2.2 The process of operation strategy

Before operation strategy formulation, three important elements should be identified. First is the corporative objective. Operation strategy is to serve the business strategy and should align with the corporation objectives. Second is marketing, opportunity only can be found by identifying the market expectations and evaluation on its extent. It is essential to satisfy the customers by supplying the products with some characteristics, for example, low price, dependability, and so on. Third is the core competence which enables the organization to take competitive position in the fierce competition. The diagram of the Hill methodology of operation strategy formulation can better demonstrate the process

Step 1 Step 2 Step 3 Step 4 Step 5
Corporate objectives Marketing strategy How do products or service win orders? Operation strategy
Process choice Infrastructure
·sustainable development

 

·Profit

 

·Return on net assets

 

·Cash flow

 

·Financial gearing

·Product/service markets and segments

 

·Range of products/ services

 

·Mix of specification

Volumes

 

·Standardization or customization

 

 

·Price

·Quality

·speed

·flexibility

·volume

·variety

·loyalty

·Supporting facility

·process technology

 

·Trade-offs

 

·Role of inventory

 

·Capacity, size, timing, location

·functional support

 

·Operations planning and control system

 

·work structuring

 

·payment system

 

·organizational structure

Source: Based on Hill, T.(1993) Manufacturing Strategy (2nd edn), Macmillan

3. Product design and process selection

3.1 The process of product design

The first step is concept generation. The idea comes from the customers, competitor activity, and research and development department within an organization. Organization needs to understand customer expectations and if appropriate, manage those expectations by questionnaire, market research, customer trial experience. Competitors are ones who have the same target market with you. It is essential to bring in their ideas as a source of references.

Benchmarking, the process of comparison between the leading one with yourself and absorbing the effective performance to motivate yourself, is often used to generate new ideas. As its name implies, the functions of this department should include new knowledge and ideas generation, so it is the source of concept.
The second step is screening. The organization would evaluate the concept in terms of feasibility, acceptability and vulnerability which are related closely with different departments, for example, marketing, manufacture, finance and so on.

The third step is testing. At this stage prototypes are designed to function cognitive specification into practical specification. The fourth step is evaluation and improvement. Through analysis on the level feasibility, improvement will take place. The fifth one is the final design which specifies the characteristics of the products, the material chosen, resource allocation, equipment used, and supply chain positioning.

3.2 Product design in Honda Corporation

When Honda identified the expectation of cost, less-pollution and variation, it concentrated on the product design. Honda creates a special department to accelerate the product design. It is called interdepartmental ‘SED’ (Sales-Engineering-Development) which has a quick response in terms of ideas generation, design and testing, and final design through information flow and cooperation. Besides ‘SED’, Honda focuses on the internal combustion engines and introduces ‘CVCC’ (compound vortex controlled combustion) engine which realized its assumption that the pollutants can be controlled in the first step rather than the western taken-for granted concept of cleaning up after combustion. The pollutants emission can be reduced with high efficiency of fuel by its high technology.
Honda also adopts a particular replacement system whose function is to reduce development lead time and supply varied products flexibly in term of seen components, such as exterior body shape, the interior design and lights; and unseen components, such as new engines, gearboxes, and braking system.

3.3 Types of Process selection

Types of process selection are determined by two elements, variety and volume. If one product needs to be produced in a high volume and a low variety, the standard process will be adopted. This process is featured by repetitive line with single-purposed machine and less-skilled workforce. For example; computers are designed in this way. These standardized modules can be produced in higher volume, thereby reducing their cost, conversely, if product need to be manufactured in high variety and low volume, the customized process which needs flexible line and diversified skills would be accommodated to it. For example, designing a customer-made cake; it needs to take customers’ preferences on the tastes, shapes, materials and so on into consideration.

3.4 Relationship between product design and process selection

Product design and process selection are interrelated. Small changes in the design of products and services can have big influence on the ways the operation eventually has to produce them; on the contrary, the design of a process can constrain the freedom of product and service designers to operate as they wish.

3.5 The practice of process selection in Honda

As we all know, automobile industry is the epitome of large-out mass production. Thousands of components are manufactured in the process line which reduces the cost at the expense of variety Workers in the same line are responsible for the repetitive job which induces the employees’ boredom and lower the effectiveness, on the other hand, fixed equipment and process model will not be flexible to the changes of the market. (De Wit,B et Meyer,R 2004). Honda successfully integrate the standardization and customization by creating ‘small batch’ system in which the employees’ involvement and satisfaction are met and the as well as the process cost is reduced

4. Supply Chain Management

4.1 The concept of supply chain management

‘Supply chain management is the business function that link the three components, internal function (planning and control to insure the process of products), external supplier (different tiers of suppliers), and external distribution ( logistics, traffic management and distribution management to ensure the dependability) (Slack N., Chambers S, Johnston R 2001).

From the definition, we can conclude that it focuses on two elements. First is satisfying end customers effectively. When the customers’ purchases change, the whole supply chain in terms of total flow of materials and information will be triggered. Supply chain management likes a net connecting so many aspects and coordination them to serve their own customers with the awareness of final customer needs. A key quality of all operation is: ‘what level of quality, speed, dependability and flexibility do I need to develop in my part of the chain to meet the ultimate customers’ demands?’ Second is managing the chain effectively. Analysis on supply chain in terms of identifying bottleneck, balancing capacity and coordinating the flow of materials will have profound impact on effective supply chain management.

4.2 The component activities of supply chain management

It falls into two catalogues from single operation in the chain. First is purchasing and supply management on the supply side. The objective of purchasing and supply management is to ensure the products and services be of right quality, be delivered at right quantity, price and time and be flexible in terms of specification and delivery time.Second is distribution. Its purpose is to transport finished products to be appropriate locations for sale to customer. With the technology development, E-Commence and E-Business replaced some traditional trade, in the meantime, had some effects on inventory, capacity and distribution.

4.3 Supply Chain Management in Honda

Honda does build long-term relationship with its suppliers, but not use the form of institutional mechanism, for example family relationship and supplier association. In the purchasing activities, Honda intervenes directly in the activities carried out by its component makers. For a number of components Honda arranges the purchase of the raw materials two or three tiers back along the supply chain, which enable the suppliers gain advantage of price and quality, on the other hand, Honda often dispatched experts to support the suppliers and solve the problems relating with components delivery and quality. This kind of partnership assures continues supply of materials at a reasonable cost and involves the supplier to materials innovation and improvement which will facilitate the organization to produce products with variety. A striking point is the reconciliation with multiple and single resourcing strategy. For example, Honda purchases two different types of seats for one automobile model from supplier A and supplier B separately. This method enable Honda to gain the advantages of single supplier, (for example, deliveries can be scheduled easily, long-time partnership can be established), and multiple supplier,(a flexibility of volume, the risk of a disrupted supply, better service and price).

5. Quality Management

5.1 The definition

Quality is consistent conformance to customer’s expectation. From the definition, its function is to co-ordinate the materials, facilities and process to ensure the products and services which the customers believe to be likely.

5.2 Cost of quality

Based on the level of quality, the costs fall into two catalogues, first is quality control costs which include prevention costs (costs of information collection, employee training, and product improvement), and appraisal costs (costs of testing, evaluating, and inspecting quality). The second quality failure costs which refer to internal failure costs (costs of inconsistent methods, improper materials, and temporary people), and external failure (costs of loyalty loss, adverse image and bad business ethics). Cause-and-Effect Diagrams or Ishikawa diagrams developed by Kaoru Ishikawa is commonly used for quality problem-solving which related closely to the cost of quality.

A general cause-and –effect (fishbone) diagram

5.3 Total Quality Management (TQC)

‘an effective system for integrating the quality development, quality maintenance and quality improvement efforts of the various groups in an organization so as to enable production and service at the most economical levels which allow for full customer satisfaction’ (Feigenbaum, A.V. 1986). TQC affects every single part of organization in terms of product design, process design, job design, and supply chain control, in turn, it is affected by others.

5.4 Quality control in Honda

Honda considers safety and quality as the business ethics and it commits itself to fulfill them. For example, its airbag innovation has high quality of protection,
Honda also introduced its Global Standard Layout in the assembly area. Honda enhanced the communication between the engineers with the front-line works to capture the accurate information about the feasibility of the design and the improvement on the quality of products.

6. Capacity planning and facility location

Capacity planning is the process of establishing the output rate that can be achieved by a facility. Its function is to keep the supply and demand balanced, which not only reduces the cost of inventory, but also ensures the market demand to be satisfied.

6.1 Capacity Planning In Honda

Honda took a measure in capacity planning and created a special form. This form keeps the co-existence between plan-based product planning which refers to conduct production in advance with a lot inventory, and order-based product planning which defines the production aligns with the customer order. This reconciliation enables Honda leverage the demand and supply together with the level of inventory.

6.2 Facility location

Facility location is determining the best geographic location for a company’s facility. Several elements should be taken into consideration, for example, proximity to sources of supply, proximity to customers, and proximity to source of labor.

6.3 Facility location in Honda

Taking Honda in Ohion, North America, as an example, there are over 40 Japanese-owned firms producing automobile components which enable Honda to carry out Just-in-time logistics to material supplies. On the other hand, the firms are dispersed to small town locations 10-20 miles apart, which avoids the increase labor cost via separation the local labor markets.

7. Work system design

7.1 The content of work system

Work system refers to job design, work measurement, and worker compensation
Job design specifies the work activities of an individual or group in support of an organization’s objectives. Some components need to be covered in the process of job design, for example, the objective, requirements and skill required, working environment, and measurement of the job.
Work measurement is a way of determining how long it should take to do a job. Standard time, the length of time it should take a qualified worker using appropriate process and tools to complete a specific job, allowing time for personal fatigue, and unavoidable delays, is sued for costing, evaluating, and planning.
Worker compensation is used to reinforce the behaviors needed to meet the company’s objectives.

7.2 Practices in Honda

Soichiro Honda, founder of Honda, emphasized on workers initiative and was against the hierarchy management structure: ‘On the whole, people work better if they are not forced and controlled.’ (Peters & Waterman 1982),
on the other hand, he reconciled the vertical and horizontal organizational structure. Vertical structure does not only clearly identify the responsibility of individual and group, but ensure everything was done in a systematic way with considerable evaluations, however, horizontal structure fosters the positioning and non-positioning, formal and informal relationship which is help to let go employees’ voices, generate ideas, build good interpersonal relationship, and cultivate core competences and sustainable development of the organization.

Conclusion

All operations are capable of improvement. In order to improve the operation, it is essential to analyze and judge how the current operations are managed. So performance measurement as a prerequisite for improvement was introduced. There are five aspects included in performance measurement, quality (number of defects per unit, level of customer complaints, scrap level, etc), speed (customer query time, order lead time, frequency of delivery, etc), dependability (proportion of products in stock, schedule adherence, etc), flexibility (time needed to develop new products, range of products, machine change-over time, etc), and cost (utilization of resources, labor productivity, efficiency, etc). There is a breakthrough way of tackling improvement, Business process re-engineering (BPR) which has bees defined as: the fundamental rethinking and radical redesign of business process to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.(Hammer,M. and Champy J. 1993). There are some dichotomies in Honda, for example, product-related capabilities or process-related capabilities, market-oriented or inner resource-oriented, and building a learning or planning organization. From the process of operation improvement, it would be helpful for Honda to use performance measurement to identify the areas needs improving, adapt BPR to rethink and improve the current operation management in terms of operation strategy, product design, quality control, and so on. There is no way to make operation perfect; however, it is possible to make operation effective and efficient as much as possible. Honda needs to maximize the contribution of each dichotomy and minimize any negative impacts.

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June 10th, 2015|Essays|