Managing Operations in the Digital Enterprise

Competitive environment

Outlining examples of companies in the sector

We have chosen 3 companies, in which we will explore through the competitive environment and then further mention and give examples with, throughout the essay. The 3 companies we chose were Tesla, Toyota and Koenigsegg. These are all quite well-known companies, although we made sure to choose one small company (Koenigsegg) so we could identify the differences and talk about why specific companies make decisions for their specific goals and target audiences.

Tesla is the largest electric vehicle and solar panel company in the USA. They produce and sell electric vehicles, solar panels and energy storage equipment. Their goal is to “accelerate the world’s transition to sustainable energy.” (Tesla.com, 2019)

Koenigsegg Automotive is a small Swedish hand-built supercars manufacturer based in Engelholm,  founded in 1994 by the current CEO Chris von Königsegger. Their main purpose is to produce the fastest car in the world.

Toyota is a Japanese car company that wants to dominate the American automobile market and be the best car company in America. They want to show off that they produce “high-value products” (Toyota.custhelp.com, n.d.) and want their users to have the “most satisfying ownership experience” (Toyota.custhelp.com, n.d.) they can possibly have.

Differences in their offerings 

Tesla’s products main selling point is their design and they want to show that you don’t lose anything on a car if you go electric. Comparing with supercars manufacturers, its price will be more acceptable and it’s more suitable for the public, while still being an exclusive car to have. Tesla has always produced electric vehicles since its start in 2003 and has started making them more affordable nowadays.

On the other hand, Koenigsegg Automotive is producing the cars for small demand in the market. The company has the latest technologies and techniques and is still made by hand, which means the cars are separately individually designed. There will be huge time lag and raw material costs.

Toyota wants to appeal specifically to people in the age range of 30 – 50 years old and moreover, middle-income customers. They produce 19 different car models as they believe it is important to make a product specific to a target audience’s wants and needs, while still making their target market as big as possible. Their main selling point is that they can provide world-class products and price them moderately.

Business strategies 

Tesla's business strategy is to emulate typical technological-product life cycles and initially target affluent buyers, and then move into larger markets at lower price points. Nowadays, the Tesla company is going to focus on the development of electronical engine manufacturing which is leading the car fashion at this day and age. Online selling will be a good reduction on the fixed cost of production procedures.

Koenigsegg's business strategy is to use the limited raw materials to pursue the world's most extreme speeds. It is currently the world's fastest record holder for many sports cars as well. Their market is very small, only for big-asset homes, and the price of bicycles can reach several million dollars. (small factory, hand-made normal welding riveting is changed to glue, but the car body is made of carbon fiber, so stable, very low output)

Toyota uses their own system in how to manufacture vehicles, that developed into the Toyota production system. This was a well thought out set of principles, which was used and adapted throughout the automobile industry. At the same time as mastering their manufacturing process, they also make sure to perfect their designs. This means looking at how to create a more wanted and competitive product to be sold internationally.

Key sustainability challenges 

Technological challenge:

Development of rechargeable battery, increase the battery lifetime and consider second lives for batteries, monitor health of batteries continuously during operation to minimize their degradation.

Environmental problems:

1. To minimize the ecological implications associated with their wider use, we must integrate sustainability of battery materials.
2. Choosing chemistries that have a minimum footprint in nature and that are more readily recycled or integrated into a full circular economy.

Branding advertising issue:

The problem faced by Toyota was the recalls of the Toyota products (avalon, corolla, corolla matrix, RAV4), the thousand Toyota cars recalls reflect the quality problems of the product. Thus, it’s harder to persuade customers to purchase their products.

Key Digital Trends

The digital trends shaping the automobile sector are advancement in technology. Speed control device for resisting operation of the accelerator (Ralph R. Teetor, Hagerstown, Ind. Application August 1, 1948) is an example of an operations management which has been implemented in the automotive industry to this date. The future of autonomous driving is being maximised by modern brands such as Tesla and BMW along with many other competitors also developing and adjusting their operational activities in order to increase the efficiency in technology surrounding autonomous driving. According to allied market research, the global autonomous vehicle market is projected to grow from $54.23 billion in 2019 to $556.67 billion by 2026. (Allied Market Research outlook 2026, 2018). Therefore, it can be argued, this is a major digital trend within the automotive industry which will swiftly have a massive impact, not only on the market, but on the nature of everyday life as a whole.

(Electric Vehicle and Alternatively Fuelled Vehicle Registrations, 2019)

As of 2018 Diesel and Petrol vehicles collectively dominate the market with a share of 93.6%, however, since digital and technological advances the electronic automotive market is showing a positive trend gradually driving down the dominating shareholders.  BEV have shown a 125.1% increase since the year 2018 as well as hybrid vehicles showing exponential growth within the market.

 A government publication outlined a UK plan for tackling roadside nitrogen dioxide concentration. “We are already committed to investing over £2.7 billion overall in air quality and cleaner transport” (Department for Environmental Food & Rural Affairs, 2017) This type of government intervention will cause a rise in the low-emission section of the automotive industry.

Interactive driving facilities are enhancing consumer experience and is an expanding digital trend in all modern vehicles.  The synergy of external brands being used to advance modern vehicles has shown a dynamic shift in the operational management systems encouraging car companies to cooperate with digital assistant brands. For example, the Spotify application is being incorporated within the stereos of modern vehicles, alongside features such as Apple CarPlay. (Spotify, 2019)

Operational aspects

Supply chain strategy

Definition:

“Supply chain strategy is an iterative process that evaluates the cost- benefit trade-offs of operational components.” (10th)

Nowadays, the automotive industry has become increasingly more competitive and therefore adopting a proper supply chain strategy is crucial in attempting to do meet consumer demands and dominate the industry. The goal of having a top of the range supply chain strategy is that this would improve organizational competitiveness, as it can also help in gaining a competitive advantage.

Supply chain is looking at all the requirements, this would be the ‘Upstream’ flow of customers, as well as the fulfillment side, which is the ‘Downstream’ flow of products and services for customers. With this, they then have to use vertical integration to decide how much down/upstream is needed. Next comes procurement, which investigates when they should purchase goods and services and at what price. Finally comes the suppliers and they must choose whether their products should be made in house or outsourced and which suppliers to work with.

Looking specifically now at supply chain strategy, it is all about completing a simple objective; provide the right product, at the right time, at the right price. There are two principle strategies which companies must choose between, lean and agile. A lean strategy means looking at waste elimination and using a just-in-time inventory. Whereas an agile one would be making choices based on volatility in demand for products, responding to the principle of postponement and utilizing mass customization. Different product components can help decide which strategy a company should use, for example functional products would use a lean strategy as they have a predictable demand, have low margins and long-life cycles. Differently, innovative products would use an agile strategy, as they have a hard to predict demand, as well as high margins and short life cycles.

Over the last 20 years, there has been a trend to adapt more lean approaches in this industry, with the hopes of increasing supply chain efficiency. The issue with this is that lean strategies are not able to manage with the rapidly changing consumer demands, therefore not all companies are adopting this and there isn’t one obvious choice. It is for this reason that recently there has been a huge amount of research into the possibility of a future leagile strategy, which would be a new hybrid approach. Looking back, the automotive industry has historically focused on a push model, which is part of the agile strategy. Nowadays with the internet, data is much more readily available, which can give producers an insight into their customers thoughts and desires. With this, a current change to a leaner model is occurring. With this, they are supporting a total demand driven forecast and the whole process is based around the consumer. Companies believe this will be a much more profitable approach and are spending millions on changing the processes in their supply chains to accommodate this change. A lean strategy can do this, because it looks at producing only what is needed and prevents any excess. The automotive industry does not have a huge differentiation in products and has been successful for many years. Therefore, companies can produce a high volume of products in quite a stable and predictable environment, making the perfect conditions to use a lean strategy. Leagility is still a future concept, although this hopes to bring the benefits of both into one and would be perfect for this market. It would work by following a lean strategy, but utilizing an agile response. This would be ideal for new emerging markets experiencing a high change in demand, for example looking at the current shift towards electric cars and later even self-driving cars.

Product development

Definition:

“Product development typically refers to all of the stages involved in bringing a product from concept or idea, through market release and beyond.” (9th)

New Product Development

From the perspective of the whole automobile industry, in the contemporary era when the awareness of environmental protection and sustainable development is gradually enhanced, automobile companies focus on the future development of new energy and vehicle lightweight. In the new energy field, it can be divided into pure electric power and oil-electric hybrid, considering NPD/NSD is a risky and uncertain endeavor.  Not many producers dare to put all money into the pure electric drive in the absence of government policy support.

• Now l have to mention here is Tesla, famous for its pure electric tesla, it put a lot of money into the innovation of technology, such as general electric architectural design, tesla's centralized, integration, upgrade technology-driven architecture makes air and flexibility of absolute leading the industry, which enable it to use its unique production lines around the technology to build infrastructure, makes the product into the market in the shortest time.
• On the other hand, it has to say that Toyota, which has the world's largest R&D spending for years, is as good as tesla in scientific research and innovation, but it covers a wider range. The fact that the world's top universities are its partners gives Toyota so much of a spur to innovation. Toyota designed the research and development of hybrid electric vehicles 30 years ago and started the research and development of hydrogen fuel 20 years ago. Now, Toyota's new energy vehicles are quite mature, and its sales volume of new energy vehicles also ranks first in the world. On the other side of technological innovation, Toyota selects New changes in the whole industrial chain from design, research and development, production, the different stage model of NPD, and will comprehensively improve the basic performance and product competitiveness of Toyota products through the New Global Architecture TNGA (Toyota New Global Architecture).
• Koenigsegg, a maker of supercars, is no less committed to innovation than others. Their own internal combustion engines, motors, gearboxes, carbon fiber and product designs, combined with Sweden's own vast reserves of machinery, precision machining and aerospace, have enabled Koenigsegg, as a small company, to produce a supercar capable of competing with Volkswagen's Bugatti.

New Service Development

It is obvious that people always ignore the other side of innovation: innovation in services. In developed countries, it’s reported that over 90% of the GDP comes from the service industry. Automobile belongs to the product of tool attribute, the differentiation is mainly the quality, it is the industry with the very serious homogeneous competition. Therefore, service innovation is an important way to win loyal customers. Now, most of the auto industry by setting up 4S store after-sales service to provide the customers with the purchase of platform, most of the 4S store is more than just a simple sales channel, a growing number of 4S store to entertainment, will give customers free drinks coffee, provide a comfortable place to chat and even video games, it set up companies in order to promote the brand tactic to power in the eyes of customers and use.

I think both tesla and Toyota are outstanding in this respect：

• Tesla's service development can be said to be subversive. The tesla is the first truly networked car. Not only can the service center trace any problems back to the factory, but tesla can also connect remote data to each car, upgrade its control system and add new features. The other thing is its autonomous driving technology, which is not yet mature but is definitely innovative. Tesla's high price and the above characteristics build up the perceived value of consumers. Although it is expensive, it is valuable and has successfully built itself into a high-end brand. (Zhuanlan.zhihu.com, 2019)
• Toyota also has a future mobility platform in its sights: e-palette. E-palette is a set of self-driving platform system that provides four different sizes of self-driving electric vehicle chassis to various service providers. They can put their product modules on these platforms to provide more convenient services for consumers, so as to achieve a high degree of resource integration and sharing. For consumers to use different travel services, they just need to select from the e-palette. In fact, the e-palette is not just a future product designed by Toyota for itself, but a concept product based on Japan's future national strategy, which aims at the future smart city landscape. The e-palette reflects one of Toyota's basic assumptions about the future of travel: platformed thinking (Zhuanlan.zhihu.com, 2019). And the future success of this technology is bound to take the service function of cars to another level.

Forecasting

Forecasting is where companies use several different measures of their performance throughout the previous year as well as external ecopolitical factors to make predictions about their performance in the coming year. Common metrics for forecasting include: Units manufactured, manufacturing costs, manufacturing cycle time (time it takes to produce one vehicle), recall rates and average safety incidents per employee. Companies use these metrics in order to formulate plans to maximise performance in the coming year. Although, it must be noted the use of these metrics is useful but in externally controlled metrics of success such as sales, the key factors are determined by the market and even global economic trends due to the dependency on the economy’s success to guarantee growth within the industry. For example, car purchases take a large portion of household income and in the event of poor economic performance it is unlikely households will be able to afford buying new cars. In this way, the automotive industry can be somewhat unpredictable, making forecasting for the industry difficult and not always accurate.

Despite the unpredictability, there is a clear consensus amongst forecasters in the industry that the outlook for 2020 is bleak. Moody’s rating Agency predicts global car sales to fall 0.9% in 2020 (Traction News, 2019). This, it can be argued, is due to predicted trend of long-term global stagnation in economic growth (Pg. 3 IHS Markit, 2019), with the recovering Brazilian Economy being the only real source for economic growth in the coming years. This has put a dampener on forecasts for the automotive industry for 2020.

Driving this shortfall in GDP, reflected in the automotive industry forecasts, are the most important ecopolitical factors including the uncertainty surrounding Britain’s departure from the European Union, overall European Stagnation and trade tensions between China and the United States and new EU CO2 regulations. All these ecopolitical factors in tandem are forecasted to have a stagnating effect on the automotive industry.  As a result of this, major car manufacturers will be under greater pressure to maintain profits, despite greater compliance and production costs. These factors will make it even more difficult major manufacturers to operate, even if they are predicted to grow in some capacity.

For example, both Toyota and Tesla have predicted some growth throughout the next year. Toyota has predicted sales increasing worldwide from 10.72 million to 10.77 million (Bloomberg, 2019). Since Toyota and Tesla are two leading companies in the transition towards electric cars, with the Toyota Hybrid range being some of the best selling cars on the market and Tesla being the largest completely electric car manufacturer, with its shares predicted to increase by 15% in 2020 according to Jefferies Analysts (Market Insider, 2019). Due to this, they will be more prepared to deal with the new CO2 regulations in the European market, than other competitors early in the process of transition. Therefore, they are likely to decreased if any, compliance costs, providing a competitive edge for these companies.

However, despite this, the global climate going into 2020 is likely to have a negative impact for all companies, regardless of whatever advantages they may have going into the new year. Trade tensions between China and the United States over steel manufacturing, resulting in increased tariffs on Chinese steel of 25% and 10% on aluminium (NPR, 2018) are likely to keep production costs high for all major manufacturers, such as Tesla, who produce in the US. Furthermore, CO2 regulations which were ratified in April this year, will enforce a decrease in permitted CO2 emissions per kilometre within Europe by 26% (European Commission, 2019), to be in full effect by 2020. As a result, there will be an increase in production and compliance costs which may cause Car manufacturers to cut an estimated ‘80,000’ jobs in 2020 (Bloomberg, 2019) in order to maintain profitability. Due to increasing production and compliance costs, companies are being forced to become more efficient and eco-friendlier as they transition into a new age of electric cars. As companies do so, their ability to maintain current production is reduced which complimented by overall economic stagnation, has caused a bleak forecast in the industry for 2020.

Conclusion

The automotive industry is near-perfect competition due to the widespread knowledge of information. It can be said that perfect knowledge is the key ingredient to perfect competition, hence being the driving force of the elasticity within the market and the efficiency of operations. Each unique company proves to have widespread business strategies, however, due to government intervention the whole industry, despite these differences, can be seen shifting towards electrical vehicles and more sustainable approaches within operations. This poses technical challenges such as the development and disposability of rechargeable batteries, whilst also helping to pursue environmental initiatives involving eco-designs and green operational processes.  To increase supply chain efficiency the industry has geared towards a lean approach, which entails the elimination of waste and the use of just-in-time inventory, whilst product development is generally shifting towards lightweight vehicles and the future development of new energy.  The current state of the emerging revolutionary innovations within the automotive industry including technical advancements, as well as the increased publications of environmental and sustainability issues make forecasting future metrics within the industry very unpredictable, alongside this the overall economic stagnation, has caused a bleak forecast within the industry for 2020.

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• Traction News: http://www.tractionnews.com/moodys-sees-negative-outlook-global-automotive-industry-2020/