Value chain in a company consists of activities that aim to take in inputs and convert them into outputs that are of high quality in order to cater for the needs of the end consumer. Value chain activities are important to an organization because they add value and quality to the end product so that a consumer can use the good/service and obtain satisfaction (Kourdi 2009, 133).
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Value chain activities are often conducted by numerous departments which all work together to produce quality products and services. Some of the departments that work together in order to add value to raw materials/goods as they move down the industry value chain include; the exploration department, manufacturing department, inbound and outbound distribution department, sales and marketing department, after sales department and the administration department (Worthington & Britton 2009, 45-50).
The need for creating value along the distribution chain has forced supply chain management managers to integrate planning and use proper strategies to ensure that raw materials, work in progress and finished goods reach where they are needed at the right time and in good quality (Wisner et al 2008, 22). Additionally, supply chain experts need to develop contingent strategies and tactics that will alow their distribution networks obtain high degrees of flexibility as goods move either forward or backwards.
The Automobile Industry is a good example of an industry that uses supply chain management activities to add value to vehicles and automobile parts and come up with a diversified range of products that can be used by various consumers in a wide range of industries (na, 2011).
The level of investment and capital required to run activities in the automobile industry is quite high and it thus becomes necessary for careful planning to be incorporated so that goods and services can flow from vendors, the factory floors where cars are assembled to automobile showrooms around the world.
Honda is an Automobile manufacturing company that operates in over 150 countries and produces close to14 million internal combustible engines annually making it the world’s largest internal combustible engine manufacturer and motor cycle manufacturer.
The company has been in existence for over 60 years and has built one of the largest global networks in the automobile industry and is now the worlds 6th largest automobile maker. The company currently has over 180,000 employees and made over $ 120billion in gross revenues in 2010, the company’s expansion and operations have been able to run smoothly due to the abundant assets and owners’ equity that the company has to finance it expansion activities (Andrew 2010, 91-94).
Structure of the Organization
The company has its headquarters in Minato, Tokyo, Japan, which coordinates the company’s activities with its branches and car dealerships. The Headquarters serves as the central decision maker with all leader functional units being located in Tokyo. The company uses regional heads who are well experienced business executives to communicate the intentions of the corporate heads and coordinate all supply chain activities where the company has vested interests.
These business executives then head all other regionalized functional units within their regions such as China, United States, Pakistan, Canada, England, Japan, Belgium, Brazil, New Zealand, Indonesia, India, Thailand, and Turkey.
Figure 1 Typical example of supply chain activities within the automobile industry.
Vision, Mission & Strategic objectives
Honda plans to being the most respected, responsible and best performing among automobile manufacturers in the world by building vehicles and engines that are highly reliable and of high quality. Honda further aims to produce highly efficient, reliable and environmentally friendly automobiles and engines.
Honda desires to become the most recognized automobile company that will not only become competitive but also a successful force for progress within the automobile industry. Honda’s mission is to fundamentally make a difference in the world and especially the Automobile industry.
Honda has defined its mission as an organization which intends to operate from a global viewpoint. Honda is dedicated to supply products of the best quality, yet at a sensible price globally to satisfy all of its clients. Honda’s mission is to build good reliable automobiles that will be used across the world to meet consumer needs and initiate satisfaction (Worthington & Britton 2009, 77).
The company maintains that in order to produce high quality and dependable motor vehicles the company must always advance with ambition and youthfulness, value sound theory and continuously build up fresh ideas (Taylor 2008).
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Honda believes that in its day to day operation it will incorporate strategies and tactics which will ensure the company is Performance Driven because this fact will ensure that the company will fulfill its promises through continuous improvement in the use of more safer, dependable operations within the automobile industry that will develop superb vehicles and engines.
Success of the organization
The last decade has seen Honda grow from an average automobile manufacturer to a respected one. The acquisition of a good corporate leader and strategic reliance has seen the company overtake Nissan to become the 2nd largest manufacturer in Japan and overtake Chrysler to become the world’s 6th largest manufacturer worldwide.
The company through its Acura brand, which is considered a very good luxury car model the company has penetrated the American market and is a successful brand in North America. The company has also expanded its business and entered into the Aero engine industry making it a more attractive company worldwide, increasing its marketing share, revenues, profits and improved the company image worldwide (Mohamad 66-71).
The largest markets of Honda are in Japan, North America and Europe they are considered politically stable and the fact that Japan is among the G8, has paved way for the penetration of Japanese products into these markets due to good political relationships between Japan and the governments of these regions (Allison & Kaye 2005, 133-140). The good political relationship between Japan and these countries has created less legal hurdles in the path of Honda.
The success of Honda can be attributed to the fact that the company creates luxury vehicles that target mostly developed countries and regions such as Europe and North America. These regions are known to be economically stable. Also the citizens have high disposable income and good family structure that is favorable to Honda as an automobile manufacturer.
Japan is one of the most advanced countries in terms of technology enabling the country increase output and produce products that are highly dependable and of high quality. Project management and operations management technology from Japan is a key component that has lead to success of Honda in the Automobile industry.
Threat of new entrants – Barriers are placed by existing companies and regulatory authorities to prevent new entrants from making abnormal profit flows for existing companies some of the threats include government policies, exploiting cost advantages, access to distribution and capital requirements. In this case, the Automobile industry is known to be very capital-intensive since acquisition assembly plants and equipment can be very expensive.
Intensity of competitive rivalry among existing firms – firms within the same industry always compete for the available market share either through powerful competitive strategies, innovation, structure of industry costs, switching costs or degree of product differentiation and so on. There are many car manufacturers worldwide thus increasing the level of competition in the industry.
Threat of substitute products or services – consumers opt to go for substitute products if quality is better, price is relatively better or the cost of switching is favorable. There are relatively fairly many substitutes for motor vehicles except for motor cycles, airplanes, trains and Ships. This therefore means that the Automobile industry becomes more competitive for Honda.
The bargaining power of customers – the bargaining power of buyers depends on the number of buyers within the industry who purchase from the available suppliers, differentiation of products, and the profit margin of buyers especially if they are resellers, switching costs that are associated with switching brands and the importance quality and service to the buyers. Currently, there are very many brands of automobiles thus increasing bargaining power of buyers and increasing the intensity of competition.
The bargaining power of suppliers – Suppliers who provide raw material can determine the profitability and viability of an industry by setting prices of implements which in turn affect the profit margins. The concentration and number of suppliers affect their bargaining power, the importance of the industry to them, the ability of suppliers to integrate forward and the role of quality and service in the industry, but the ability of Honda to produce some of its raw materials increases its competitive advantage (Stadtler 2008, 74).
Honda has a considerably good corporate culture; a culture of quality, reliability and innovation that has enabled it to become a global manufacturer of automobiles. The company also has good leadership structures and leadership that is capable of steering the company into the future.
The availability of adequate resources has also contributed to growth and expansion (Kourdi 2009, 66). Honda has one of the most sophisticated internal combustible engine technologies in the world. The company has the capacity of building over 14 million engines annually, which is way above many manufacturers in the industry.
Thus, it can produce and deliver many automobiles giving it an advantage over other companies which cannot match up and do the same (Douglas 2008, 146). Not only can Honda produce many engines but the company also has a well developed quality control system that has enabled it rise the levels of quality within the company’s products.
Although the company has adequate resources, its resource base is not enough to compete with the likes of Toyota, Volkswagen and General Motors and this limits Honda’s ability to compete equally within the industry. Due to the capital intensive nature of this industry companies like Toyota have been able to pursue their expansion strategy more effectively (Wheelen & Hunger 88).
The company is yet to penetrate the Asian market especially India and China but through mergers and strategic alliances, the company can double its sales in Asia and boost its position in the global Automobile market (Wheelen & Hunger 2002, 61-62).
More established automobile makers like Toyota, Volkswagen and General Motors are more likely to react to the actions and recent success of Honda and develop strategies that may hinder or affect Honda’s business. Thus, it is necessary that the company undertakes continuous research to improve their business (Michael 81-83).
Key Drivers for change
The competitive nature of the industry can be used by the management as the key driver of change; this is because when other competitors decide to take on Honda it will require the company also to retaliate by intensifying competition. Parameters such as sales, market share and company image can be used by management as key performance indicators that may be of use to detect if changes are needed (Kourdi 2009, 216).
Consumers and buyers today purchase value and attributes of products and therefore it is necessary that all activities of the integrated supply chain industry be geared towards increasing value for the resellers and end consumers. Honda being the 6th world’s largest Automobile manufacturer has a long way to go if the company is to realize its vision. Thus, it is necessary for the company to continuously improve the functions of each functional department in order to satisfy its customers and have a sustainable business.
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