In this particular case study, I am going to elaborate in detail the operations management of the company and make recommendations on some of the strategies the company may employ for it to continue to be a force to reckon with in the automotive industry. It is all about striving to have a competitive advantage especially in the highly competitive Automobile industry (Brennan, 24).
Scope
The scope of the report is only limited to Nissan Company as it generally describes its operations. However, external companies may borrow a leaf from these Automobile manufacturing giants on the strategies that it has employed to stay relevant in its very competitive industry.
Possible limitations
1. Limited resources for example Funds.This project is self-financing thus posing a great challenge. I incurred a lot of costs for example printing charges.
2. Inadequate time. The project is taking up most of my time because it requires intensive research which is a challenge.
3. Lack of relevant information. Sources of obtaining information are limited for instance the information I obtained from the internet was biased and inadequate thus unreliable.
4. Respondents were not willing to share information with the researcher to cope with this I had to assure the respondents that the information they gave me will be confidential.
Research methodology
This research encompasses a descriptive research approach. Descriptive research design describes data and characteristics about a population or phenomenon being studied. Descriptive research is analytic, and it focuses on the particular variables. The researchers, the target population, were the shareholders of Nissan Company, i.e. its consumers, employees, BOD and top level management. Questionnaires containing both open ended and closed ended questions were used to collect data; questionnaires are easy and affordable tools for data collection.
Findings
Strategic location
Productivity refers to the measure of the level of efficiency of a firm's production process. Nissan's production plant is located in a 300 hectares recent airfield piece of land near Sunderland. The production plant is strategically located because; there is readily available skilled workforce. Sunderland has a rich history with regards to manufacturing. The decline of other neighbouring manufacturing firms has created cheap readily available labour. Secondly, Sunderland has a good transport and infrastructure system making it easy to transport raw materials required for the manufacture of vehicles. Thirdly, the government provided financial support as well as other forms of incentives in an attempt to encourage potential investors to come and set up base in the location.
The production process
It is crystal clear that the car assembly process is a complex operation requiring not only skilled labour but also a lot of resources. Currently, Nissan has invested over £2.1 billion in the Sunderland plant taking its production capacity to about 500,000 vehicles per year (Nissan Motors). Production is generally based on consumer demand and on the prices that will reap massive profits for the firm. The production strategy Nissan has employed to have high output is the use of a continuous flow production method. This system involves the establishment of sub-assemblies to manufacture cars before being brought together in a final assembly. This approach is suitable because of the flexible element whereby the assembly line can be adjusted to match consumer demand in the case it increases. The production flow of Nissan draws on three main production shops, i.e. body shop, paint shop and final assembly (Heizer et al., 34).
The basic formula for calculating productivity is a ratio of outputs produced to the inputs used in production.
Productivity = Output / Input
Input, in this case, is the total number of company employees whereas outputs denote the company’s revenue. According to the company’s annual report (Nissan Motors), the revenue for Nissan for the year ending 2017 was 12,696,121,060. The company had 22,209 employees as of the same year, therefore;
12,696,121,060/22,209 = 571,755.64
However, productivity varies based on the different kinds of production and certain external factors, i.e. the economy, inflation, the level of competition in the market and interest rates.
The most common productivity measurements are; total employee labour productivity, sales productivity and individual employee labour productivity. Some of the strategies Nissan have employed to increase their productivity include; employee downsizing. Nissan only seeks the services of top-notch employees who are ready to maximise their input for maximum output and also resonate with the company’s vision and mission statement. Secondly, the company has embraced the use of advanced technology that produces products in large quantities and high qualities. This not only saves time but also on costs. Thirdly, the company has heavily invested in the field of innovation and invention. The company realises that consumer needs, tastes and preferences change from time to time it, therefore, needs to keep up with changes as they occur.
Capacity utilisation
It refers to the measure or limit to which the productive capacity of Nissan is being utilised. It is the measure of productive efficiency. Capacity utilisation is an economic indicator that denotes whether or not a company is operating at its optimum level. A company with less than 100% utilisation can adopt various strategies that will enable it to increase production without increasing its expenditure. It is all about maximum utilisation of the resources available for the best output.
Table 1.0: UK car production by manufacturer: (SMMT)
Capacity utilization can be measured by the use of the following formula;
Capacity utilization = (Current Production/Maximum production) x 100%
495, 206 (Current Production|) x 100 = 96%
510, 572 (Highest Production)
NB: Assumption: Maximum capacity = Highest ever produced units
The current capacity of Nissan UK’s motor vehicle production line is approximately 510, 572 cars per annum. The year 2017 production was 495,206 units (SMMT). In the calculation of capacity utilisation, we divide 2017 production units by the highest ever produced units.
The company is currently operating at 96% capacity utilisation. Among the factors causing scaling down of production includes a slow sale of diesel in the UK market leading to power strains in the Sunderland plant (Legget). Nissan UK implemented the operational strategy in 2018 to manage the short-term reduction in power supply by reducing the plant volumes. The company’s long-term plans include increasing capacity to 600,000 units by 2019 (Asian Review). The current capacity utilisation compared to the targeted maximum capacity is calculated as follows:
495, 206 (Current Production) x 100 = 82.5%
600,000 (Maximum capacity)
Lean production
Lean production refers to a management approach that aims at cutting running as well as operational costs. Through lean production, a company is made more efficient and responsive to consumer needs. It is all about striving to eliminate activities that do not add any value to the production process. The key aspects of Nissan’s lean production include; time-based management. Nissan always strives to reduce the level of wasted time in the production process. The company has set up flexible production facilities that make it easy and quick to shift from one level of production to another. The company also seeks the services of multitasked staff that can work on different assignments simultaneously saving on time. The company has also created a culture of trust between managers. The Nissan Production Way (NPW) as famously attributed to the Nissan Company is focused on reducing waste and reducing lead times. The company relies on IT as well as detailed planning of just-in-time deliveries with the main purpose of the Nissan Production Way being to achieve boundless synchronisation with customers as well as a limitless exposure of problems and innovation.
The second aspect is Kaizen, i.e. continuous improvement. The Kaizen’s approach involves making small changes in the work setting as well as major changes in the production process. Initiators of these changes may either be the company's top level management or even the middle-level employees who all sit down together and brainstorm on the large practices to improve the nature of products it offers in the market. These small changes are constantly maintained so that they work. Kaizen’s continuous improvement saves many resources including; job satisfaction, productivity and quality management (Stevenson, 56). The Nissan company, therefore, utilises both Synchronization and Kaizen approaches which give birth to the concept of "Ideal Synchronization" a notion which implies "produce when consume" meaning that the company is obligated to make just-in-time supply perfect in that the production goes hand in hand with the consumption of its products. The overall objective being advocated in this, therefore, is to reduce lead-times.
The third aspect of lean production practised by Nissan is Just in time technology. JIT is a model of production in which commodities are created to meet consumer demand not created in surplus or in advance of needs. Components of Nissan normally arrive just in time for them to be installed and sub-assemblies move to the final assembly just in time for the workers to work on them. These practices reduce operational as well as overhead costs. Nissan's JIT approach is entirely dependent on machine precision. The company's advanced technology automatically monitors every vehicle in each production stage. They employ the use of a transponder attached to the chassis leg. This transponder harbours all the production data of a vehicle.
It is crystal clear that the JIT approach offers massive benefits to Nissan as it saves the company on numerous costs.
The fourth element of Lean production encompasses strict quality control. The suppliers of raw materials, electrical components and all parts must adhere to strict quality control measures and procedures. The company uses various measures and procedures to control the quality of inputs and outputs such as supplier scorecards ranking all suppliers, supplier Evaluation standard (ASES), and Alliance New Product Quality Procedures (ANPQP). ASES provides the criteria for assessing flawless and defective parts while ANPQP specifies various automotive quality standards (Nissan Motor Corporation).
The fifth element entails single sourcing. Nissan UK also engages in single-sourcing deals with suppliers which entail making long-term contracts lasting 3-5 years. The approach helps to maintain contact with same suppliers and hence block competition from other players in the market. This aspect also involves material resource planning to control inventories, centralised purchasing and management of inter-personal factors.
Just in time technology
The cost of holding stock
The cost of holding stock or the carrying cost of inventory refers to the amount of money Nissan spends in the purchase of its raw materials, storage of stock and insurance. The following are some of the costs associated with holding inventory in excess level. First is the capital cost, i.e. the cost that Nissan expands on carrying inventory. Then there is the storage space cost which are warehouse costs, lighting and heating and lastly is the handling cost which is incurred while moving materials in and out of the firm. The inventory helps the Nissan Company to prevent fluctuations in demand and supply from affecting its sales or production. This is in a bid to ensure retail availability which is key to making a sale. Bulk purchases help the organisation to lower their procurement costs as well as utilise logistical facilities to enable the organisation to attain its set goals and objectives. The cost of holding a stock can also be used by the organisation as a temporary offset to delay or neutralise the effect of price increases and thereby improve margins or sales. An inventory also protects the organisation from unreliable suppliers. This is applicable when a product is scarce, and a steady supply of stock is difficult to ensure. An extended sales mix and a reduction in purchase cost is part of the strategy used by the Nissan Company currently to ensure its cost of inventory is reduced and that the company maximises on more profits. The cost of carrying inventory is calculated using the formula below:
Holding cost = Cost of capital + Physical space occupied (Depreciation, Insurance, utility costs, rent, taxes etc.) + Handling costs + Obsolescence.
According to Trujillo (2015), the cost of holding the stock is about 25% of the total inventory. Another related study by Cachon " Olivares (2008) estimated the holding cost of inventory for the automobile industry in the U.S.A. at 20%
Table 2.0: Estimate of Cost of holding stock (Nissan Motors)
Recommendations
Some of the strategies Nissan may employ for it to achieve its optimum level of production and profits include; creation of a culture that promotes hard work and commitment. Nissan needs to encourage its employees to do their best to meet the company's targets so that long as well as short-term company objectives are met. Secondly, the company needs to adopt the customer focus strategy. The company needs to realise that its consumers are its greatest asset; thus they should strive to keep up with their constantly changing needs and wants. As the common phrase stipulates the customer is always right. Other strategies the company may adopt include; provision of top notch customer service and product differentiation.
Conclusion
I think that Nissan's production process is highly productive adopting the Japanese culture has resulted in the company continued producing top-notch vehicles most efficiently. Nissan's high productivity level stems from an all-embracing approach to the company's production process. The Kaizen’s system brings out the best in both people and machines. The Nissan Company, therefore, is a company worth emulating.
Works Cited
Asian Review. Nissan bolstering UK production as a split with EU looms Greater economies of scale, lower distribution costs seen softening Brexit's blow. 28 August 2017. .
Brennan, Linda L. Operations Management. McGraw-Hill, 2011.
Barnett, Steve. The Nissan Report: An Inside Look at How a World-Class Japanese Company Makes Products That Make a Difference. Doubleday, 1992.
Cachon, GÈrard P. and Marcelo Olivares. "Drivers of Önished goods inventory in the U.S. automobile industry." The Wharton School, University of Pennsylvania, 2008. 25 June 2018. .
Dean, Sam. Nissan to increase production at Sunderland plant by a fifth. 28 August 2017. .
Holweg, Matthias, and Nick Oliver. Crisis, Resilience and Survival: Lessons from the Global Auto Industry. 2016.
Heizer, Jay, et al. Operations Management. Pearson Australia Pty Ltd, 2016.
Legget, Dave. Nissan Sunderland plant to cut output; UK car production by the manufacturer, 2017. 23 April 2018. .
Nissan Motor Corporation. Quality Assurance Tools: Nissan's proprietary product quality assurance system ensures the quality of every step, from its suppliers to the manufacturing processes. 2018. .
Nissan Motors. Nissan reports full-year results for the fiscal year 2017. 14 May 2017. .
SMMT. SMMT VEHICLE DATA: Manufacturing Data. 18 04 2018. .
Stevenson, William J. Operations Management. 2018.
Trujillo, paul. "THE REAL COST OF CARRYING INVENTORY." 2015. 25 June 2018. .
Appendix
Questionnaire
PART ONE
General Questions
1. Gender of respondent
Male
Female
2. Ages of the respondents
18-23years
24- 35years
40-50 years
3. What is your highest level of education?
Primary school leaver
Secondary school leaver
University /college graduate
PART TWO
Challenges are facing Nissan's production process.
1. Are you as a customer satisfied with Nissan’s products?
Yes
No
If yes which products are you satisfied with and which areas do you think need improvements?
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
2. What are some of the strategies Nissan may employ to improve its operations?
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3. Briefly describe Nissan’s Company culture
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4. Is Nissan doing enough to improve its operations? ……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
