Southern New Hampshire University

Eli Kugler
Operations Management
Final Project Case Study
 Beyond Your Dreams, whether the intended phrase or an attempt at retconning, this has

become the calling card for China’s largest electric vehicle (EV) company, BYD. Founded in the

mid 1990’s BYD found its place amongst the thousands of young entrepreneurs thanks to its

founder, Wang Chuanfu, who was a researcher at the General Research Institute for Nonferrous

Metals. Wang had an immense fascination for materials that made batteries and was an expert at

the time where batteries would become integral in the reshaping of global commerce in the mid

1990’s. Starting by reverse engineering superior Japanese batteries and substituting lower cost

raw materials, BYD found itself a magnate for cell phone batteries which remains their number

one business segment with a revenue of 1.7 billion dollars in 2009 (Rarick, Firlej, Angriawan).

Many things have contributed to the success of BYD. Government Chemist turned

founder, Wang, has maintained a firm grasp on the operations management of the company.

Utilizing key functions and innovative strategies Wang has turned this sleeping start up to a

dominant force that companies all around the world must reckon with. Going through some of

the operations management functions we see the prowess of BYD. The founder and CEO Wang

himself is involved in the design of the batteries and has been from the very beginning. This has

helped BYD maintain superior batteries over much of their competition, this in concert with

substitution of raw materials to create less expensive batteries leads BYD to be a clear front

runner in the race for power in the EV market. BYD has also begun to expand, strategically

locating factories and regional headquarters. For a period of time their two US offices were

located near their two largest US customers, Motorola and Apple respectively (Rarick, Firlej,

Angriawan). BYD also maintains factories not just in China where it is head quartered, but in

India, Hungary, and Romania employing over 250,000 people. BYD does this in large part

because through job design and work management, they have found that inexpensive labor costs
tend to outweigh the cost benefits of machinery. So by combining these two operational

management functions, BYD has made smart decisions and pushed itself into an advantageous

state. As well, Wang has mentioned a key strategic operational advantage BYD maintains is their

ability to own the entire industrial chain (Cambell, Tian). From raw materials to marketing, BYD

keeps costs low through integrating every step of the process. This all leads to a competitive

advantage by creating a less expensive vehicle, as BYD aims to target the middle class EV

owners.

BYD maintains both service operations and manufacturing operations. Both compliment

each other in that a company that just creates cars but parks them in a parking lot does nothing,

as well a company that sells cars but cannot create them does nothing. Although the products

from each of these operations differ, the sales as a service operation would produce a sale and the

manufacturing operation would produce the car for that sale, the management of these operations

are very similar. All functions of the operations manager still apply. Each operation creates value

to the customer as each operation is required to complete the cradle to grave process of bringing

raw materials in to deliver a final product on time to the customer. Advertising and sales creates

value through bringing in customers, customer service and expert advice maintains and keeps

customers, delivery connects the process of creating the product and the customer. But ultimately

for a company that is in the manufacturing business, although they would need service

operations, the manufacturing operations are the lynch pin and create the most customer value by

providing the customer with what they actually paid for.

With inventory management being so important for large manufacturing operations it is

imperative for companies like BYD to implement a material requirements planning (MRP)

system. In this process the operations manager would need to know 5 key elements to be used as
inputs to the MRP system. These are; master production schedule (what is to be made and when),

specifications or bill of material (materials and parts required to make the product), inventory

availability (what is in stock), purchase orders outstanding (what is on order, also called expected

receipts), lead times (how long it takes to get various components) (Heizer, et al.). These 5

elements would give a manager a clear picture as to the flow of materials throughout the

manufacturing process. Transparency is the first step to solving problems if any arise as a

manger would need to know what’s wrong before they could fix anything. With an MRP system

you could then start to develop a master production schedule (MPS) and begin inputting into the

forecasting systems.

Operations managers use lots of project management techniques, for example back in the

1950’s two project management tools were developed. The first, Critical Path Method (CPM),

was developed by DuPont chemical and the second, Program Evaluation and Review Technique

(PERT), was developed by the navy. Both are similar in that they both follow the 6 basic project

management steps; define the project and prepare the work breakdown structure, develop the

relationships among the activities, decide which activities must precede and which must follow

others, draw the network connecting all the activities, assign time and/or cost estimates to each

activity, compute the longest time path through the network (the critical path), and finally use the

network to help plan, schedule, monitor, and control the project. Both methods are similar,

varying in terminology, except that PERT uses three time estimates for each activity. The median

time and a low and high guess based on the standard deviation. BYD would want to use CPM

when the project is a predictable flow and repeats regularly, such as the manufacturing of cars.

Whereas they would want to use PERT to aide in the planning of new project, such as in the

research and development section.

 Every day at companies like BYD operations managers have to prioritize tasks, in some

instances to get things done on time and in other instances to get things done quickly. There are

four primary ways to prioritize the sequence of jobs, these are; first come first served (FCFS)

where jobs are completed in the order they arrived, shortest processing time (SPT) where jobs

with the shortest processing times are assigned first, earliest due date (EDD) where the earliest

due date jobs are assigned first, and longest processing time (LPT) where jobs with the longest

processing time are assigned first (Heizer, et al.). Each of these would serve their purpose for

different situations at BYD, for example with the over all creation of the cars along the assembly

line each car is created with a FCFS job priority. The first car to arrive at one’s work station is

the first to get worked on. If there is a specific piece of equipment with many jobs to do BYD

would likely use the SPT sequencing as you would not have to wait on a 3 hour job to complete

to get something for yourself that would take 2 minutes. Earliest Due Date is a great way to

describe the process by which a company would prioritize which vehicle to create, if BYD

promised a truck by October and a van by December it’s very likely they would prioritize the

trucks first. LPT might be used as a backstop to SPT as in some SPT systems the longer jobs are

continuously pushed back.

The theory of constraints (TOC) is “a body of knowledge that deals with anything that

limits or constrains an organization’s ability to achieve its goals” (Heizer, et al.). This includes

physical constraints (supplies) and non-physical constraints (morale). These constraints are

managed through 5 steps: identify the constraints, develop a plan for overcoming the identified

constraints, focus resources on accomplishing Step 2, reduce the effects of the constraints by

offloading work or by expanding capability, when one set of constraints is overcome, go back to

Step 1 and identify new constraints. It is also key to make sure individuals who can make an
impact on them are aware of both their capability and the constraint. For a company like BYD,

applying the TOC would be incredibly advantageous with regards to their supply chain. This is

largely due the new and innovative materials required to make such advanced cars, likely BYD

experiences several constraints in their supply chain.

BYD might also be interested in creating a forecasting system. Knowing the future would

be amazing but being able to predict the future to a degree where, as a company, you can plan

around it is sometimes just as good. In a forecasting system you must first determine the use of

the forecast, in the case of BYD this could be adjusting outputs for vehicles compared to bus

determined by how many people were moving in and out of cities. Second you select the items to

be forecasted, this could be number of buses to be purchased or number of street sweepers need

to be manufactured, this will determine the output of the factory required to meet demand. Next

determine the time horizon of the forecast, depending on how long it takes to ramp up or slow

down production BYD might want to create a 6 month, 1 year, and 3 year prediction. Afterwards

you select the forecasting model, of which there are many including both quantitative and

qualitative models. A sample of just a few include; naïve approach, moving averages,

exponential smoothing, trend projection, and linear regression. BYD would want to choose a

quantitative model as they are trying to find a demand driven forecast and need to know how

many vehicles will be demanded, but a qualitative method asking people’s car buying

preferences would be a great augment. Then gather the data needed to make the forecast, for

BYD this could be recent car buying trends, or a poll of customers choices. Finally you make the

forecast, followed by validating and implementing the results. Not only do you have to make the

prediction itself, but because we began with needing this forecast for a purpose, we must take

steps to now act accordingly with our forecast. For BYD this would likely be purchasing the
right amount of materials for the right amount of cars versus buses versus street sweepers and so

on. If BYD were to implement a forecasting system like this they would be able to better manage

their resources and supply chain, saving money in the long run.

A forecasting system like this could be incredibly useful especially considering Wang

finds BYD’s supply chain to be one of his most valuable assets (Cambell, Tian). The supply

chain has many risks associated with it but generally fall under several major categories.

Supplier failure to deliver being the first, companies could use multiple suppliers, have effective

contracts with penalties, subcontractors on retainer, and utilize preplanning. Supplier quality

failures can be mitigated through careful supplier selection, training, certification, and

monitoring. Outsourcing can be a hassle for some companies but by taking over production or

providing and performing the service yourself this risk is eliminated. With logistics delays or

damage companies have found that multiple/redundant transportation modes and warehouses

along with secure packaging and effective contracts with penalties tend to lessen any risk.

Distribution can cause issues but through careful selection, monitoring, and effective contracts

with penalties this supply chain risk is mitigated. Information loss or distortion can be mitigated

through redundant databases; secure IT systems; training of supply chain partners on the proper

interpretations and uses of information. Political risk can be an incredibly difficult risk to

navigate, fortunately there is political risk insurance, cross-country diversification, and

franchising and licensing. Economic risk can be mitigated through hedging to combat exchange

rate risk, and purchasing contracts that address price fluctuations. Theft, vandalism, and

terrorism are as well incredibly volatile and difficult, but through insurance, patent protection,

security measures including RFID and GPS, and diversification a company can protect

themselves. Finally natural catastrophes can generally be mitigated through insurance, alternate
sourcing, and cross-country diversification. BYD, for example, could mitigate its risk from a

tsunami by having factories in other countries as well as sourcing raw materials from countries

like Bolivia.

Just-in-Time manufacturing (JIT) refers to a model wherein the everything is made just-

in-time for being needed, with minimal to no use of inventory. It leads to efficiency and quality

improvement largely because as the time between receiving raw materials and delivering a

finished product shrinks the errors become far more apparent and it is easier to recognize where

they come from. This system produces goods just as they are needed and does not waste time or

money on keeping a stale stock of inventory. The Toyota Production System (TPS) is a

methodology used closely with Lean, the three components of the TPS are continuous

improvement, respect for people, and a standard work practice (Heizer et al.). The first two are

what drives much of Toyota’s, and many other company’s, work place cultures. With an

emphasis and drive to instill a value system that promotes the idea that any process can be

improved. Lean’s emphasis lands on minimizing waste, to deliver what the customer wants when

they want it, no more and no less. All three can improve quality and are centered around

continuous improvement. BYD, being a manufacturing operation, would benefit from elements

of all three systems. The TPS being particularly good for assembly lines as it encourages the

increased capacity of individual workers to help drive innovation at each step of the creation of a

product. JIT could be detrimental in some aspects as BYD uses many new materials, as such

there is a higher possibility for imperfections and the need to rework parts. Although JIT could

highlight where these issues are, it could be disastrous due to a lack of suppliers. Lean as a whole

is a good way the company can reduce waste and implement a continuous improvement model,

this would be great for a company that is always changing and innovating new things.
 One of BYD’s key competitors is Tesla. A place in which Tesla has fallen behind in

recent years is quality management. Having to retool upwards of 40% of all parts in the factory

(Kolodny). Along the lines of using TOC to help with supply chain constraints due to the cars

being incredibly new, it would be prudent for BYD to implement a total quality management

program to maintain high standards throughout the entire company, from supply chain to

delivery. For example BYD could implement a PDCA, or Plan Do Check Act, model to ensure

every car they produce is up to standards. The PDCA model was developed by Walter Shewart

with the four steps more specifically being: identify the problem and make a plan, test the plan,

check if the plan is working, implement the plan and document its successes and failures (Heizer,

et al.). Whenever BYD creates a new part or new vehicle they could and should use this model or

others like it to keep the quality of their products high, ultimately reducing costs in the long run

to not fix problems, retool pieces, or recall cars.

Material (lithium) Method (mining)

Difficult Transport
Volatile

Expensive Hard to find

Lithium not
there on time
or at all

Labor Shortage Breaks Down

Political Risk
Expensive
Manpower (labor) Machinery (mining equipment)
 Above is a cause-and-effect fish bone diagram. This particular diagram is assessing a

hypothetical issue with a supply chain partner who is having difficulties providing lithium to

BYD for the lithium batteries. The “four M’s” for a cause-and-effect diagram are: material

(lithium), machinery (mining equipment), manpower (labor shortages, political uprising), and

method (mining). We can see all of the factors that go in to each of the branches and the cause-

and-effect diagram can highlight different items that can be inspected or adjusted to solve the

over all issue. We see here that there are several factors for each branch that could be

contributing to the lithium not getting to BYD on time or at all.

Customer Order Product Receive Product

Sales Process Order

Factory Build Vehicle

Warehouse Store

Transport Move

Time 1 Day 1 Week 1 Day 2 Days

Above is what is referred to as a Time-Function Mapping. It clearly shows where in the

process of raw materials to finished product a particular car is currently. As an operations

manager, likely the particular time-function mapping you would use would be an expanded

“Factory” section. It would show the individual processes in the factory and the times associated.

Using this you could find times where a piece of the vehicle moves multiple times and waits

when it doesn’t need to, or what parts of the process take the most time.
 Another important aspect of a global business is location. Let’s perform a theoretical

exercise into weighted factor location analysis. The data for the analysis is as follows:

Factor Weight Mexico City Columbia, SC

Political Risk .25 70 80
Transportation Costs .20 40 90
Labor Productivity .20 85 75
Rental Costs .15 90 55
Labor Costs .10 80 50
Taxes .10 90 50
Weighted Total 1.00 73 71.25

Based on the above information BYD should build its next factory in Mexico City. It is

more favorable in almost every category except for political risk and transportation cost.

According to the weighted factor analysis the lower costs in categories such as taxes, labor costs,

and rental costs ultimately outweigh the other factors and place Mexico City as the favorable

choice.

If a company believes they are having issues controlling inventory, or more specifically

the resources put into various inventory, they might want to look into an ABC classification. The

following represents an example of inventory data:

Item Annual Demand Cost Per Unit ($) Total Dollar Volume
I5 1750c 10 17,500
D1 6000c 10 60,000
A2 3000a 50 150,000
E9 1000c 20 20,000
J8 2500c 5 12,500
C7 1500b 45 67,500
B8 4000b 12 48,000
G2 300a 1,500 450,000
 H2 600c 20 12,000
F3 500a 500 250,000
Total 21,150 1,087,500

We know with an ABC system that the A category should consist of approximately 15%

of annual demand but account for 70%+ of the total dollar volume. If we take items A2, G2, and

F3 we find that they would be a perfect fit for the A’s as they represent 3,800 units for annual

demand (around 18%) and $850,000 for the dollar volume (78%). Then we move on to the B’s

category and we know that B’s should consist of 30% of the inventory volume and 15-25% of

the total dollar volume. Items C7 and B8 would work well as they are approximately 26% of the

inventory and 11% of the dollar volume. Finally I5, D1, E9, J8, and H2 would be C’s as they are

56% of inventory and 11% of the dollar volume. Ultimately the company should devote most of

their time to A2, G2, and F3 as they land in the A’s category and would return the most

investment for extra careful attention and resources.

The triple bottom line is a new concept emerging as more and more consumers are

enabled to make smarter purchases. The three bottom lines are; financial, social, and

environmental. With companies moving to take account for all stakeholders it is key for

operations managers to take up the mantle and tackle these challenges. Environmental is one area

operations managers can take massive leaps forward, creating systems and operations that reduce

the carbon footprint of the company. At BYD for example, many of the factory workers live on

the company’s campus of operations. Leading to a lower carbon footprint for transportation.

Social is another bottom line that is easily taken on by operations as people themselves are often

those who implement the operations themselves. Operations managers have the tools to improve

the social welfare of their employees, whether that’s more breaks, or encouraging them to

volunteer. Finally financial, operations drives the profit centers of almost any business. This is a
key bottom line to not ignore with the addition of the other two, but operations managers are able

to improve quality through things like an improved workforce and a continuous improvement

system and ultimately create a more profitable business machine.

Along the lines of an environmental bottom line, if a company needs tools to help

implement these systems there are a suite of resources available to them in the ISO 14000

standards. These standards include “specific approaches such as audits, communications,

labelling and life cycle analysis, as well as environmental challenges such as climate change”

(ISO 14000). Being ISO 14000 certified means a business has met criteria for an environmental

management system, providing assurance to all stakeholders that environmental impact is being

measured and improved. BYD has been utilizing this suite of resources to improve its

environmental impact, for example as of October 1st 2019 the Hungarian sector of BYD was

certified and is certified until September 1st of 2022 (BYD Electric).

Ultimately BYD is moving in the right direction, their CEO Wang Chuanfu has made it

clear through both his type of business and through business practices of his that he is dedicated

to uplifting BYD’s corporate social responsibilities (CSR). The understanding that BYD is not

just pages of ones and zeros but full of stakeholders. The greatest principle of CSR is the

investment in the workers. Investing in one’s employees easily has the greatest return on

investment. It allows businesses to implement systems such as TPS and ensures that not only are

the people at the top of the company vested in its well being but all involved want the business to

survive. If your vendor thinks you don’t care about them they won’t care about you. But if

you’re willing to work with them through hard times, they will return the favor and help you

back during hard times. As well, when you invest in your employees you reduce turnover,
misdirection through miscommunication, and micromanagement for example. All costly time

wasters that end up sapping millions each year from businesses (10 Reasons).
 References:

10 Reasons to Start Investing in Employees (and How It Pays Off). (2021, May 07). Retrieved

from https://cmoe.com/blog/reasons-to-invest-in-employees/

BYD Electric Bus & Truck Hungary Kft. (2019, October 01). Retrieved from

https://bydeurope.com/files/iso/BYD_HU_ISO_14001_2015_Certification_EN.pdf

Cambell, M., & Tian, Y. (2019, April 16). The World’s Biggest Electric Vehicle Company

Looks Nothing Like Tesla. Retrieved from

https://www.bloomberg.com/news/features/2019-04-16/the-world-s-biggest-electric-

vehicle-company-looks-nothing-like-tesla

Heizer, J., Render, B., & Munson, C. (2022). Operations management: Sustainability and supply

chain management.

ISO 14000 family - Environmental management. (2020, April 09). Retrieved from

https://www.iso.org/iso-14001-environmental-management.html

Kolodny, L. (2018, January 26). Tesla employees say to expect more Model 3 delays, citing

inexperienced workers, manual assembly of batteries. Retrieved from

https://www.cnbc.com/2018/01/25/tesla-employees-say-gigafactory-problems-worse-

than-known.html

Rarick, C. A., Firlej, K., & Angriawan, A. (2011). BYD OF CHINA: ELECTRIFYING THE

WORLD'S AUTOMOTIVE MARKET. JOURNAL OF THE INTERNATIONAL

ACADEMY FOR CASE STUDIES, 17, 1st ser., 19-27.