Business Report: UK carmakers in a Global Business Environment
Table of Contents
Executive Summary 3
Scope of the Report 4
The need for Manufacturing in the UK 4
The Profit Making in the Car Industry 5
The Close of Car Plants in the UK 5
A Rise in the Services Industry 6
Increasing Sustainability in the Car Manufacturing Industry 7
The Influence of Japanese Car Manufacturers 7
a. Lean Thinking 7
b. Quality Leadership 7
c. Environment Sustainability Leadership 8
Challenges Faced by Ford UK related to Supply Chain Vulnerability 9
The automobile industry in the UK has grown tremendously over time. In a quest to maintain competitiveness and efficiency for their services, most companies have adopted practices that are geared towards their strategic goals. The Japanese industry has been a major inspiration for firms in the UK. They have borrowed cultures such as lean thinking, quality leadership, and sustainable production. The practices not only increase their profitability, but also foster relationships with the communities around them. However, not all has been smooth in the industry. Carmakers face many challenges, especially those related to supplier relationships. This essay will show how Ford UK has had to deal with recalls over the years due to faulty, outsourced components.
Scope of the Report
The production sector contributes a significant role in the economy of the UK. Over the years, the service industry has grown bigger than the industrial sector in the economy. However, the car manufacturing industry remains relevant, competing on a global scale. This report analyses the scope of the automobile industry. It will look at the history of car manufacturing closures, the influence of the Japanese automobile practices in the UK sector and the challenges that Ford UK has faced concerning supplier relationships.
The need for Manufacturing in the UK
Manufacturing has always been and continues to be an essential aspect of the UK economy. There is a need for the continued functioning of the manufacturing sector since it comes with many benefits to the economy and therefore has the potential to revitalize the economy (Christophersonson, 2013). Manufacturing contributes significantly to the Gross Domestic Product of the UK. The industry has also been an opportunity for UK citizens to get highly skilled job opportunities. The industry also offers attractive remuneration better than most other industries. In 2011, employment in the sector paid 10% more than other comparable opportunities (Lapthorne, Walport, & Cable, 2013). The manufacturing sector also contributes to a significant portion of the UK exports. In 2012, the UK exports that came from the industry were 53%. In 2011, the proportion rose to 60%. These exports included the services of experts in the sector. As an industrial nation, the UK directly benefits from car imports and exports that take place throughout the year.
Manufacturing plays a significant role in research and development in the UK economy. Businesses in the industry take the R& D function seriously since their progress relies on the continuous pursuit of better quality products and efficient methods of doing things. In 2011, 41% of manufacturing firms dedicated their resources to R&D compared to only 23% of businesses in other sectors. In the view of the role of R&D, the manufacturing industry is more likely to innovate than any other is. 1n 2012, a majority of the process and product innovations came from manufacturers (Lapthorne, Walport, & Cable, 2013). The manufacturing sector is also instrumental in the nation’s recovery in case of financial crisis.
The Profit Making in the Car Industry
The sale of new vehicles only is not sufficient to sustain the automotive industry, as the margins can be slight sometimes (Marshall, 2011). Only 30% of the gross profit comes from the car sale (Reed, 2013). Apparently, the majority of the automotive industry profit does not come directly from car sales. Commissions are a primary source of income for car sales people as they strive to hit their sales goals. Even if the profits from a unit car are small, a dealer can maximize his profit by selling as many cars as possible. In this case, the manufacturer does not earn much profit from the sale. Dealers also make a fortune from used cars, even more than what they make from new vehicles. The profit margin for used cars is high than that of new ones, as the dealers always claim to have incurred funds in the reconditioning process. Finance and insurance also comprise a significant part of the deal. It can be up to 20 percent of the gross profit (Henry, 2012).Automobile manufacturers get a high value from the sale of spare parts
The Close of Car Plants in the UK
Several factors have contributed to the closure of car plants in the UK. Some companies have reduced their scale of operation due to competition and increased production costs. In 2014, Ford Company stopped manufacturing models in the Coventry site in the UK. The move was part of a recovery strategy by the management of the company. Jaguar was unable to support three production plants with its flat annual sales (europa.eu, 2014). The closure led to the loss of over 1,100 jobs. GM Vauxhall Motors also stopped production at its Luton plant in 2002. The company downsized its operations to one consolidated European manufacturing facility. It sold its Long bride plant to the Shanghai Automotive Industry Corporation (SAIC).
While it has launched projects in the plant, the scale of operation is not full-scale assembly like the one it used to be. SAIC usually ships in semi-knocked-down kits from its plant in China (Katayama & Bennett, 1996). The kits are near completion. All that needs to be done at the Longbridge site is to fit the engine, nose rim, wheels and the front suspension. Peugeot closed its Ryton plant in the UK in 2016, leading to the loss of 2300 jobs (eurofound.eu, 2016). Trade unions were angry over the move while the government expressed disappointment. Today, Ford no longer has a manufacturing plant in the UK. It only manufactures engine parts.
More car manufacturers in the UK have warned that they will be forced to make significant cutbacks following the Brexit vote. As stated by SMMT, the UK car manufacturing industry is very uncertain (Chistopher and Peck, 2004). Toyota, Nissan, Mini and Ford have expressed concern over the relationship between Britain and the rest of Europe and the potential dangers it might have on the industry. Sinthat,ce 60% of the parts are imported from Europe, customs charges, and tariffs are likely to hurt the success of automobiles (Monaghan, 2016). More companies are bound to quit or reduce their scale of operation in future.
A Rise in the Services Industry
The UK was the first industrial nation. However, that has not been maintained over time. The economic structure of the UK has transformed over the years, with the services sector expanding tremendously (Inman, 2015). The 2016 GDP figures for the UK indicated that economic growth of the country is heavily reliant on services. They comprise around 80 percent of the production output and job opportunities (Sentence, 2016). The private sector controls most of the services industry. The public sector remains held back due to tight controls from the government. Several factors have led to the scenario. The UK offers a very attractive environment for investment. The nation has flexible labor markets, which allow employees to shift jobs frequently. There are relatively low rates of taxes on profit and the individual income of employees (Sentence, 2016).
In contrast, the manufacturing sector continues to struggle in the UK. The steel industry, which is a major component of the manufacturing segment, has been performing poorly (Tovey, 2015). China is the primary producer of steel, and following difficulties in the Chinese economy, the price of steel has gone down; this has resulted in a reduction in demand for UK-made steel. However, the car manufacturing industry has been performing well. In 2015, production recorded a 40 percent increase from the previous year. The industry is also a major exporter, with eight out of every ten vehicles made in the UK being sold to foreign markets (Milmo, 2012).
Increasing Sustainability in the Car Manufacturing Industry
The Influence of Japanese Car Manufacturers
a. Lean Thinking
In the recent years, automakers in the UK have emulated Japanese manufacturing practices. The Toyota Production System has notably received the attention of UK Automakers. In the 1980s, Japanese engineers hired by Nissan, Honda, and Toyota enhanced the transfer of lean and Just in Time techniques to the UK industry (Hawes, 2014). Lean manufacturing encompasses several concepts namely the elimination of waste, ensuring quality at the point of production and continuous improvement. It aims at making the processes more efficient continuously (Womack & Jones, 2013). Hines, Holwe, and Rich (2014) create awareness in the vision of business leaders for them to evolve towards lean thinking. Many automakers in the UK are implementing lean thinking to other aspects of business even outside the production process. These include production development and sales (Holweg, 2002).
Just in Time (JIT) is a major factor in lean production. It is based on the principle that the manufacturing process should be “pulled through” and not “pushed through.” The car manufacturers usually tune all their processes in the assembly sequence in a way that they only have the quantities that they need at the time they need to use them. For example, they finish making the final products just in time to go to the consumer.
b. Quality Leadership
The contribution of leaders is essential to the success of any automobile firm. Automotive leaders must possess entrepreneurial skills to identify issues and know ways to handle them (Meffron, 2011). Japanese automakers, particularly Toyota, have always been led by great leaders. One great leader at Toyota is Mr. Yamauchi Yasunori, who acted as the senior managing director. He was an advocate for employee engagement and motivation.
UK leaders in the industry have shifted from the traditional boss-mentality to more of strategic leaders. Leaders in the European automobile industry are team leaders and innovative. They ensure that their companies reinvent their processes as well as their models continuously. The high competition in the market also creates a need for businesses to operate under competent managers. They have knowledge regarding the sector and have many years of experience. They look for ways for ways that can motivate employees to engage and inspire them. Employee compensation in the UK market is also fair enough to keep them motivated. Jaguar is one company that has always been headed by effective leaders. They have always been innovators and entrepreneurs (jaguar.co.uk, 2016). Their key focus has always been to the future of the company’s brands.
c. Environment Sustainability Leadership
Car manufacturers have significant positive impacts on the economy and the communities around them (SMMT, 2011). However, they also have adverse environmental effects resulting from car making, transportation and use (Cohen, 2012). The main environmental impacts occur after production (Mildenberger and Khare, 2000). However, pollution occurs even after the utilization and disposal of cars. Fossil fuels used during the useful life of vehicles are a major pollutant. The exhaust emissions carry harmful gasses such as carbon dioxide, carbon monoxide, ozone and nitrogen oxides (Nunes & Bennet, 2011). During the production process, the primary pollutants are solid wastes, high-energy consumption, and Volcanic Organic Compounds. Irresponsible disposal after the end of use leads to soil contamination. As part of their Corporate Social Responsibility, UK automakers have to make environmental decisions and align them with their business goals. The Green Operations Strategy is a long-term, deliberate plan that focuses on reducing environmental pressures during production (Nunes, Bennet& Shaw, 2016).
Toyota is the most efficient carmaker regarding sustainability (Hahn et al., 2008). Between 1998 and 2015, the automaker increased its production by 84% but cut down its Carbon dioxide emissions by 25%. It reduced productions emissions per vehicle by 53%. Over the years, the company has been executing sophisticated sustainability initiatives. For example, it has been using alternative energy sources (wind power and solar) to minimize Carbon Dioxide emission. Companies in the UK have resorted to various strategies to reduce the environmental impact of their processes and products. They have invested in green technology aimed at achieving a more sustainable future (Laszlo &Zhexembayeva, 2011).
In 2014, Honda launched a commercial solar-powered hydrogen production plant. The station produces high volumes of hydrogen from solar power. Jaguar Landrover owns an engine manufacturing facility that makes environmentally sustainable engines. The engine uses exhaust valve timing to minimize time before the catalyst light off. It reduces the emission of Carbon dioxide (Hawes, 2015).
Challenges Faced by Ford UK related to Supply Chain Vulnerability
Ford has had a reputation for quality vehicles. However, the automaker has n-t escaped vulnerabilities related to outsourcing. In recent times, Ford had had to recall its vehicles for on separate occasions. The recalls have caused the erosion of Ford’s reputation. Owing to faults of suppliers, it has found itself dealing with high profile problems in product and business dimensions.
In 2011, Ford recalled 30, 000 cars in Britain and 100,000 total units saying that salt from gritted roads could potentially cause overheating of the cooling systems and a potential fire. The fault was a change in specification of the engine-cooling fan. There was a risk that corrosion would build up during winter due to salt poured to increase the safety of roads (Holweg et al., 2009). While no accidents or injuries had occurred, the vehicle owners were inconvenienced.
In 2012, Ford had to recall 11,500 units of the just-launched 2013 Ford Escape SUV model, which had a 1.6-Liter engine. There was a possibility of a fuel leak. The car owners had to stop using their vehicles and have them repaired first. From a published report by Reuters, the fault was a flaw by the manufacturer, TI Automotive; this necessitated creation and formulation of preventive and control measures to ensure all things are set into place and productivity levels sustained.
In April 2012, there was a fatal fire in Evonik Industries AG, a manufacturing facility in Germany. The fire had an implication for the global supply of nylon-12, a component used in the manufacture of brakes, fuel lines, and tanks. Evonik made over 25 percent of the global supplies of the raw material. The Ford Escape fuel line issue is suspected to be related to the industry-wide problem. Between 2012 and 2016, Ford has recalled 830,000 cars to repair faulty door latches (cnbc.com, 2016)
On top of the 2013 model, Ford also recalled 485,000 units of the 2001-2014 Escape models. It had a problem with a faulty cruise control cable that causes the throttle to stick open. It affected cars sold in Europe and North America.
Ford is facing a quality problem due to the reliance of suppliers on vehicle components. Ford should revolutionize its supply chain quality management so that vendors deliver non-faulty equipment. Adopting real-time functionality and quality management software will ensure that all the parts brought in for assembling meet their quality standards (Walker, 2016). They should also invest in predictive analysis features that can help them in detecting flaws early enough before they sell the cars to consumers (Burnson, 2015). In particular, Ford should invest in advanced predictive analytics as a measure to call management; this would ensure maintained productivity and increased profit margins for the company.
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