operations strategy for industry: a case study

@ 2016 AYAT A. SALEH, submitted as a part of the 'Operations Strategy for Industry' course in the University of Warwick, United Kingdom

Operations Strategy for Industry:

Case Study about

Friction Materials Company Ltd.

Done by: Ayat Saleh

January, 2016

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Abstract

The purpose of this document t is to present a case study about the operations

strategy in Friction Materials Company Ltd. This case study was part of

Operations Strategy for Industry Module in the University of Warwick.

The whole paper is constructed to show the application of Modified Terry Hill’s

Framework with all the tools included as shown below.

(Source: WMG: OPSI Course Note, section 01 (b), p.16)

The document is divided into three parts:

Firstly, the case study itself and the two questions related to it;

Secondly, the analysis for make or buy decision;

Thirdly: a discussion related to the offshore decision.

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Table of Contents

Abstract ................................................................................................................ i

Case Study: Friction Materials Company Ltd ................................................... 1

1 Friction Materials Company Ltd – Make or Buy Decision ................... 15

1.1 Where is FMC Now: SWOT Analysis and Process Map .......................... 15

1.2 How Did They Get Here: Change Drivers ................................................ 15

1.3 Where Do They Want To Be: Corporate Objectives and Critical Success

Factors ..................................................................................................... 16

1.4 How Are They Going To Get There? ........................................................ 16

1.4.1 What are the marketing strategies: current and new products families .... 17

1.4.2 How does the market view Frictions Company’s products now: Puttick Grid

................................................................................................................. 18

1.4.3 How do the sales over time look like: Product Life Cycle (PLC) ............... 21

1.4.4 Which areas to focus on for improvement (as per customer point of view):

order winners and order qualifiers ............................................................ 22

1.4.5 What are the characteristics of the needed operations: 4V’s ................... 23

1.4.6 What are the company's objectives: five performance objectives ............ 24

1.4.7 What is the next step? Vertical integration or outsourcing ........................ 25

1.4.8 Make or buy decision? Abbetti Matrix and Venkatesan's Flowchart ......... 25

1.4.9 What kind of relationships they should have with suppliers? .................... 28

1.4.10 How much is enough? Capacity management ......................................... 30

1.4.11 What manufacturing processes they will need? Process type and layout

design ....................................................................................................... 35

1.4.12 What are the advantages and limitations of each selected option? Trade-

offs/ productivity ....................................................................................... 38

1.4.13 What process technology and Information Technology? .......................... 38

1.4.14 What production planning and control system is needed? ....................... 41

1.4.15 What quality management system is needed? ......................................... 41

1.4.16 What are the needed HR processes? ...................................................... 42

1.4.17 What are the needed changes to the organization? Organizational

structure ................................................................................................... 43

1.4.18 How do they perform product and process development? ....................... 46

1.4.19 How will they allocate resources and budgeting? ..................................... 48

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1.4.20 How do they measure and review their performance? Balanced Scorecard

................................................................................................................. 48

1.5 Conclusion: The Future Lies in Their Hands ............................................ 50

2 Friction Materials Company Ltd – Offshore Decision ......................... 51

2.1 Do They Need New Marketing Strategies? .............................................. 52

2.2 The Offshoring Decision ........................................................................... 53

2.2.1 Hofstede's cultural score .......................................................................... 53

2.2.2 Total Cost of Ownership ........................................................................... 55

2.3 Make or Buy the OE Product Range? ...................................................... 57

2.4 Conclusion................................................................................................ 58

3 References .............................................................................................. 59

4 Appendices ............................................................................................. 61

A. SWOT Analysis for Friction Materials Company ....................................... 62

B. Process Map for Friction Materials Company ........................................... 63

C. Detailed Hofstede's Cultural Score ........................................................... 64

D. Ten Sub-Factors for International Location Selection ............................... 71

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List of Figures

Figure 1.1 Change Drivers .................................................................................. 16

Figure 1.2 Objectives and CSFs ......................................................................... 16

Figure 1.3 Venn Diagram for The Three Markets................................................ 17

Figure 1.4 Puttick Matrix for FMC ....................................................................... 18

Figure 1.5 Product Life Cycle for the Three Products ......................................... 21

Figure 1.6 Four V’s for the Three Products ......................................................... 24

Figure 1.7 Polar Diagram for the Three Products ............................................... 25

Figure 1.8 Abbetti Matrix ..................................................................................... 27

Figure 1.9 Venkatesan’s Flowchart ..................................................................... 27

Figure 1.10 Kraljic’s Matrix .................................................................................. 28

Figure 1.11 Power in The Supply Chain ............................................................. 29

Figure 1.12 The Supplier Preference Matrix- Back Plates .................................. 29

Figure 1.13 Mixed Plan Capacity Adjustment ..................................................... 30

Figure 1.14 P to D Ratios .................................................................................... 31

Figure 1.15 Capacity Planning and Control ........................................................ 34

Figure 1.16 Manufacturing Processes for the Three Products ............................ 35

Figure 1.17 Manufacturing Layout for the Three Products .................................. 36

Figure 1.18 Current Process Layout for Specialized and Aftermarket Products . 37

Figure 1.19 Process Technology and Information Technology ........................... 38

Figure 1.20 Proposed Plant's Layout .................................................................. 39

Figure 1.21 Proposed Plant's Detailed Layout .................................................... 39

Figure 1.22 Trade-offs/ Productivity for the Selected Manufacturing Processes . 40

Figure 1.23 Quality Management System ........................................................... 42

Figure 1.24 Organizational Structure .................................................................. 45

Figure 1.25 Critical Success Factors and Metrics for NPD ................................. 46

Figure 1.26 NDP Process in Friction Materials Company ................................... 47

Figure 1.27 Resources Allocation and Budgeting ............................................... 48

Figure 1.28 Balanced Scorecard......................................................................... 49

Figure 1.29 Objectives and Critical Success Factors .......................................... 50

Figure 2.1 Top Ten Sub-Factors in Location Selection ....................................... 51

Figure 2.2 Polar Diagram for the New OE Long-Term Contract ......................... 52

Figure 2.3 Hofstede`s Score for the Three Countries ......................................... 55

Figure 2.4 Indices for Total Cost of Ownership ................................................... 56

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Figure 2.4 Abetti’s Matrix for OE Product Range ................................................ 58

Figure 2.5 Venkatesan’s Flowchart for OE Product Range ................................. 58

Figure B.1 Process Map for the Production Process in Friction Materials

Company ............................................................................................................ 63

Figure C.1 Hofstede`s Score for the Three Countries ......................................... 64

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List of Tables

Table 1.1 Differences Between Three Products According to Puttick Grid ......... 20

Table 1.2 Order Winners and Order Qualifiers ................................................... 23

Table 1.3 Capacity and Production Planning Limitations and Solutions ............. 32

Table 2.1 Total Cost of Ownership Calculations ................................................. 57

Table A.1 SWOT Analysis for Friction Materials Company ................................. 62

Table C.1 Detailed Hofstede's Cultural Score ..................................................... 65

Table D.1 Ten Sub-Factors for International Location Selection ......................... 71

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Case Study: Friction Materials Company Ltd

The Company History and Product Ranges

Friction Materials was founded in 1935 by Obadiah Hunt the grandfather of its current

Chief Executive and major shareholder, John Halewood, to manufacture Disc Brake Pads

(DBP) for the growing car market. He focused on the Elite Specialist Market of high end

vehicles, such as Rolls Royce, Bentley and Lagonda. The volumes were very low,

sometimes only 1 or 2 sets a week of any particular type. However, as their success grew

and at the same time so did the market size, they gained more and more customers, and

produced a wider and wider range of products.

In the 1950’s they still specialised in high-end vehicles, and these volumes were still low.

However, the requirements and technical demands became greater as the vehicles

became larger, heavier and faster, and breaking needed to be sharper and more reliable.

Obadiah was very proud of their technical knowledge and flexibility, often boasting that

there wasn’t a vehicle in the country or even the world that they couldn’t stop. This

resulted in two things, they never threw away or deleted a design from their production

range, so that they could always supply a previous customer no matter how old the

vehicle, and also their technical knowledge of blending and mixing materials was

excellent. They were very proud that they never turned away an order. This meant that

they were capable of producing products for a wide range of vintage cars (which were no

longer in standard production). This meant manufacturing either one-off or pairs in very

small numbers e.g. sets of 4 or 8 or even fewer components designed specifically for that

vehicle and supplied direct to the customer or a specialist vintage dealer and repairer. The

order profile was very erratic, with the type required and volume of demand varying

greatly depending on when the components were required, although there was a

seasonal peak during spring and summer as this was when the enthusiasts would start to

prepare their vehicles to take them on the road during the good weather.

Obadiah felt that their market size wasn’t really great enough. The speciality, high-end

markets were good, high margin and technically challenging, but he wanted to exploit their

skills and flexibility in designing and mixing any type of brakepad. At the same time he

didn’t think that they were capable of competing in the very high volume markets of the

mass production companies, and producing these limited ranges would not be playing to

their greatest strengths.

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Their Own Brand ‘Stop-Rite’

At that time, almost consumable spare parts were produced and sold through the branded

car manufacturers and were extremely expensive. Obadiah’s son Oliver and his business

partner, Gareth, saw that there was a market for less expensive, yet still capable, DBP,

which would serve the ‘Atermarket’ (spare or replacement parts for models still in

production but replacing worn out components when cars was serviced by an

independent garage or the owners themselves). Thus they started their own brand called

‘Stop-Rite’. This was a move away from the very small numbers involved in supplying the

vintage, specialist market and would now involve production runs of 100-500 sets from a

medium but increasing sized range of components. The demand profile was still variable

as there was no fixed level of requirement as this purely depended on customers’ needs.

There was a higher volume and fewer variants than with the Specialist Market, and again

there was a peak existed in the winter as the weather necessitated that the motorcycles

were fully functioning. The Intended customers were the smaller independent dealers and

repair shops as well as the drivers who carried out their own servicing. These customers

would be supplied via motor vehicle aftermarket parts supply dealers and the small

number of national retail chains specialising in automotive supplies.

Through the 60s, 70’s and 80’s the business has grown steadily and its brand “Stop-Rite”

is now a significant and well-regarded product in the automotive aftermarket parts. It now

produced brakepads for almost every current vehicle in production, and most for those

that had been in production in the last 20 years. This meant that they not only produced

and sold in the UK but also in the major Western European markets. However, they were

still stuck to Obadiah’s original philosophy of being able to stop anything, and never

turning away an order, no matter how small.

The business has grown steadily as the sales of cars increased as many people were

now able to afford a car and wanting to be mobile. In addition sales had further increased

both at home and abroad due the greatly increased popularity of the smaller car.

Following Gareth Woolton’s retirement in 1999, and the loss his father Oliver who was

eaten by a tiger in a tragic accident at Woburn Safari Park in Bedfordshire, John

Halewood took full control of the company and his family own 90% of the shares, the

remainder being held by other senior employees. Other finance is provided by their

bankers in the form of long-term business loans. Turnover had exceeded £20 million

(approx. 2 million sets of pads) for the first time last year (2014) and the business made a

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satisfactory profit, though John was becoming increasingly concerned by competition from

low cost Far Eastern suppliers.

New Markets

With the growth of automotive manufacture in the UK, through the investment of the

Japanese manufactures, the Germans with BMW, and the expansion of Jaguar Land

Rover, the company now has its first opportunity to be considered as an original

equipment (OE) supplier, supplying directly into one of the major manufactures initially in

the UK. Though, initially, this would add 250,000 pads (12.5%) to the production volume,

but there is only one product specification to be produced. Pricing for OE products is very

competitive, and unit prices would be much lower than the existing sales prices for the

Aftermarket. More importantly, success in this new venture will open up opportunities in

the much larger European OE market. John considers that are now in a position to be

able to compete in this market, with the brand name that is trusted in the market and the

industry, and the skills to be able to mix and manufacture brakepads to manufacturer

specification, and were now able to cope with the large volumes involved, even though

the largest batch size that they made at present was still only 1000 sets, and usually the

order of a few 100.

John believed that entry into the OE market will help insulate the company from the

growing Far Eastern competition, and possibly even break into that market as well,

although that would be some years away. However, OE supply will mean tighter

conformance to product specification, meeting exact product standards as specified by

the customer, and consistent performance and improved quality assurance ensuring that

performance is exactly as required, not even at a higher level, just at the standard

specified. It will also require accurate record keeping, to ensure complete traceability of

production batches: raw ingredients, components, manufacturing and delivery. It would

also be important to supply exactly as the customer required as stopping their production

line would result in severe fines.

A batch of several hundred samples will need to be produced to obtain type approval from

the manufacturer. QC procedures and process capability will be audited by the customer’s

own technical experts, before then producing runs of 5000 sets per week, a much greater

volume than the maximum of a 500-1000 that they currently supplied. Winning a contact

with such a manufacturer would be very prestigious for Friction, and would mean a huge

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increase in demand although this should be relatively stable and predictable as initial

forecast volumes would be provisionally ordered up to a year in advance.

Meanwhile the Aftermarket is also doing well, but the distributors are also becoming cost

conscious, however, this is still relative, and the price charged for a spare part to a customer

repairing his car is typically 10x greater than that of the same part supplied to the OEM.

Therefore, because of the cost, rather than reducing the amount that the Distributers are

willing to pay, this has resulted in the Distributors reducing the amount of stock they hold, and

they are demanding that Friction decrease their lead-times and supply the parts rapidly, so

that they in turn can to meet the customers demand for replacement parts the same or next

day.

Organisation

The company organisation is shown overleaf. Nowadays, John mainly concerns himself

with the overall strategic direction of the company and liaison with external financial

providers. Day-to-day operations are managed by a team consisting of the other four

executive directors and Bob Cronton, the Works Manager. If he is available, John chairs

the team though normally his son Tony, the Sales Director, takes on this role. Tony

expects to take over as MD in two or three year’s time when his father semi-retires though

John intends to remain Chairman for the foreseeable future. There are now 49

employees and the company expects to make the jump from small to middle sized

company (>50 employees) during 2006.

Friction Materials Ltd. – Organisation Chart

The Product Mixtures

DBP are apparently simple products consisting of a block of friction material attached to a

mild steel backplate, which connects the DBP to the callipers of the braking system.

However, each braking systems need a different specification of backplate and the friction

material is a complex mixture of ingredients; these include solid and liquid resins, solid

4 Professional

3 Technician

3 QC/Test

Mike Childwall

Technical Director

1 Buyer

Frank Knowsley

Senior Buyer

2 Maintenance 2 Stores

9 Operators

Terry Huyton

Team Leader -Pressing

5 Operators

Leon Allerton

Team Leader - finishing

Bob Cronton

Works Manager

Rainford Singh

Planning Controller

David Whiston

Operations Director

4 Sales

2 Clerical

Tony Halewood

Sales Director

1 IT

1 Accounts

2 Clerical

Eileen Widnes

Company Secretary

John Halewood

Chairman & MD

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and liquid rubbers, Kevlar, copper powder, steel wool, fillers and anti-oxidants. These

form a wide variety of ingredients, none of which naturally bond together easily. Braking

performance for any vehicle is achieved by the use of different ingredients in varying

quantities. Even a small company, such as Friction Materials, uses at least four different

base resins, and a wide variety of ingredients, most of which appear in a wide variety of

formulations. Most base formulations can be used for several different DBP, although

they may need some minor adjustments, and some are uniquely designed for a single

product. However, when the braking material and formed, each is unique to its specific

Braking performance is not simply measured by stopping power, though this is crucial, but

also in terms of squeal (the noise the brake makes when applied and slowing the car),

judder (the vibration or non-smooth stopping of the vehicle) and fade (the loss of stopping

power as the brake wares and ages). Consistency of performance is very important in the

marketplace and this is achieved primarily by consistency of mixing of the friction material

ingredients.

New Product Design and Development

The Technical Director, Mike Childwall, and his team are responsible for developing new

DBP. He explained that the volume of New Product Launches as increasing and now they

they would typically launch 25-50 new brake discs a year, depending on car launches and

manufacturer upgrades. Obviously the Vintage products were all different, and demand

and numbers were unpredictable. For the Specialist Market dimensions are taken from

records if they existed, or more often calculated from a sample of the existing disc using a

range of components and then designed as a bespoke item using their skill and

experience.

He explained that the whole Design Process was complicated, but particularly key was

the development of the resin mix, with the appropriate blend of all the essential

components required, as this gave the brakepad its key properties for stopping the

vehicle, the smoothness with which it did so, and the rate at which the brakepad wore

down. Therefore this was really essential for the success of any product. However , the

Design Team were finding it hard to cope with the increasing volume of NPD that was

being required of them.

For the After-market, the dimensions of the backplate and friction pad are taken from the

equivalent OE component specifications and then modified slightly to avoid patent

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infringement, though all mounting points to fix the plate into place on the wheel, must

remain the same. A suitable friction material is formulated using an amalgam of science,

heuristics and experience, Mike described it as an art of blending based on a science of

understanding materials. However, once a mix had been formulated to meet a set

specification, it was essential that every disc produced to that formula, not just with in

batches, but also between batches was absolutely constant, no matter when it was last

produced. Brake test rigs and a small dynamometer are available for development of new

DBP. Design of new press tooling is carried out by an engineer in the technical

department though all tool manufacture is done by a local specialist firm that has worked

with Friction since the company’s early days. All new ingredients and all materials from

new suppliers are tested by the technical department. This whole process could take

many weeks, especially getting exactly the right amalgam mix to meet the required

breaking performance, and production trials could take some time.

Specialist and Aftermarket DBP do not need the automotive or brake system

manufacturers’ approval but Stop-Rite’s position in the market relies on a quality image

built up over the last 50 years. The threat of legal action in the event of product failure

also ensures that product quality, both in design and manufacture is taken very seriously

by the company. In addition to the standard production of these products over the total

volumes involved across the years, and not just single production runs, means that it is

important, and relatively simple to implement a variety of quality systems and controls on

the factory floor, samples of finished DBP are tested on the rigs and dynamometer in

technical department.

Initially the new OE products would be produced to the specifications already derived by

the motorcycle manufacturer. OE supply will mean tighter conformance to product

specification, meeting exact product standards as specified by the customer, and

consistent performance and improved quality assurance ensuring that performance is

exactly as required, not even at a higher level, just at the standard specified. Later if

Friction were fortunate enough to become a supplier of choice they would be expected to

design DBP that met the manufacturer’s requirements they could use their skills and start

to innovate and develop new lines which could be incorporated in future concepts and

designs.

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The Business Process

Customer orders are received by the order processing clerks in sales department and

inputted into the recently purchased AllianceMFG® small business production and control

system. This system is intended to form the backbone of the company’s organisation and

planning and has been installed with terminals in all major departments. Because of the

varying volumes and variety of the products a suitable planning and control system had to

be implemented, that was capable of managing not only the production volumes required

and when, but linking these to operational capacity and the product flow, to ensure

maximum product throughput efficiency. The planning system is updated at the end of

each day and generates new manufacturing orders where needed, based on batch size

and minimum stock level rules held by the system, to ensure that the Raw material Stock,

WIP and finished Good Stock, together with the manufacturing capacity, were all

optimised to enable the company to meet customer orders on time. These rules were

devised by Rainford Singh, the Planning Controller, based on current operating practice

and in agreement with the sales department. The system also calculates new material

requirements and purchasing department can convert these requirements into purchase

orders directly on-screen. However, the system is not web-enabled and purchase orders

are posted or faxed to suppliers, usually as confirmation of a telephone order. Frank

Knowsley, the Senior Buyer, does not consider the lack of web capability a problem:

“It is a step too far, not only for us but for most of our suppliers who are also small

companies. I would much rather deal with a person than a machine.”

Suppliers

Nearly all Friction Material’s suppliers are UK based though some specialist ingredients

are sourced overseas; safety stocks are held of any material where delivery lead time is

more than one week.

The majority of the raw materials are not difficult to acquire, being commodity products,

although some of the speciality resins used to bind the constituents of the brakepads, are

only available from the large scale chemical companies.

The main component that is bought in is the Fine-Blanked Backplate, which are sourced

from two UK suppliers that Friction Materials have used for many years. Friction’s Head of

Purchasing explained that they dual sourced for two reasons: First to mitigate risk and to

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try to ensure business continuity in case of the delivery failure of one of the suppliers, and

Second was to compete one supplier against the other in order to help to try to force down

the price of the backplates. This was considered important because the backplate

represented the most expensive single component of the assembly. However, this was

not always very successful because both suppliers selected, from the broad range of

small to large suppliers available, were very large producers in the market and typically

supplied direct to OEM Automotive manufacturers. As a result, though very reliable in

terms of quality and delivery, the backplate suppliers’ minimum order quantity is 2,000,

much larger than the normal production batch size of 300-500, and even bigger than their

largest batch quantity of 1000. As a small company, Friction Materials has had little

success in persuading suppliers to reduce process or deliver Just-In-Time.

For the Specialist one-off or small quantity DBPs individual bespoke backplates were

machined in house using specialist equipment.

Raw material and finished product stock records are held by the computer system and all

stock movements into and out of the factory are recorded. WIP records are available as

in-process works orders, though the level of progress of a current works order is not

recorded. Little actual use is made, as yet, of the capacity planning features of the

planning system. All transactions are copied each evening into the Sage® accounting

package to update financial ledgers and payroll information.

The Location

The factory and offices are situated on a small industrial estate in Sherborne a small

market town in Dorset in the South-West of England. The reason that the factory is there

is simply because that is where Obadiah was born and grew up, and set up his business

in a barn next to his house. This has proved to be problematic in recent times as this is a

tradition of agricultural area with little skilled automotive labour in the nearby towns. There

is very little unemployment in the area but wages are not high as much of the population

is involved in manual agricultural work. However, wages offered by Friction Materials

need to be high to attract good employees a long way from their normal areas. The

advantage of such a rural location is that there is plenty of space for expansion is

available within the existing building.

Transport links are not good, Dorset is the only county in the country without a motorway

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running through it. Travel by car is OK, but the roads are not good, and there is little public

transport. The town is situated in a rural location making the location not very convenient

for transport of raw materials and components to the factory, nor the finished products to

the customers’ factories. The factory is located about 100-150 miles away from the

nearest automotive factory, which takes 5 hours travel because of the poor roads, and

other automotive factories are at least 2-300 miles away in the Midlands, or even further

in the North of the country.

The Current Manufacturing Process

Factory operations are the responsibility of David Whiston, the Manufacturing Director,

who has recently joined the company from a large international auto-components group.

Though nominally the superior of Bob Cronton, the Works Manager, they will actually

work very much in partnership until Bob’s retirement at the end of 2016. Bob has many

years’ experience at Friction Materials and is very capable of running the current

operation effectively. David’s major task is to bring modern management techniques to

the operation.

“Bob is a good old-fashioned production supervisor and knows all the tricks

needed to make this place work. However, he is not comfortable with change

and, even without the possibility of OE manufacture, there are many things that

need doing here. I am the first qualified and experienced manufacturing engineer

that the company has employed and I am going to be kept very busy!”

The Production Process

The manufacturing process is shown schematically below:

Pressing Team Finishing Team

The production process is the same for all Brake-pads, irrespective of volume or type. The

Specialised and Aftermarket products are manufactured in the same way. The only

difference is the volume.

Mix Press Bake Machine Paint Pack & LabelMix Press Bake Machine Paint Pack & Label

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The Pressing Team

The first and possible the most important stage in the process was the mixing of the

binding resin and all the constituents to form the brakepad. Mixing the appropriate blend

of all the essential components required, was quite a complex processes as the

ingredients did not naturally combine easily, and yet an even and consistent mix was

essential because this gave the brakepad its key properties for stopping the vehicle, the

smoothness with which it did so, and the rate at which the brakepad wore down.

To follow the mixing process, the first step to draw the materials from the stores, weigh

out the required quantity for the mix to be made and then add the ingredients in a pre-set

order to the mixer. There may also be a specified rate for addition of some ingredients.

Though the mix formulation tries to work in whole package sizes, this is not always

possible and part packs of unused raw materials are stored in the mixing area; the mixing

operator must remember to use these materials first. There are three mixers; two

produce a batch that will make approx. 1,000 DBP in a cycle time of 1.5 hours and the

third produces a batch for 300 DBP in 1 hour. Finished mixes are stored adjacent to the

presses in drums fitted with lids. To avoid cross-contamination, drums are permanently

dedicated to only one mix formulation. One difficulty is that these mixes have a “shelf life”

of no more than one month because of chemical action between ingredients and one of

Rainford Singh’s tasks is to ensure that all mixes are used up before they become out-of-

date.

The DBP are formed on manually loaded presses with heated platens. The operator

loads the friction material into the die using a specially designed scoop to ensure that the

correct quantity of mix is used. The backplate is positioned and the press operated. The

die remains closed for 30 seconds to allow the pad to partially cure giving an overall cycle

time of 40 seconds. Press changeover time to another product is about 40 minutes.

There are 20 presses, grouped in fours. One operator can work up to three presses

simultaneously with one, and frequently two, presses undergoing set-up. SPC charts are

maintained at each press, though only pad dimension and density are checked. Pressed

DBP are loaded into trays for oven baking to complete the curing process.

The baking cycle is three hours and over 90% of all DBP are cured using one of two

temperature profiles. There are two large ovens, one permanently set at each profile; two

loads per day in each oven normally covers production needs, though an imbalance in

profile requirements or the need to run an uncommon profile may make a third load, on

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overtime, necessary. The start of the curing cycle marks the end of the pressing team’s

process responsibility. All team members are capable of carrying out all the section’s

operations and regular rotation of jobs is practiced, though Terry Huyton, the Team

Leader, tends to operate the mixers; not only is this the most critical operation for

ensuring a quality product but it also allows some time for team leading duties when all

the mixers are running.

The Finishing Team

After unloading from the ovens, the DBP are machined to ensure consistency of the final

physical dimensions of the friction pad. The machining operations are carried out by

machining centres consisting of a pair of interlinked CNC machines with magazine feed;

three pairs of machines are available and they are now running at full capacity with

overtime working often required. Though the machine tools are of a simple standard

design, the magazine feed, machine linkage and tooling were designed and manufactured

by a small specialist company in Coventry. An automated 100% dimensional check is

carried out after machining. Though Friction Materials carried out all routine maintenance

and programming, specialist support is needed from the supplier for major modifications

and new tooling. A new machining centre will cost £165,000.

After machining, the pads are loaded into racks for manual spray painting of the

backplates. As with the Model T Ford, the only colour is black. The DBP air-dry overnight

and are then moved, on the racks, to be packed. Finished pads are manually packed,

four at a time, into one of two sizes of pre-printed boxes. The boxes are purchased in

large batches from a local printing company and supplied flat for assembly when needed.

A pre-printed adhesive label carrying details of the product type (Cars that the DBP will fit)

and production batch number is attached to each box. The batch number allows any

subsequent quality problem to be traced back through the process to raw material

suppliers’ batch numbers if necessary. These labels are produced on a PC and printer in

the packing area using data from the batch documentation. Finished packed goods are

then transferred to finished goods stock.

Whilst the finishing team of six operators can all work flexibly within their area, only Leon

Allerton, the Team Leader, is capable of working in the pressing area.

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The Manufacturing Process for Specialist DBPs

The manufacturing process for the Specialist DBPs is exactly the same as for the

Aftermarket, however, the volume is much smaller, and this involves specialist

manufacturing procedures, with the procurement of raw materials in smaller quantities at

higher prices, and either the use of smaller mixing or production equipment, or in some

cases where the cost of dedicated machinery is prohibitively expensive, the sharing of

existing machinery with the Aftermarket production. Ideally fewer more highly skilled

employees are involved in the process, although sometimes the standard workers are

assigned to carry out some part of the process if required.

Production Planning and Scheduling

Though the DBP manufacturing process is fairly simple and straightforward, actually

achieving 100% customer satisfaction without carrying unsupportable levels of stock or

working significant overtime is a more complex problem. As an aftermarket business,

most demand is for “repeaters” with an increasing number of “strangers” as more products

reach the end of their product lifecycle. The Specialist markets are all ‘Strangers’.

Finished product stock levels are calculated based on traditional statistical stock control

principles, but wanting to be able to supply all products the same day, so maintaining a

high level of finished goods stock.

For the Aftermarket Products, the standard manufacturing batch size is 300 pieces, based

on the capacity of the small mixer and is a compromise between set-up time on the

presses and stock level. However, the need to avoid material wastage by allowing mixes

to exceed their shelf life, to use oven capacity effectively and to minimise overtime

working means that Rainford Singh’s weekly production schedule actually changes daily

and, sometimes, even hourly. A scrap rate of 5% is allowed for in the re-order level but a

large problem on a particular batch may mean that a short-term replacement must be

scheduled. Rainford’s summary of the situation is:

“I thought that a more complex Production Control System would make my life

easier but all I actually seem to have is yet another boss. All I seem to be able to

do is keep fire-fighting.”

For the Specialist Products there is no special low volume production equipment

available, and so they simply have to use the smallest volume equipment that is available.

13


This naturally leads to delays in the production of the other batches of Aftermarket

Products. Also there can be delays in the production process and the Specialist products

are left waiting for other products with similar baking times etc. If waiting times are too

long the ovens etc. can be used for these products on their own, but this is not the most

efficient means of running the business.

The Way Forward?

Winning an OE contract will have many benefits for the company: it will provide a stable

long term base-load of work for the company and success with the first contract will give

confidence to the company and customers alike when further OE work is sought. On the

other hand, high quality standards will have to be maintained and on-time delivery to meet

the customer’s JIT scheduling is essential. Failure in either of these areas will mean loss

of the contract with serious, and possibly fatal, consequences to the company.

Even without an OE contract, there is need for change; Far Eastern and Eastern

European products are putting prices and margins under pressure. Though the quality

and performance of many of these DBP are poor, the market at the lower end is very

price-sensitive. Large capital investment is one possible solution; presses with automatic

loading/unloading and a 20 second cycle time are available for approx. £175,000. The

set-up time of 2 hours on these machines has made them of little interest in the past but

the may be more suitable for OE production. However, Friction’s policy to date has been

to use second-hand equipment where possible. As John Halewood remarked recently,

only partly in jest:

“One of our competitive advantages is that many of our machines, if not the

tooling, are depreciated to zero!”

14


Question 1

Using the Modified Hill Framework combined with the Hayes and Wheelwright

Elements given in the OPSI Module formulate and compare and contrast the

manufacturing strategies for the different Specialised, Aftermarket (Spare or

Replacement Parts), and the new proposed OEM market. In doing this, it is

intended that you compare and contrast how the customer requirements and

product characteristics for the ranges vary and so how the strategic operational

decisions that need to made will also differ. Discuss what implications and

problems there might be when trying to manufacture all the ranges with the same

operational strategy or on the same facilities.

Question 2

It is 3 years after the case described above, and Friction has been operating in

the OEM Market very successfully. Sales have grown steadily in both the OEM

and after-sales market, and they are set to grow further. Friction have now been

offered a long-term contract with the OEM manufacturer to supply the same

products at an even greater volume, and with a constant demand, the market has

become highly competitive pressure on costs, and Friction need to be very price

competitive to win and keep the contract. To give them the space to expand, and

meet the new competitive criteria, Friction have decided to take the opportunity to

look for a new production facility in which to produce the OEM Range. This facility

could be located in the UK or Offshored to one of the relatively low cost countries

of Turkey or China. In addition they could decide that the production of the OEM

product could be Outsourced to a local manufacturer. Discuss the issue of

Outsourcing and Offshoring and using the appropriate models concerning

Globalisation, Offshoring and Culture, advise the company on which of the

possible countries this should be done, and then using the appropriate

Outsourcing Models, whether or not Friction should outsource this Product Range

or retain it in house, and build and run their own factory. To illustrate your answer,

you may wish to make further assumptions about the company. This is

permissible but you must state and justify your assumptions and they must be

appropriate to the type of company outlined in the question.

15


1 Friction Materials Company Ltd – Make or Buy Decision

The purpose of this paper is to formulate new operation strategies for Friction

Materials Company (FMC) using modified Hill Framework combined with the

Hayes and Wheelwright Elements. The new strategies will be revealed

progressively through set of questions generated from the model itself. Each

question will be in a separate section until getting the final one: conclusion.

1.1 Where is FMC Now: SWOT Analysis and Process Map

FMC has a good financial performance where it achieved good turn over last year

and sustained a trusted brand name over decades. Their high technical skills

enabled them to excel in the specialized and aftermarket with wide range of

products.

On the other hand, the company has an old product profile, some bad operations

practices especially underutilizing AllianceMFG® system, limited use of SPC

charts and finally the location of the plant itself which created many logistics

problems.

The company has many opportunities in the new OE market due to the growing

market and competitive prices associated. In addition this will give them new

skills and can help them innovate new products in the future.

The threats that the company is facing are mainly coming from competitors in the

Far-East and from their aftermarket’s distributors to reduce lead time.

The detailed SWOT analysis and process map are available in appendix A and B

respectively.

1.2 How Did They Get Here: Change Drivers

The company was established in 1935 and expanded their product profile due to

different change drivers that are summarized in figure 1.1. Understanding those

drivers is critical in order to develop the right strategies (Slack, Jones and

Johnston, 2013, p.255).

.

16


Figure 1.1 Change Drivers

1.3 Where Do They Want To Be: Corporate Objectives and Critical

Success Factors

The company aims at moving from a "traditional manufacturer" into a world class

manufacturer of discs and spare parts. A balance between certain critical

success factors (CSF) and corporate objectives is shown in figure 1.2. Those

factors will be discovered through the rest of this paper.

Figure 1.2 Objectives and CSFs

1.4 How Are They Going To Get There?

The first step in outlining the balance that the company should achieve is

understanding the marketing strategies.

17


1.4.1 What are the marketing strategies: current and new products families

The company produces two types of products and want to start a third one. The

Venn diagram in figure 1.3 compares and contrasts the three products' families.

Figure 1.3 Venn Diagram for The Three Markets

Although the three products should follow the same manufacturing steps, the

marketing strategies are different due to variations in market uncertainty, product

complexity and product life cycle as will be explored in the next sections.

18


1.4.2 How does the market view Frictions Company’s products now:

Puttick Grid

Puttick Grid, which classifies the products according market uncertainty and

product complexity, is shown in figure 1.4 (Turner, 2002, p. 132).

Figure 1.4 Puttick Matrix for FMC

Source: Turner, 2002, p. 132

In FMC, market uncertainty is affected by: production volume, product range

and demand profile, while product complexity is affected by firstly, the types of

breaking systems they produce because each breaking system has different

specifications of back plate. Secondly, the high number of components in the bill

of materials (BOM). Finally, the complexity of the mixing process itself which is

done according to different number of formulations. These formulations are

adjusted from one type to another in order to give each breaking system its key

performance characteristics.

Trying to produce the three types of products using the same set of

manufacturing strategies means:

Difficulties in production planning due to the differences in market

uncertainty.

Extensive machines' change over and set ups.

More variation in raw materials.

19


FMC can simplify its product range by:

Reducing the types of breaking system they produce and delete the old

profiles.

Provide separate production processes with dedicated equipment for each

one.

Install an automated mixing machines to reduce the human factor in the

mixing process.

Utilize research and development to reduce the number of components in

the BOM and the number of formulations they use. The customer does not

notice the differences in the BOM.

Table 1.1 summarizes those factors and how they affect the way the customers

view the products. Accordingly, Product Life Cycle (PLC), order winners/

qualifiers, organizational skills and competencies and finally manufacturing

processes are different.

20


Table 1.1 Differences Between Three Products According to Puttick Grid

21


1.4.3 How do the sales over time look like: Product Life Cycle (PLC)

The PLC is used to give a general overview for the customers’ behaviours and

how it affects the operations performance (Slack, Jones and Johnston, 2013, p.

78). The different PLC are shown in figure 1.5 so each one need different

management strategies.

Figure 1.5 Product Life Cycle for the Three Products

22


1.4.4 Which areas to focus on for improvement (as per customer point of

view): order winners and order qualifiers

In order to find the areas that the company should focus on, order winners and

order qualifiers are summarized in table 1.2 (Slack, Jones and Johnston, 2013, p.

77). Since specialized products are serving vintage cars under limited number

of competitors, customers are interested a good quality, reliable parts, available

in the store, within the range that they need, and under "Stop Right" brand name.

These are the order qualifiers. If these products are coming with a good lead time

and a good price, that would be the order winners. Finally, volume and innovation

is not important because customers usually request one-off or small number of

sets only.

For aftermarket, the customers have plenty of options, however, they will start

considering this company because of its brand name, consistent performance,

short lead time and product availability in stores. These are the order qualifiers.

As products are more reliable, in a wide range, high volume and lower prices the

customer will buy more so these are the order winners.

Finally, for the OE market, the customer (OEM) will consider FMC if they meet

the required quality and reliability standards, have the product available in stores

at the required lead time, with the required volume and lowest price. These are

the order qualifiers. The more the brand name is important and the more they

work on new innovation, they can win more orders. These are the order winners.

In this market, the product range is less important because the manufacture will

be interested in one product only.

According to this discussion, the three products win orders in different ways in the

market place, therefore different critical competencies and skills are needed as

the following:

Specialized products: time management in order to satisfy the sudden

needs and developing a vision for this low- volume market.

Aftermarket products: time management too in order to serve the short

PLC, in addition to technical skills to cover the wide range of product.

OE products: logistics, manufacturing productivity, and cost control to

serve the OEM at the lowest cost and the shortest delivery time.

23


Table 1.2 Order Winners and Order Qualifiers

1.4.5 What are the characteristics of the needed operations: 4V’s

Different operations are needed to fulfil the requirements of the three product

ranges. The typology of operations in terms of the 4V's is shown in figure 1.6

(Slack, Jones, Johnston, and Betts, 2012, p. 22). The figure implies that:

Volume: OE market has the highest volume (5000 sets a week),

specialized market is the lowest (<10 sets a week) and aftermarket is

between them (500- 1000 sets a week). The manufacturing process for the

OE products would be repeatable, systematic and employees will have the

chance to develop specialized skills. The high volume will allow reducing

the unit cost as well. In contrast, specialized products are less repeated

and require few highly skilled- employees during production process. Unit

price is the most expensive one among the three products.

Variety: specialized products have the highest product variety since it

covers small number of cars, but with very specific needs. Aftermarket has

a higher variety too since it covers number of cars that are running now or

were in the last 20 years. In contrast, OE market will cover one

manufacture only in the first stage. The high variety in specialized and

aftermarket needs flexible product range while OE products will be more of

regular and standardized products.

Variation in demand: OE market comes with the lowest variation in

demand since the demand is almost predicted one year ahead, while the

demand in the specialized market is unpredictable. The demand of

24


aftermarket is more predictable than specialized products, however, this

high variation put pressure on the company where they have to keep

changing their capacities in order to meet the customers' demand. In

contrast, OE products can be produced and stored for future demands.

Customer contact: Special market has the highest customers' contact so

higher customer service skills are needed comparing to the OE products

and aftermarket.

The 4V's for each product will be further analyzed in capacity planning and

manufacturing processes' selection.

Figure 1.6 Four V’s for the Three Products

Source: Slack, Jones, Johnston, and Betts, 2012, p. 22

1.4.6 What are the company's objectives: five performance objectives

The current performance and the desired performance for each of the three

product ranges are illustrated using a polar diagram in figure 1.7. Polar diagram

provides an overview for the relative importance of each objective for the product

or the service (Slack, Jones and Johnston, 2013, p. 58 and p. 60). According to

that, the current performance in specialized market and aftermarket should be

improved in terms of quality and volume flexibility. In addition, this performance

will not be enough to compete the OE market. The company should improve its

quality performance even further in terms of fitness to use and reliability, speed

performance in terms of the delivery lead time, dependability performance in

terms of product availability in stores, cost performance in terms of the unit cost

and hence the selling price and finally the volume performance in terms of the

flexibility to produce high volume.

25


The detailed performance measures will be illustrated in a balanced scorecard in

section 1.4.20 and will be used in formulating the critical success factors needed

to achieve the balance in figure 1.2.

Figure 1.7 Polar Diagram for the Three Products

Source: adapted from Slack, Jones and Johnston, 2013, p.60

1.4.7 What is the next step? Vertical integration or outsourcing

The first structural element of the new operations strategies is configuring the

supply network and considering the vertical integration or outsourcing (Slack,

Jones, and Johnston, 2013, p. 155).

The next sections will answer the question of make or buy for two processes

(mixing and design) and the procurement of one component (back plates).

1.4.8 Make or buy decision? Abbetti Matrix and Venkatesan's Flowchart

In this section, two tools will be used to double check the decisions. Firstly,

Abbetti matrix which plots technology importance to business and technology

competitiveness position (Probert, 1997, p. 23) and secondly, Venkatesan's

flowchart which starts the decision tree by classifying the processes as strategic

subsystems or non-strategic ones until getting to the final decision (Venkatesan,

1992).

26


The mixing process is a “core” process and very important to the business

because it is the main factor that affect the consistency of the breaking system,

this in turn affects the brand image and trust. Bad mixing can lead to legal

consequences in case of product failures. In addition, the mixing process by itself

gives the product its competitive position because it is done according to pre-set

formulas, which are confidential and part of the companies' intellectual assets.

According to the two tools in figure 1.8 and figure 1.9, the company should keep

this process "in house".

FMC does not make the design process of breaking systems. In case of New

Product development (NPD), the technical team takes the dimensions from

records or existing disc (in the specialized products) or even takes them from the

equivalent OE and modified them to avoid the risk of breaching the patents (in

aftermarket products). The design also will not add a great competitiveness in

case of OE market, because the specs will be provided from the manufacturer.

Having said that, the design capability will allow the company to innovate more

products in the future. According to the tow tools the design capability can open

new opportunities in the future, therefore, it should be "harvested gradually".

The back plates components give “natural” competitiveness to the products,

since the core is in the mixing of friction materials and the back plates just

connects the Disc Brake Pads (DBP) to the callipers of the braking system.

According to the two tools, the company should keep "outsourcing" these

components, even for the specialized products which are currently machined

internally. By doing this, the company should look at the Total Cost of

Ownership to double check that the in house decision will be more cost effective.

27


Figure 1.8 Abbetti Matrix

Source: Probert, 1997, p. 23

Figure 1.9 Venkatesan’s Flowchart

Source: Venkatesan, 1992

28


1.4.9 What kind of relationships they should have with suppliers?

In order to find the current importance of the back plate components, Kraljic’s

matrix, which plots the supply risk and the profit impact, is used (Kraljic, 1983 in

Gelderman and Weele, 2005). According to figure 1.10, the back plate is a

“leverage item” because it has a low supply risk (the suppliers are already in the

UK and there are too many suppliers in the market), but it has a high impact on

their profit (since it is the most expensive component). The company can go for

negotiating a better term with the suppliers (which already did and was not

successful to reduce the minimum order quantity), so now they should seek a

strategic partnership with them.

Figure 1.10 Kraljic’s Matrix

Source: Kraljic, 1983 in Gelderman and Weele, 2005

Utilizing the power matrix that was developed by Cox (2001) in figure 1.11, the

power in this supply chain is within the "supplier dominance".

29


Figure 1.11 Power in The Supply Chain

Source: Cox, 2001

The high power for these suppliers lead to form a “nuisance relationship” as

shown in the matrix that was developed by Williams (2010) in figure 1.12. This is

because FMC purchases only small amount comparing to the high capability of

the supplier. As a result, high minimum order quantity was imposed and got large

inventory. By winning the OE market and sourcing from one supplier only, FMC

will be able to increase their purchases and then will have a “core relationship".

Figure 1.12 The Supplier Preference Matrix- Back Plates

Source: Williams, 2010

30


1.4.10 How much is enough? Capacity management

How much they need to produce?

For OE products, the plant's capacity should be measured as "units per period

of time" where this time period will be according to their agreement with the

OEM and according to the provided forecast. For specialized and aftermarket,

plant's capacity will be measured by "the amount of raw materials" due to the

variability in the demand (Slack, Jones and Johnston, 2013, p. 353).

Currently, the company produces as “make to order” while it has to produce as

“make to forecast” for the OE market. Due to the fixed capacity of the plant

(which is related to the speed of the machines and the maximum can be

produced at each one at a time), they have to use "Mixed Plan" capacity

adjustment strategy.

When do they need to adjust their capacity?

The company will produce OE products according to the provided forecast and

store in the warehouse since there is penalty when failing to meet the required

delivery time. When the demand exceeds their fixed capacity, they should adjust

it by working overtime, dealing with subcontracted employees or using part time

employees (Slack, Jones and Johnston, 2013, p. 338). This plan is shown in

figure 1.13.

Figure 1.13 Mixed Plan Capacity Adjustment

31


The differences between P to D ratio (production lead time to demand lead time)

is shown in figure 1.14.

Figure 1.14 P to D Ratios

Source: adapted from Slack, Chambers and Johnston (2010, p. 203)

Table 1.3 shows the current capacity issues and problem that affect production

planning and control, and the proposed solutions, and figure 1.15 shows a

summary for the long term, medium term and short term capacity strategies.

32


Table 1.3 Capacity and Production Planning Limitations and Solutions

33


Next for Table 1.3

34


Figure 1.15 Capacity Planning and Control

35


1.4.11 What manufacturing processes they will need? Process type and

layout design

According to the 4V's discussion in section 1.4.5, the manufacturing processes

for each product type are shown in figure 1.16.

Figure 1.16 Manufacturing Processes for the Three Products

Source: Slack, Jones and Johnston, 2013, p. 102

The specialized products are placed under "jobbing" process. This implies that

the company should employ highly skilled operators for this type of products. For

the aftermarket, a "batch" process is selected in order to give the needed

flexibility to cover many types of cars with the required higher volume. The OE

products will need "mass" process which will reduce the cost (economies of scale

and low operator skills), provide low WIP (work in progress), and provide fixed

capacity with high throughput efficiency. Time and cost are two of the main order

qualifiers for this type of products (Slack, Jones and Johnston, 2013, pp.103-

104).

The difference in manufacturing processes imposes different layouts as shown in

figure 1.17.

36


Figure 1.17 Manufacturing Layout for the Three Products

Source: Slack, Jones and Johnston, 2013, p. 202

Currently, the company has "process" layout where similar machines are

grouped together (CNC machines are interlinked in cells of two- machines for

example) to increase their utilization. Materials move between machines

according to the flow diagram in figure 1.18 which gives the company the

flexibility to produce the two types of products.

This design will not be sufficient for the OE market, because it provides high WIP,

high lead time and even low capacity utilization (where some machines have

higher cycle time than the others). Therefore, a "product" line is required.

37


Figure 1.18 Current Process Layout for Specialized and Aftermarket Products

The company is still need to implement certain actions to get the advantages of

these selections and overcome their limitations as will be shown in the next

section.

38


1.4.12 What are the advantages and limitations of each selected option?

Trade-offs/ productivity

According to the selected process types, process layouts and the capacity

planning in section 1.4.10, the suggested plant's layout and the detailed one are

shown in figure 1.20 and 1.21 respectively.

Each of the selected choices has its advantages and limitations so different

actions should be taken as illustrated in figure 1.22.

1.4.13 What process technology and Information Technology?

As discussed in the capacity planning and control, figures 1.19 summarizes the

needed process technology and information technology.

Figure 1.19 Process Technology and Information Technology

39


Figure 1.20 Proposed Plant's Layout

Figure 1.21 Proposed Plant's Detailed Layout

Operations Strategy for Industry Page 40


Figure 1.22 Trade-offs/ Productivity for the Selected Manufacturing Processes

Source: adapted from Slack, Jones and Johnston, 2013, pp.103-104 and p. 202

41


1.4.14 What production planning and control system is needed?

The first infrastructural element is having an appropriate production planning and

material control system. The current one, AllianceMFG®, would be enough for

the medium term. Some upgrades are needed to make it web-enabled. Currently,

this is solved by having some manual transactions in procurement department,

however, this will be a major obstacle when dealing with 12.5% extra volume for

the OE market. Additionally, the personnel should use this system more

effectively by tracking the progress of WIP so they can have accurate records all

the time.

In the long term, an ERP II system will be requited because it can provide an

integrated capability and database so they can ensure the required accuracy and

consistency in OE products (Slack, Jones and Johnston, 2013, p. 442).

.

1.4.15 What quality management system is needed?

The company now has a limited use of SPC and inspection practices. The new

OE market requires different quality requirements as illustrated in figure 1.23.

The company should start using more SCP charts to ensure the process

capability in meeting customer requirements. In addition, the maintenance team

should use SMED concept to reduce set up time especially for the press dies.

Starting a TQM journey is very important here to ensure that everyone in the

company is involved in this quality journey and working to meet the customer

requirements (Slack, Jones and Johnston, 2013, p. 548). As a part of this

journey, the company should provide documented procedures for the quality

practices and tests to ensure product treatability.

At this stage, FMC should implement ISO 9001 only if required by the OEM as

part of the contractual agreement.

On the long term, the company can start monitoring Defects per Million

Opportunities and reduced it using Six Sigma Philosophy and hence improving its

productivity.

42


Figure 1.23 Quality Management System

1.4.16 What are the needed HR processes?

The company should hire and train the new staff to cope with the new changes

after winning the OE contract. Jobs in mass production are repeated and hence

no need for highly skilled employees. Instead, the highly skilled employees can

be assigned for the other two products. Accordingly, the company is advised to

have a reward and motivation program because the jobs can be boring and

demotivated.

In addition, job rotation that is currently implemented is important because it

increases employees' skills and advance their job enrichment and enlargement in

the future, so they have to keep it on.

A clear communication plan should be prepared to communicate the new

changes to all employees in order to reduce their resistance to change, resolve

any job insecurity concerns and have a smooth transition into the new market

and the new plant's location.

43


A tone from the top should be communicate regularly about the new culture

where quality, lead time and cost control are the key important objectives. This

becomes crucial after starting the TQM journey where everyone will take part of

that journey.

A performance monitoring system should be established. Employees should

be rewarded against clear criteria and based on a performance that is linked to

the strategic objectives of the company.

1.4.17 What are the needed changes to the organization? Organizational

structure

The needed changes to the organizational structure are shown in figure 1.24.

44


Part 1 of 2

45


Part 2 of 2

Figure 1.24 Organizational Structure

46


1.4.18 How do they perform product and process development?

According to Abbetti Matrix and Venkatesan's Flowchart in section 1.18, the

design process represent a future opportunity for the company especially when

they win an OE contract where they can innovate new products at later stages.

As a result, NPD is a key success factor.

Bhuiyan suggested a framework to be used in new product development

including the defined critical success factors, metrics, and tools and techniques

for each stage. These are summarized in figure 1.25 (Bhuiyan, 2011)

Figure 1.25 Critical Success Factors and Metrics for NPD

Source: Bhuiyan, 2011

With reference to this framework, figure 1.26 summarized the steps that FMC

should use in future NPD.

47


Figure 1.26 NDP Process in Friction Materials Company

48


1.4.19 How will they allocate resources and budgeting?

As discussed in capacity management section, FMC should develop tow

business cases; one for new production line and one for new CNC centre.

Business case should address the resources needed, the benefits and how it is

linked to the organization strategic goals. Figure 1.27 outline how these two

initiatives will support the strategic direction of the company. It is worthy to

mention that no need for a new pressing machine since the separation between

specialized products and aftermarket products will provide enough processing

time for both of them.

Figure 1.27 Resources Allocation and Budgeting

1.4.20 How do they measure and review their performance? Balanced

Scorecard

The company should utilize a balanced scorecrad approach to ensure having

consistetntly an overall picture for the whole performance (Slack, Jones and

Johnston, 2013, p. 648).

The detailed measures under each of the four buckets are illustrated in figure

1.28.

49


Figure 1.28 Balanced Scorecard

50


1.5 Conclusion: The Future Lies in Their Hands

As a conclusion and in response to the change drivers that highlighted in

section1.2, figure 1.29 reveals the CSFs needed to achieve the balance and

answering the question "where do they want to be?"

Figure 1.29 Objectives and Critical Success Factors

51


2 Friction Materials Company Ltd – Offshore Decision

Offshoring decision is influenced by multiple factors. MacCarthy & Atthirawong

(2003) outlined 13 factor that affect the selection of the international location, and

then they highlighted the top ten sub-factors that strongly affect this decision.

These 10 factors are presented in figure 2.1.

Figure 2.1 Top Ten Sub-Factors in Location Selection

Source: adapted from MacCarthy & Atthirawong (2003)

These factors cannot be well-understood without considering how globalization

brings new challenges in terms of cultural differences. Hofstede, Hofstede, and

Minkov (2010, p.22) summarized the origin of those differences as "identity,

values and institutions". Accordingly, they addressed four key dimensions that

differentiate the national cultures. Later on, they expanded them to include

another two (Hofstede, Hofstede, and Minkov, 2010, p.31 and p.45). The

dimensions are shown in figure 2.3.

Beside the culture pillar, any purchasing process associated with this offshoring

decision should consider all the costs incorporated; not only the price presented

by the supplier; or what is known as "Total Cost of Ownership" (TCO) (Ellram and

Sifered, 1993).

The analysis in this section will be divided into fourfold: firstly, evaluate if the

company needs new marketing strategies. Secondly, evaluate the offshore

decision in the three countries based on the ten sub-factors, utilizing Hofstede`s

52


Cultural Score and TCO analysis. Thirdly, evaluate if the new OE products should

be outsourced or not. Finally, draw up a conclusion for the selected decision.

2.1 Do They Need New Marketing Strategies?

According to Puttick grid, the product is still “consumables” and still have the

same PLC. In addition, the order winners and order qualifiers are still the same,

however being commodities means that customer expect low prices now and

even lower in the future. Therefore, the modified polar diagram is shown in figure

2.2.

Figure 2.2 Polar Diagram for the New OE Long-Term Contract

Source: adapted from Slack, Jones and Johnston, 2013, p.60

The operations typology needed for this new contract is still the same and still

have the same 4V's in figure 1.6.

As a result, the company do not need a new marketing strategies and the product

is still with the same order winners and qualifiers except the need to reduce the

costs.

53


2.2 The Offshoring Decision

The ten sub-factors in figure 2.1 were analyzed as shown Appendix D. According

to that, China is the most suitable country since it has the largest number of work

force and best quality that can fit in mass manufacturing process. China has the

highest number of transportation modes and telecommunication system. China

also is number one in electricity producer so they have the lowest electricity tariff

and the most reliable source. Following to that, Chinese workers have the lowest

wage rate and the highest motivation.

Government of China has the highest stability in term of lowest external debit,

and Chinese workers entitled with the best industrial relations laws in terms of

union density and collective bargaining coverage. These factors provide stable

business opportunity in China among the other countries.

These factor will allow FMC to produce at the lowest cost, transport at the

shortest time and ensure a consistent and stable business in the future long term

contract.

2.2.1 Hofstede's cultural score

According to Hofstede's' cultural score in figure 2.3, China represents the best

location due to:

1- Power distance index which reflects how individuals act towards the

differences of power between them. China got the highest score which

means that Chinese employees will accept the power from their

supervisors flawlessly thus operations smoothness could be achieved. In

mass production process, the continuity of operations is a priority since

any downtime will cost a lot. The decision maker should aim at reducing

the needles conflicts that may result due to power differences.

2- Individualism index which indicates how much people look at their self-

image as "I" versus "we". China got the lowest score which means that

Chinese nation appreciates the group concept. In mass production

process, team works is not important since employees will be assigned to

individual parts of the process, however the success of FMC depends on

54


how much people are working together to reduce the cost and lead time so

they can compete in the marketplace.

3- Masculinity index which indicates how much a society is passionate

about competition and success. UK and China got the same score here.

This index is important to ensure that the employees will have the self-

motivation to lead the company's success.

4- Uncertainty avoidance index which represents how much people believe

that we can control the future. China got the lowest score which means the

employees will be adaptable and will feel comfortable with any ambiguity.

This is important in FMC since the expanding to international location

carries a lot of uncertainty by itself.

5- Long term orientation index which describes the degree to which a

nation maintains a relationship with their own past when planning for

future. China got the highest score which means it is a "very pragmatic

culture" and work continuously to inspire education and science to cope

with the future. This is important for FMC in order to ensure that its

employees appreciate the value of science and will work hard to solve

current problems to achieve long term benefits.

6- Indulgence index which describes how much people can control their

needs and desires. A high score represents "restraint" community and low

score represents "indulgence" one. China got the lowest score among the

other two countries, so it is a "restraint" community which means they are

controlled by laws and usually do not put a lot of emphasis on leisure and

fun. As a result, Chinses employees are hard worker which is important in

mass production process where jobs are repeated and can be boring.

The detailed scores and analysis is shown in Appendix C.

55


Figure 2.3 Hofstede`s Score for the Three Countries

Source: Hofstede`s Score. Available on the WWW at http://geert-

hofstede.com/united-kingdom.html. [Last accessed 2nd of Jan, 2016]

2.2.2 Total Cost of Ownership

In order to conduct TCO analysis, the three indices in figure 2.4 are used. It is

believed that these are reliable sources of information because:

BCG is a famous consulting firm with high working standards.

OECD, ILO and WBO are international and independent organizations

with clear and published polices on how to collect and analyze such

statistics.

http://geert-hofstede.com/united-kingdom.html


56


Figure 2.4 Indices for Total Cost of Ownership

Sources

1-

https://stats.oecd.org/Index.aspx?DataSetCode=RMW# , last accessed in 2nd of

Jan, 2016] and International Labour Organization (ILO) report for 2014 [Source:

http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---sro-

bangkok/documents/publication/wcms_325219.pdf , last accessed in 2nd of Jan,

2016]

2-

https://www.bcgperspectives.com/content/interactive/lean_manufacturing_globali

zation_bcg_global_manufacturing_cost_competitiveness_index/ , last accessed

in 2nd of Jan, 2016].

3-

http://data.worldbank.org/indicator/LP.LPI.OVRL.XQ , last accessed in 2nd of Jan,

2016].

https://stats.oecd.org/Index.aspx?DataSetCode=RMW

http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---sro-bangkok/documents/publication/wcms_325219.pdf


https://www.bcgperspectives.com/content/interactive/lean_manufacturing_globalization_bcg_global_manufacturing_cost_competitiveness_index/

https://www.bcgperspectives.com/content/interactive/lean_manufacturing_globalization_bcg_global_manufacturing_cost_competitiveness_index/

http://data.worldbank.org/indicator/LP.LPI.OVRL.XQ

57


The available data is qualitatively mapped due to the lack of information about

the exact costs in each category. As concluded from the new five performance

objectives in figure 2.2, cost represents the new challenge, so the company

should select the lowest TCO. In table 2.1 below, China has the lowest TCO so it

represents the best location for the new plant.

Table 2.1 Total Cost of Ownership Calculations

2.3 Make or Buy the OE Product Range?

In reference to Abbetti Matrix, this product range is important to the business

because the long term contract ensures stability and profit for the company, in

addition, this product range gives high competitiveness to the company because

being commodity means there are different suppliers in the market, but the OEM

would choose FMC because of this their capabilities specifically in this product

range. Accordingly, OE product range should be manufactured internally.

Utilizing Vankastine flowchart shows that this product range is a core and should

stay at house because it is a strategic one and can open new opportunities for

the company, especially when they utilize their technical skills to develop new

innovative lines that could form a family of products in the future. According to

that, this product range is a core and should "stay at house".

58


Abbetti Matrix and Vankastine Flowchart are shown in figures 2.4 and 2.5

respectively.

Figure 2.5 Abetti’s Matrix for OE Product Range

Source: Probert, 1997, p. 23

Figure 2.6 Venkatesan’s Flowchart for OE Product Range

Source: Venkatesan, 1992

2.4 Conclusion

In conclusion to the argument in section 2.1 and 2.2, the new internarial site

should be located in China and the ownership should "stay with Friction

Manufacturing Company" as it shouldn't be outsourced.

59


3 References

Bhuiyan, N. (2011). A framework for successful new product development.

Journal of Industrial Engineering and Management. 4 (4), pp. 746 – 770.

Cox, A. (2001). Understanding Buyer and Supplier Power: A Framework for

Procurement and Supply Competence. Journal of Supply Chain

Management. 37 (2), pp. 8 - 15.

Ellram, M. and Siferd, P. (1993). Purchasing: the cornerstone of the total cost of

ownership concept. Journal of Business Logistics. 14 (1), pp. 163 - 184.

Hofstede, G., Hofstede, G. and Minkov, M. (2010). Cultures and organizations:

software of the mind: intercultural cooperation and its importance for survival.

3rd ed. New York: McGraw-Hill.

Kraljic, P. (1993). Purchasing Must Become Supply Management. Harvard

Business Review. 61 (5), pp. 109 - 117. In: Gelderman, C. and Weele, A.

(2005). Purchasing Portfolio Models: A Critique and Update. Journal of

Supply Chain Management, 41 (3), pp. 19 - 28.

MacCarthy, L. and Atthirawong, W. (2003). Factors affecting location decisions in

international operations: a Delphi study. International Journal of Operations &

Production Management. 23 (7), pp. 794 - 818.

Probert, D. (1997). Developing a make or buy strategy for manufacturing

business. 1st ed. London: Institution of Electrical Engineers.

Slack, N., Jones, A. and Johnston, R. (2013). Operations management. 7ed.

Harlow, England: Pearson.

Slack, N., Jones, A., Johnston, B. and Betts, A. (2012). Operations and process

management: principles and practice for strategic impact. 3ed. Harlow:

Pearson.

Slack, N., Chambers, S. and Johnston, R. (2010). Operations management. 6 ed.

Harlow: Financial Times Prentice Hall.

Turner, S. (2002). Tools for success: a manager's guide. 1st ed. London:

McGraw-Hill.

Venkatesan, R. (1992). Strategic sourcing: to make or not to make. Harvard

Business Review, 70 (6), p. 98 - 107.

pp. 98-108.

Williams, A. (2010). Natural Section. Supply Management. 15 (3) pp. 20 - 22.

Website: Boston Consulting group (BCG) available on the WWW at:

https://www.bcgperspectives.com/content/interactive/lean_manufacturing_glo

60


balization_bcg_global_manufacturing_cost_competitiveness_index/ [Last

accessed in 2nd of Jan, 2016].

Website: Central Intelligence Agency (CIA) available on the WWW at:

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Last

accessed in 2nd of Jan, 2016].

Website: European Foundation for the Improvement of Living and Working

Conditions available on the WWW at

http://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_doc

ument/ef1444en_0.pdf and

http://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_doc

ument/ef1409en2.pdf [Last accessed in 10th Jan, 2016].

Website: European Worker Participation Competence Canter (EWPCC) available

on the WWW at: http://www.worker-participation.eu/National-Industrial-

Relations/Countries/United-Kingdom [Last accessed in 10th Jan, 2016].

Website: Hofstede`s Score available on the WWW at http://geert-

hofstede.com/united-kingdom.html. [Last accessed 2nd of Jan, 2016].

Website: International Labour Organization (ILO) available on the WWW at:

http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---sro-

bangkok/documents/publication/wcms_325219.pdf [Last Accessed in 2nd of

Jan, 2016].

Website: The Organisation for Economic Co-operation and Development (OECD)

available on the WWW at:

https://stats.oecd.org/Index.aspx?DataSetCode=RMW# [Last accessed in

2nd of Jan, 2016].

Website: The Word Bank available on the WWW at

http://data.worldbank.org/indicator/LP.LPI.OVRL.XQ [Last accessed in 2nd

of Jan, 2016].

61


4 Appendices

A. SWOT Analysis for Friction Materials Company

B. Process Map for Friction Materials Company

C. Detailed Hofstede's Cultural Score

D. Ten Sub Factors for International Location Selection

62


A. SWOT Analysis for Friction Materials Company

Table A.1 SWOT Analysis for Friction Materials Company

Strength

Marketing: trusted brand name and

capable to cover UK and major Western

European markets.

Finance: good turnover.

People and Organization: excellent

technical skills.

Operations: wide variety of products

even nonstandard ones.

Weaknesses

Marketing: un-updated complex product

profile and accept every order even the small

ones.

Finance: many machines are depreciated to

zero value.

People and Organization: lack of deep

maintenance skills.

Operations: FIFO (First In First Out) is not

followed in the mixing area, limited use for

SPC charts, bottle neck at CNC machines,

AllianceMFG® system is not web-enabled,

and the level of progress of WIP is not

recorded.

Opportunities

Marketing: growing market due to

popularity of small cars and expansion

for more cars' manufacturers in the UK,

pricing for OE products is very

competitive, and OE market represents

12.5%incresae to the current production

volume.

Finance: Pricing for OE products is very

competitive, and unit prices would be

much lower than the existing sales prices

for the Aftermarket.

People and Organization: OE

manufacture can adapt new innovative

products in the future.

Operations: develop new skills in the OE

products.

Threats

Marketing: pressure from Aftermarket

distributors to reduce lead time, technical

demand increases as cars become more

complex, competition from very high volume

markets of the mass production companies

(for the specialized product), and from low

cost far eastern suppliers (for Aftermarket

products).

Finance: high set up cost when moving to

mass production.

People and Organization: mass production

jobs might be boring especially for highly

skilled employees.

Operations: Risk of breaking intellectual

property rights in the Aftermarket product,

large minimum order quantity for the back

plate suppliers, and bad transportation links

to the plant.

63


B. Process Map for Friction Materials Company

Figure B.1 Process Map for the Production Process in Friction Materials Company

64


C. Detailed Hofstede's Cultural Score

This section shows the details of the cultural score as extracted from the website.

Figure C.1 Hofstede`s Score for the Three Countries

Source: Hofstede`s Score. Available on the WWW at http://geert-hofstede.com/united-kingdom.html. [Last accessed in 2nd of Jan, 2016]


65


Table C.1 Detailed Hofstede's Cultural Score

Dimension Result

"First Dimension: Power Distance

This dimension deals with the fact that

all individuals in societies are not

equal – it expresses the attitude of the

culture towards these inequalities

amongst us. Power Distance is

defined as the extent to which the less

powerful members of institutions and

organisations within a country expect

and accept that power is distributed

unequally."

"At 35 Britain sits in the lower rankings of PDI – i.e. a society that believes that inequalities

amongst people should be minimized. Interestingly is that research shows PD index lower

amongst the higher class in Britain than amongst the working classes. The PDI score at first

seems incongruent with the well-established and historical British class system and its

exposes one of the inherent tensions in the British culture – between the importance of birth

rank on the one hand and a deep seated belief that where you are born should not limit how

far you can travel in life. A sense of fair play drives a belief that people should be treated in

some way as equals."

"At 80 China sits in the higher rankings of PDI – i.e. a society that believes that inequalities

amongst people are acceptable. The subordinate-superior relationship tends to be polarized

and there is no defense against power abuse by superiors. Individuals are influenced by

formal authority and sanctions and are in general optimistic about people’s capacity for

leadership and initiative. People should not have aspirations beyond their rank."

"Turkey scores high on this dimension (score of 66) which means that the following

characterizes the Turkish style: Dependent, hierarchical, superiors often inaccessible and

the ideal boss is a father figure. Power is centralized and managers rely on their bosses and

on rules. Employees expect to be told what to do. Control is expected and attitude towards

managers is formal. Communication is indirect and the information flow is selective. The

same structure can be observed in the family unit, where the father is a kind of patriarch to

whom others submit."

66



Dimension Result

"Second Dimension: Individualism

The fundamental issue addressed by

this dimension is the degree of

interdependence a society maintains

among its members. It has to do with

whether people´s self-image is defined

in terms of “I” or “We”. In Individualist

societies people are supposed to look

after themselves and their direct family

only. In Collectivist societies people

belong to ‘in groups’ that take care of

them in exchange for loyalty"

"At a score of 89 the UK is amongst the highest of the Individualist scores, beaten only by

some of the commonwealth countries it spawned i.e. Australia and the USA. The British are

a highly Individualist and private people. Children are taught from an early age to think for

themselves and to find out what their unique purpose in life is and how they uniquely can

contribute to society. The route to happiness is through personal fulfillment. As the affluence

of Britain has increased throughout the last decade, with wealth also ‘spreading North’, a

much discussed phenomenon is the rise of what has been seen as rampant consumerism

and a strengthening of the ‘ME’ culture."

"At a score of 20 China is a highly collectivist culture where people act in the interests of the

group and not necessarily of themselves. In-group considerations affect hiring and

promotions with closer in-groups (such as family) are getting preferential treatment.

Employee commitment to the organization (but not necessarily to the people in the

organization) is low. Whereas relationships with colleagues are cooperative for in-groups

they are cold or even hostile to out-groups. Personal relationships prevail over task and

company."

"Turkey, with a score of 37 is a collectivistic society. This means that the “We” is important,

people belong to in-groups (families, clans or organisations) who look after each other in

exchange for loyalty. Communication is indirect and the harmony of the group has to be

maintained, open conflicts are avoided. The relationship has a moral base and this always

has priority over task fulfillment. "

67



Dimension Result

"Third Dimension: Masculinity

A high score (Masculine) on this

dimension indicates that the society

will be driven by competition,

achievement and success, with

success being defined by the

winner/best in field – a value system

that starts in school and continues

throughout organisational life.

A low score (Feminine) on the

dimension means that the dominant

values in society are caring for others

and quality of life. A Feminine society

is one where quality of life is the sign

of success and standing out from the

crowd is not admirable. The

fundamental issue here is what

motivates people, wanting to be the

best (Masculine) or liking" what you do

(Feminine).

"At 66, Britain is a Masculine society – highly success oriented and driven. A key point of

confusion for the foreigner lies in the apparent contradiction between the British culture of

modesty and understatement which is at odds with the underlying success driven value

system in the culture. Critical to understanding the British is being able to ‘’read between the

lines’’ What is said is not always what is meant. In comparison to Feminine cultures such as

the Scandinavian countries, people in the UK live in order to work and have a clear

performance ambition".

"At 66 China is a Masculine society –success oriented and driven. The need to ensure

success can be exemplified by the fact that many Chinese will sacrifice family and leisure

priorities to work. Service people (such as hairdressers) will provide services until very late

at night. Leisure time is not so important. The migrated farmer workers will leave their

families behind in faraway places in order to obtain better work and pay in the cities. Another

example is that Chinese students care very much about their exam scores and ranking as

this is the main criteria to achieve success or not".

"Turkey scores 45 and is on the Feminine side of the scale. This means that the softer

aspects of culture such as leveling with others, consensus, sympathy for the underdog are

valued and encouraged. Conflicts are avoided in private and work life and consensus at the

end is important. Leisure time is important for Turks, it is the time when the whole family,

clan and friends come together to enjoy life. Status is shown, but this comes more out of the

high PDI".

68



Dimension Result

"Fourth Dimension: Uncertainty

Avoidance

The dimension Uncertainty Avoidance

has to do with the way that a society

deals with the fact that the future can

never be known: should we try to

control the future or just let it happen?

This ambiguity brings with it anxiety

and different cultures have learnt to

deal with this anxiety in different

ways. The extent to which the

members of a culture feel threatened

by ambiguous or unknown situations

and have created beliefs and

institutions that try to avoid these is

reflected in the score on Uncertainty

Avoidance".

"At 35 the UK has a low score on Uncertainty Avoidance which means that as a nation they

are quite happy to wake up not knowing what the day brings and they are happy to ‘make it

up as they go along’ changing plans as new information comes to light. Planning horizons

will also be shorter. Most importantly the combination of a highly Individualist and curious

nation is a high level of creativity and strong need for innovation. What is different is

attractive! This emerges throughout the society in both its humour, heavy consumerism for

new and innovative products and the fast highly creative industries it thrives in – advertising,

marketing, financial engineering".

"At 30 China has a low score on Uncertainty Avoidance. Truth may be relative though in the

immediate social circles there is concern for Truth with a capital T and rules (but not

necessarily laws) abound. None the less, adherence to laws and rules may be flexible to

suit the actual situation and pragmatism is a fact of life. The Chinese are comfortable with

ambiguity; the Chinese language is full of ambiguous meanings that can be difficult for

Western people to follow. Chinese are adaptable and entrepreneurial. ".

“Turkey scores 85 on this dimension and thus there is a huge need for laws and rules. In

order to minimize anxiety, people make use of a lot of rituals. For foreigners they might

seem religious, with the many references to “Allah”, but often they are just traditional social

patterns, used in specific situations to ease tension”.

69



Dimension Result

"Fifth Dimension: Long Term

Orientation

This dimension describes how every

society has to maintain some links with

its own past while dealing with the

challenges of the present and future,

and societies prioritise these two

existential goals differently. Normative

societies. which score low on this

dimension, for example, prefer to

maintain time-honoured traditions and

norms while viewing societal change

with suspicion. Those with a culture

which scores high, on the other hand,

take a more pragmatic approach: they

encourage thrift and efforts in modern

education as a way to prepare for the

future".

"With an intermediate score of 51 in this dimension, a dominant preference in British culture

cannot be determined".

"China scores 87 in this dimension, which means that it is a very pragmatic culture. In

societies with a pragmatic orientation, people believe that truth depends very much on

situation, context and time. They show an ability to adapt traditions easily to changed

conditions, a strong propensity to save and invest, thriftiness, and perseverance in achieving

results".

"Turkey's intermediate score of 46 is in the middle of the scale so no dominant cultural

prefernce can be inferred".

70



Dimension Result

"Sixth Dimension: Indulgence

One challenge that confronts

humanity, now and in the past, is the

degree to which small children are

socialized. Without socialization we do

not become “human”. This dimension

is defined as the extent to which

people try to control their desires and

impulses, based on the way they were

raised. Relatively weak control is

called “Indulgence” and relatively

strong control is called “Restraint”.

Cultures can, therefore, be described

as Indulgent or Restrained".

"A high score of 69 indicates that the British culture is one that is classified as Indulgent.

People in societies classified by a high score in Indulgence generally exhibit a willingness to

realise their impulses and desires with regard to enjoying life and having fun. They possess

a positive attitude and have a tendency towards optimism. In addition, they place a higher

degree of importance on leisure time, act as they please and spend money as they wish".

"China is a restrained society as can be seen in its low score of 24 in this dimension.

Societies with a low score in this dimension have a tendency to cynicism and pessimism.

Also, in contrast to Indulgent societies, Restrained societies do not put much emphasis on

leisure time and control the gratification of their desires. People with this orientation have the

perception that their actions are Restrained by social norms and feel that indulging

themselves is somewhat wrong".

"With an intermediate score of 49, a characteristic corresponding to this dimension cannot

be determined for Turkey".

Source: Hofstede`s Score. Available on the WWW at http://geert-hofstede.com/united-kingdom.html. [Last accessed in 2nd of Jan, 2016]


71


D. Ten Sub-Factors for International Location Selection

Table D.1 Ten Sub-Factors for International Location Selection

No. Factor Source of Info and Reference UK China Turkey

1 Quality of labour

force

Hofstede`s Cultural Score is utilized to reflect the employees'

attitudes towards teamwork, power in the organization structure,

flexibility and hard work.

Please refer to see section 2.2.1 where the six

dimensions can be used to represent the quality

of labour in each country.

2 Existence of

modes of

transportation

"Country comparison to the world" index in terms of five

transportation channels according to Central Intelligent Agency is

used. This index can be used to represent the existence of

transportation modes in each country and how good these methods

are [Source: https://www.cia.gov/library/publications/the-world-

factbook/geos/uk.html, last accessed in 2nd of Jan, 2016]

Airports: 18

Railway: 17

Roadway: 17

Waterways: 31

Merchant

marine: 22

Airports: 14

Railway: 3

Roadway: 3

Waterways: 1

Merchant

marine: 3

Airports: 58

Railway: 20

Roadway: 18

Waterways:

59

Merchant

marine: 18

3 Quality and

reliability of modes

of transportation

4 Availability of

labour force

"Available labor force" index according to Central Intelligent Agency

[Source: https://www.cia.gov/library/publications/the-world-

factbook/geos/uk.html , last accessed in 2nd of Jan, 2016]

32.76 million

(2014 est.)

with 15.2% are

in industry

occupation

804.2 million

(2014 est.)

with are 30.3%

in industry

occupation

28.79 million

(2014 est.)

with 26.2%

are in

industry

occupation

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html


https://www.cia.gov/library/publications/the-world-factbook/rankorder/2053rank.html#uk




https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?fieldkey=2108&term=Merchant%20marine









72




5 Quality and

reliability of utilities

"Country comparison to the world" index in terms of Electricity

production according to Central Intelligent Agency

[source: https://www.cia.gov/library/publications/the-world-

factbook/geos/uk.html ,last accessed in 2nd of Jan, 2016].

Electricity consumption was considered here because it was

suggested in question one that this type of product will be produced

via fully automated production line (which will be fully operated by

electricity).

12 1

21

6 Wage rates "Minimum hourly wage rate" index according to the Organization

for Economic Co-operation and Development (OECD)

[Source: https://stats.oecd.org/Index.aspx?DataSetCode=RMW# ,

last accessed in 2nd of Jan, 2016] and International Labor

Organization report for 2014

[Source: http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-

bangkok/---sro-bangkok/documents/publication/wcms_325219.pdf ,

last accessed in 2nd of Jan, 2016]

9 USD (in

2014)

2 USD (in

2014)

5.3 USD (in

2014)

7 Motivation of

workers

Hofstede`s Cultural Score is utilized to reflect the employees'

motivation to success.

Please refer to see section 2.2.1 where the six

dimensions can be used to represent the

motivation of workers in each country.



https://stats.oecd.org/Index.aspx?DataSetCode=RMW



73




8 Telecommunication

systems

"Country comparison to the world" index in terms of three

communications systems according to Central Intelligent Agency is

used. This can be a representation for the quantity and quality of

communication system in each country.

[source: https://www.cia.gov/library/publications/the-world-


Telephones -

fixed lines: 9

Telephones -

mobile cellular:

20

Internet users:

10

Telephones -

fixed lines: 1

Telephones -

mobile cellular:

1

Internet users:

1

Telephones -

fixed lines: 19

Telephones -

mobile

cellular: 21

Internet

users: 19

9 Record of

government

stability

According to MacCarthy & Atthirawong (2003), government stability

represents "government structure; consistency of government

policy; and attitude of government to inward investment", therefore,

public debt in terms of % of GDP and "comparison to the word in

terms of external debt" index according to Central Intelligent

Agency is used to give an over view for the government stability in

each country.

[Source: https://www.cia.gov/library/publications/the-world-


88.1% of GDP

(2014 est.) and

rank of 36 in

external debt

14.9% of GDP

(2014 est.) and

rank of 6 in

external debt

35% of GDP

(2014 est.)

and rank of

14 in external

debt





74




10 Industrial relations

laws

Industrial relations laws includes multiple perspectives. In this

comparison and due to the lack of information, two factors are

considered; "trade union density which is the percentage of all

employees in dependent employment", and "collective bargaining

coverage which is the percentage of employees covered by

collective agreements". [Source: http://www.worker-

participation.eu/National-Industrial-Relations/Countries/United-

Kingdom ,

http://www.eurofound.europa.eu/sites/default/files/ef_publication/fiel

d_ef_document/ef1444en_0.pdf , and

http://www.eurofound.europa.eu/sites/default/files/ef_publication/fiel

d_ef_document/ef1409en2.pdf , last accessed in 10th Jan, 2016]

Trade union

density: 26

Collective

bargaining

coverage: 29

Trade union

density: 34

Collective

bargaining

coverage: 30

Trade union

density: 9.5

Collective

bargaining

coverage: 4.6

Source: adapted from MacCarthy & Atthirawong (2003)

http://www.worker-participation.eu/National-Industrial-Relations/Countries/United-Kingdom



http://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef1444en_0.pdf

http://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef1444en_0.pdf

http://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef1409en2.pdf

http://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef1409en2.pdf