Harvard Case - Stellar Auto Ltd.
"Stellar Auto Ltd." Harvard business case study is written by Anshuman Tripathy, Prashant Chintapalli. It deals with the challenges in the field of Operations Management. The case study is 12 page(s) long and it was first published on : Feb 1, 2019
This case study solution recommends a comprehensive strategy for Stellar Auto Ltd. to address its challenges and capitalize on emerging opportunities. This strategy encompasses a multi-pronged approach, focusing on operations strategy, supply chain management, innovation, and digital transformation. We recommend a phased implementation plan to ensure smooth transition and maximize impact.
2. Background
Stellar Auto Ltd., a leading manufacturer of automotive components, faces significant challenges in a rapidly changing industry. The company struggles with fluctuating demand, inefficient production processes, and a lack of real-time data visibility. It also faces increasing pressure from competitors offering lower prices and innovative products. The case study highlights the company's need to improve its operations strategy to remain competitive.
The main protagonists of the case study are:
- David Chen, the CEO of Stellar Auto Ltd., who is tasked with leading the company's transformation.
- Peter Li, the Operations Manager, who is responsible for implementing operational improvements.
- Susan Wang, the IT Manager, who is responsible for integrating new technologies.
3. Analysis of the Case Study
This case study can be analyzed using the Porter's Five Forces framework to understand the competitive landscape and the Value Chain Analysis to identify areas for improvement within Stellar Auto Ltd.
Porter's Five Forces:
- Threat of New Entrants: The automotive industry is characterized by high barriers to entry due to significant capital investment and technological expertise. However, the emergence of new players in the electric vehicle market poses a potential threat.
- Bargaining Power of Buyers: The bargaining power of buyers is high due to the availability of multiple suppliers and the relatively standardized nature of many automotive components.
- Bargaining Power of Suppliers: The bargaining power of suppliers is moderate, as Stellar Auto Ltd. depends on a diverse range of suppliers for raw materials and components.
- Threat of Substitute Products: The threat of substitute products is high, as alternative materials and manufacturing processes are constantly evolving.
- Competitive Rivalry: The competitive rivalry within the automotive component industry is intense, with companies competing on price, quality, and innovation.
Value Chain Analysis:
- Inbound Logistics: Stellar Auto Ltd. faces challenges with inconsistent supplier performance and unreliable delivery schedules, leading to stock-outs and production delays.
- Operations: The company's manufacturing processes are inefficient, characterized by high levels of waste and manual labor.
- Outbound Logistics: The company lacks a robust logistics system, leading to delays in deliveries and increased transportation costs.
- Marketing and Sales: Stellar Auto Ltd. relies heavily on traditional marketing channels and lacks a strong digital presence.
- Service: The company's customer service is reactive and lacks proactive solutions to address customer needs.
4. Recommendations
Stellar Auto Ltd. should implement the following recommendations to address its challenges and achieve sustainable growth:
1. Operations Strategy:
- Lean Manufacturing: Implement Lean Manufacturing principles to eliminate waste, streamline processes, and improve efficiency. This includes value stream mapping, bottleneck analysis, and Kaizen initiatives.
- Six Sigma: Implement Six Sigma methodology to reduce defects, improve quality, and enhance customer satisfaction. This involves process analysis, statistical process control, and cost of quality analysis.
- Just-in-Time (JIT) Production: Transition to a JIT production system to minimize inventory levels, reduce storage costs, and improve responsiveness to demand fluctuations. This requires demand forecasting, capacity planning, and MRP implementation.
- Agile Manufacturing: Embrace agile manufacturing principles to adapt quickly to changing market conditions and customer demands. This involves flexible manufacturing systems, cycle time reduction, and continuous improvement practices.
2. Supply Chain Management:
- Supply Chain Optimization: Implement a robust supply chain management system to improve supplier relationships, enhance visibility, and optimize inventory levels. This includes sourcing strategies, supplier performance management, and risk management.
- Inventory Control: Implement effective inventory control measures to minimize holding costs, reduce waste, and ensure timely availability of materials. This involves inventory management systems, ABC analysis, and safety stock optimization.
- Logistics Management: Optimize the logistics network to improve delivery efficiency, reduce transportation costs, and enhance customer satisfaction. This includes logistics planning, transportation optimization, and warehouse management.
3. Innovation and Product Development:
- R&D Investment: Increase investment in research and development to develop innovative products and stay ahead of the competition. This includes product design, material science, and process innovation.
- Product Lifecycle Management (PLM): Implement a PLM system to manage the entire product lifecycle, from design to manufacturing to disposal. This enhances collaboration, improves efficiency, and reduces costs.
4. Digital Transformation:
- Enterprise Resource Planning (ERP): Implement an ERP system to integrate all business processes, improve data visibility, and enhance decision-making. This includes financial management, supply chain management, and human resources.
- Internet of Things (IoT): Leverage IoT technologies to monitor production processes, track inventory, and improve operational efficiency. This includes sensor data analysis, predictive maintenance, and real-time performance monitoring.
- Data Analytics: Implement data analytics tools to gain insights from operational data, identify trends, and improve decision-making. This includes operations analytics, performance indicators, and predictive modeling.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with Stellar Auto Ltd.'s core competencies in manufacturing and its mission to provide high-quality automotive components.
- External Customers and Internal Clients: The recommendations aim to improve customer satisfaction by enhancing product quality, delivery performance, and service responsiveness. They also aim to empower internal clients by providing them with better tools and information.
- Competitors: The recommendations address the competitive landscape by focusing on innovation, cost reduction, and efficiency improvements.
- Attractiveness ' Quantitative Measures: The recommendations are expected to generate a positive return on investment (ROI) by reducing costs, increasing efficiency, and improving revenue.
6. Conclusion
By implementing these recommendations, Stellar Auto Ltd. can transform its operations, enhance its competitive advantage, and achieve sustainable growth. The company will need to embrace change management principles to ensure successful implementation and achieve buy-in from employees. The focus should be on continuous improvement, data-driven decision making, and collaboration across all departments.
7. Discussion
Alternative strategies include:
- Outsourcing: Outsourcing certain manufacturing processes or logistics functions could reduce costs and improve efficiency. However, this could lead to loss of control over quality and intellectual property.
- Mergers and Acquisitions: Merging with or acquiring another company could provide access to new technologies, markets, or expertise. However, this carries significant risks and requires careful due diligence.
Key assumptions include:
- Market Demand: The recommendations assume continued growth in the automotive industry and demand for Stellar Auto Ltd.'s products.
- Technology Adoption: The recommendations assume successful implementation of new technologies, including ERP systems and IoT devices.
- Employee Engagement: The recommendations assume employee engagement and willingness to embrace change.
8. Next Steps
The following steps should be taken to implement the recommendations:
- Phase 1 (Short-term): Implement Lean Manufacturing principles, improve inventory control, and enhance logistics management.
- Phase 2 (Mid-term): Implement Six Sigma methodology, invest in R&D, and develop a digital transformation roadmap.
- Phase 3 (Long-term): Implement an ERP system, leverage IoT technologies, and establish a data analytics capability.
Each phase should be accompanied by clear milestones, performance indicators, and regular progress reviews. By taking these steps, Stellar Auto Ltd. can position itself for success in the evolving automotive industry.
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Case Description
Stellar Auto Ltd. (SAL) is upgrading its current Galaxy product to Galaxy X. With pricing expected at a 20% discount to the current Galaxy model, Galaxy X is expected to generate sales of approximately 26,000/year. To achieve financial feasibility, SAL plans to increase the local content from the existing 12% in Galaxy to 75% in Galaxy X. To meet the sales requirements, SAL plans to operate its plant at the rate of 120 cars/day for 236 days/year, giving itself a capacity of 28,320 cars/year. Feasibility studies have shown that this target can be achieved with the current setup in the body and paint shops, but cannot be achieved as per current arrangements in the final assembly area (FAA). FAA comprises 84 work stations in three areas - trim, chassis, and final (assembly and testing). To meet the increased production requirements, various sub-assemblies needed capacity enhancement and there was no space lineside for the same. The matter was further complicated by the fact that since Galaxy X was being introduced in 6 variants, significant space was also needed to store inventory. After significant analysis and negotiations, the final open issue was with regard to the cockpit subassembly which the supplier Instruments Sophistiques D'auto (ISD) agreed to do. The cockpit subassembly is planned to be installed at station 9 in the FAA, and could not be shifted to a later station. So SAL, along with ISD, had to design a system to make the cockpit subassembly at ISD and deliver the same, in right sequence at the right time, at station 9. The system design required the determination of various factors. This case study identifies and determines the various system parameters that are needed to design such a system.
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