Synopsis
Automotive Builders Inc. (ABI) began its operation after the emergence of World War I as a Firm Equipment Company. The Company produced diesel engine parts used by farmers in their tractors. The firm made profits with the growth of farming and the need for agricultural products worldwide. Consequently, by the 1940s, it had grown into a multimillion-dollar firm (Meredith and Shafer 331). During the Second World War, the Company switched to the production of truck parts and tanks on a large scale for the military. After the Second World War, the firm converted to operating in the expanding automobile industry by engaging in the production of automotive parts (Meredith and Shafer 331). To reflect and implement the major change, the Farm Equipment Company’s name was changed to Automotive Builders Inc. (ABI) even though they still supplied the farm equipment market.
ABI has been expanding and making a profit by engaging in the farm equipment market and the automobile industry. However, the competition from Japanese manufacturers has been a challenge. It is also evident that overseas’ labor costs were significantly lower than domestic labor costs, giving their rivals competitive powers and causing disadvantages that were not to be taken for granted (Meredith and Shafer 331). Most domestic tractor manufacturers started to source their spare parts and tractor components. Concerning that, one of the main engine manufacturers had let its suppliers understand that it was negotiating a contract for 100% sourcing for high-efficiency engines to replace the conventional ones in the market. The situation was challenging for ABI since failure to bid would invite more competition into their profitable and successful business. Hence, they needed to bid on the contract to protect and ensure their competitive advantage in the industry (Meredith and Shafer 331). Success in their bid would mean that ABI has 100% sourcing in the replacement and original equipment markets (Meredith and Shafer 332). Additionally, the high investment shows that ABI could outcompete its rivals. The proposal regarding the major project needs consideration of interconnected factors such as profitability, sustainability, and protection before making the decision to invest.
Problem Analysis
Even though there are many problems evident in Automotive Builders Inc. (ABI), the five problems identified in the presented case study include competitive pressure from Japanese manufacturers, price disadvantages, single-sourcing of tractor components, quality differences between the Japanese and American farm equipment, and capacity limitations of existing plants for the new engine. The identified problems pose challenges to ABI because of the ever-changing and dynamic marketplace that requires strategic planning and change implementations.
Competitive pressure from other manufacturers, such as Japanese manufacturers, is a problem that needs countermeasures for ABI to remain profitable in the industry. The entry of the Japanese manufacturers, together with other potential entries, is causing significant losses in terms of market shares (Meredith and Shafer 331). It is a threat to profitability and sustainability, as well as the market position of ABI. Entry of new firms into a particular industry often threatens existing firms. Proper strategic strategies and measures are needed to give a competitive advantage.
The price difference and disadvantage are because of the high cost of domestic labor. It is evident that labor cost at the domestic level is higher than overseas labor cost. Consequently, getting products overseas is cheaper than obtaining them from ABI (Meredith and Shafer 331). Because of the scenario, ABI’s products face competition from external factors like overseas markets. It also affects the ability of ABI to attract customers.
The third problem identified from the case study is the single sourcing of tractor components. ABI is focusing on improving the quality of its products and the costs by adopting the single-sourcing of tractor components. Even though the strategy provides better control over cost and quality, it increases the risk related to over-reliance on a single supplier (Wieland 60). Notably, reliance on a single supplier can lead to business failure if the supplier faces challenges such as political instability or an unfavorable business environment created by domestic rivals. Therefore, mitigation measures should be implemented to counter the risks and uncertainties.
The fourth problem is the quality differences between Japanese and American farm equipment. Many customers prefer quality products and services (Wieland 62). Currently, the noticeable quality difference between the Japanese and the American farm equipment, including tractor components and tractors, is impacting ABI’s market position and reputation (Meredith and Shafer 331). It is evident that customers prefer Japanese equipment because of the cost and their superior quality.
Finally, the fifth problem is the capacity limitations of existing plants for the new engine. ABI’s existing plants cannot accommodate the volume of engine production demanded or in demand by the “Big Red,” which is the major manufacturer in the project (Meredith and Shafer 332). Therefore, ABI should strategically address the identified problems.
Alternatives
- To counter the competitive pressure from other manufacturers, such as Japanese manufacturers, ABI should focus on improving their farm equipment’s performance, reliability, and features to make them more appealing to their customers.
- For the price difference and disadvantage, ABI should focus on streamlining its production processes by identifying and eliminating the inefficiencies. The alternative will help in reducing the cost of labor without compromising or affecting the quality of products.
- Concerning the third problem, single-sourcing of tractor components, the alternative is diversifying the supplier base. The firm can do this by exploring partnerships with various suppliers to reduce their reliance on one source for tractor components.
- ABI can establish strict measurement systems for quality to mitigate the problem regarding quality differences between Japanese and American farm equipment.
- For the fifth problem, which is the capacity limitations of existing plants for the new engine, the alternative solution is to expand the production capacity. ABI can do this by building new plants or expanding the existing plants to meet the requirements and demands of the new engines (Wieland 64). The alternative would ensure sustainability.
Recommendations
- For the first alternative, which is improving the performance, reliability, and features of their farm equipment to make them more appealing to their customers, the recommendation is to invest in research and development of innovative technologies to help in understanding the preferences and needs of customers (Gallagher 102). The recommendation focuses on improving product development efforts to counter competition from other firms.
- For the second alternative, the recommendation is to thoroughly analyze the production systems and processes to identify areas that need improvements. Implementing automation and manufacturing principles is essential to optimize labor utilization and the reduction of costs (Cokins 45). Such principles would help in countering the identified problem.
- ABI can identify high-quality and reliable suppliers for their critical tractor components to diversify the supply base. Additionally, the firm can establish beneficial long-term relationships with numerous suppliers to ensure a stable and sustainable supply chain (Basu 28). A large supply base helps mitigate risks when a single supplier experiences challenges, such as political instability in their parent country.
- To establish strict measurement systems for quality, the recommendation is to consider implementing a quality management system, including rigorous inspections, testing protocols, and adherence to the demands of the industry.
- For the fifth alternative, ABI needs to conduct a feasibility study and research to identify and evaluate the cost-effectiveness and interconnected factors regarding expanding the existing plant or establishing new plants.
In conclusion, the identified problems, their alternative solutions, and the recommendations are based on ABI’s business and strategic position. Notably, ABI has been expanding and making a profit by engaging in the farm equipment market and the automobile industry. However, the competition from Japanese manufacturers has been a challenge. The Company needs to expand its production capacity while implementing measures to counter competition.
Works Cited
Basu, Ron. “Why Global Supply Chain Management Is Also Total Supply Chain Management.” Managing Global Supply Chains, vol. 2, no. 1, 2023, pp. 18–29, https://doi.org/10.4324/9781003341352-3.
Cokins, Gary. Strategic Business Management: From Planning to Performance. American Institute of Certified Public Accountants, Inc., 2017.
Gallagher, Mark. The Business of Winning: Strategic Success from the Formula One Track to the Boardroom. Kogan Page, 2014.
Meredith, Jack R., and Scott M. Shafer. Operations and Supply Chain Management for MBAs. 6th ed., Wiley, 2016.
Wieland, Andreas. “Dancing the Supply Chain: Toward Transformative Supply Chain Management.” Journal of Supply Chain Management, vol. 57, no. 1, 2020, pp. 58–73, https://doi.org/10.1111/jscm.12248.
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