Operations Assignment

Rachit Mathur

FT MB, January 2014

OPERATIONS MANAGEMENT

Assignment 1

I would like to give an example of two wheeler industry in India as I have worked in the Strategic Sourcing department of the largest two wheeler manufacturer (in terms of volume) of the world.

The two companies I would like to compare are Hero MotoCorp Limited (HMCL) and Harley Davidson India (HDI).

Hero MotoCorp Limited

HMCL produces around 6.2M(millions) motorbikes every year. 80% of the total products are sold to the middle class (based on income) Indian customers. The products are meant to meet minimum basic requirements of the customers but create a sense of ownership. HMCL is able to manufacture 6.2M motorbikes by manufacturing highly standardized products in assembly lines. The manufacturing set-up is designed in a way that it ensures the product to provide the promised quality to the customers. The standardized products manufactured in assembly lines help HMCL roll out a motorbike every 15 seconds.    

High volume and standardized products has made HMCL use lean manufacturing and just in time supply chain management. Inventory levels are less than 24 hours for almost all the product categories. Standardization and continuous focus on quality has helped a few parts to be delivered by the supplier directly on the assembly line (DOL). The company has created assembly lines, which manufacture only one kind of product. If HMCL does not follow the continuous process of manufacturing it will be decreasing its profitability and also lose drastically on production volumes.

Since the product is of low cost and the target customers are in low income range the profitability per product is very low but the high volume makes the total company generate high profit.

Harley Davidson India

HDI has recently opened a manufacturing facility in India.  The company is targeting to sell its products to high-income individuals who are passionate about riding motorbikes. The companies manufacture motorbikes in very low volumes. The company offers more than 12 types of products from the same factory and assembly line with options of different colors and wheel options. Due to low volumes the inventory levels of the parts to be assembled are relatively high.

The product carries a unique image and offers an experience beyond the basic requirement of a motorbike. The company is thus able to sell the product at a very high cost and margin per product. The marketing cost and high inventory carrying costs along with low volumes reduces the overall profitability as compared to the gross operation margin.  

If HDI starts manufacturing like HMCL then it will be manufacturing many more motorbikes than it can sell and will get a lot of capital stuck.