Innobus case.

Part 2 done by Edgar Nebylitsa

Work description
In the first part of the case I explained current situation of Innobus. This situation will be getting worse until it leads company to a total collapse. To help company survive this heavy period certain actions should be performed. On the basis of the research made previously I will be describing in short possible solutions.

Question 1
In company for a plan to become a systematic approach certain implementations of systems or their elements is crucial. Planning will allow forecast future actions. And make corrections of them. It is reasonable that all levels of company depending on it size and function need different types of planning and controlling ystems. Here is a pyramid of Innobus hierarchical system. The lowest level of the pyramid is Operational Level. Midle belongs to Tactical Level and the top to Strategic Level. In Innobus: - Strategic Level relies on o Director o Main shareholder - Tactical Level relies on o Financial director o Marketing department director o Engineering director - Operational Level relies on o Operational manager and self-directed teems Current situation around companys performance makes visible a lack of suitable planning and controlling methods. Systems to implement on each level are as followed - Operational Level o Enterprice Resource Planining system (ERP) - Tactical Level o Decision Support Sysstem (DSS) - Strategic level o Business Executive Dashboard (ED) Being a planning method and software these systems are allowing to control the current and past situation in company. Therefore usage of these methods will be a controlling system itself. ERP is needed

Innobus case. Part 2 done by Edgar Nebylitsa o o o o to control the productional process of the company to plan recourses to plan time to plan the material

Implementation of it in the company would lead to higher quotient of useful effect in the productional methods of it. Shortening time brings competitive advantage lead times, lowering inventories of unused will lead to lowering money involved hanging in air, so Innobus will be able to use these funds for other issues. DSS is quite expensive implementation for les than 30 people that need it in Innobus. Innobus should be using lean logistics style (described later) on which tactical level decisions and plans do not nead to be made so fast. Innobus reaction to market must not be so fast. Tactical level managers can have time to plan actions for future. Therefore planes have time to be assessed by Strategic level and supported. And this should go with goals and objectives of company. Companies structure consisting of upper two blocks of Piramid is not so big (around 30 people) so they are in close contact with each others ideas. These ideas should be supported or rejected by President of the company. With current financial situation of Innobus DSS is not a primary need. Strategic level of Innobus should be able to plan and supported by Executive Information System (EIS) like Executive Dashboard (ED). ED will be delivering facts and figures to be displayed while making a certain strategic move or plan. There are certain needs on strategic level. Delivery of information is organized when processed by departments. Here is the flow of the information on picture.

EIS

Marketing IS

Production IS

Financia l IS

Human Resources IS

Transaction Processing System

Strategic executive information needs: Prompt, easy-to-use information Key performance indicators Factors of influence External and internal documents

Innobus case. Part 2 done by Edgar Nebylitsa

Finally decision should be done concentrating on long time objectives of the company. Therefore John Gillis should develop a goal while understanding current situation of the company. Observing past indicators is possible to control proper usage of the plan. Planning of departments should be based on goals of certain department established by President. Supporting system elements depend on objectives of each decision and plan level. Here are main objectives developed for Innobus: Strategic level plan should consist of: 1. Decide for the market attractiveness of company in far future. Choose product or its atributes that will be atractive to market in perspective. 2. Choose market atractiveness for the comapny using own future prediction in - geographical aspect - segmantational aspect - political aspect - environmantal aspect, etc. 2. Make shure of usage of a single existing competitive advantage of a company In words of Wikipedia: 1. What do we do?" 2. "For whom do we do it?" 3. "How do we excel?" Tactical level executives plans should consist of next points of development: 1. Minimisation of costs 2. Rising quality 3. Bringing high ranking to company 4. Making shure that all compatitive advantages are maintained while seeking for perfection on this advantage. 5. Elimination of waste (muda) methods in search of perfection Operational level should consist of next points: 1. Elimination of waste (muda) methods in search of perfection This leads to sustainable growth strategy which I would like to recomend to Innobus executives. It will help to survive in future. Should be used on up to two year period basis to develope plans ranging from six months.

Question 2
Problems of Innobus has should be structurised in a sequence from the lowest impact to the highest. In this case Porters five force framework should be useful

Innobus case. Part 2 done by Edgar Nebylitsa

Buyer power
Bargaining power of buyers for Innobus is high. Public transport will be used no matter what. Ellectricity and diesel price shift can influence the demand, however this influence will not be that visible in the short time perspective. If price of diesel retains growths customers will demand lower consumption of it by busses, however it will be quite hard for them to abbandon the ship easily. Customer will remain in a certain involvement with the supplier.

Threat of substitutes
Threat of substitutes is low. People can start using airplanes instead of busses for a long distance travel, however inside city bus can not be replaced by other public transport like taxi. Tendency of ordering and renovating old buses will be remaining in the long run.

Barriers to entry
Barriers to entry are high. Posibility to organize production methods and production line is low. Huge investment should be done in acquiring the apropriate facilities and equipment. Huge chunk of investment and time takes a design of product itself. Therefore it is not an easy aproach to establish a competing company.

Supplier power
Suppliers can not dictate the price due to a big range of market. In 40 percent situation parts are chosen by customer. However, in my opinion, possible innovative tendencies, like lean design can be used in system. It will make range of suppliers bigger, that would lead to lowering bargaining power of supplier.

Degree of rivalry
Degree of rivalry is high because of the stable market competition. There are not so many producers of busses with not so big shares. Which meens that the leading company on the market can still be reached by smaller competitors in the long run. So competition is high.

Conclusion
In conclusion to prioritize the problems and risks 1. Insolvency is the first and highest risks. Company can live impropriate business life only with financial support. If it survives executives can be changed and production methods can be improved. Therefore moving to next risk level.

Innobus case. Part 2 done by Edgar Nebylitsa

2. Incompetence of executives should be changed. In other case implementation of wrong ideas will not allow to work on maximum performance level and wont allow to eliminate next risks. 3. Marketing risk: Innobus wont be able to perform on maximum output due to a limited number of customers. 4. Production risks are one to be deleted by the usage of lean thinking filosophy. The less problematic in current situation. Improvements to production should be made in one piece with lean design and engineering methods.

Question 3
As it was mentioned in the first part of the case main problems Innobus is facing are: 1. Crisis in managerial circle lack of orders from company president lack of motivation no strategy

2. No financial support - no money to involve in production - low chance of obtaining a loan from a bank 3. Sales and marketing crisis - lack of orders 4. Inefficient production methods - too many workers etc. Reaction to thes problems should be a method of exclussion these risks. And controll that they do not apear in the future. To lower risks in current financial and market situation Innobus can perform some actions. 1. Managerial problem solution: clear goals must be given to the heads of departments execution process is to be monitored and controlled use the planning methods based on company objectives

2. Financial problem solution: - find source of money 3. Sales and marketing problem solution: - get more orders throug the marketing of new geographical locations. 4. Inefficiency in production solution:

Innobus case. Part 2 done by Edgar Nebylitsa lower quantity of workers increase motivation

Innobus should be looking in the near future only through the deletion of errors acuring. By dealing with these problems and using described methods Innobus could save its value. Briefly the solutions are expalined here and shuld be used as an objective for short period of three to six month. These objectives touch each decision level of the decision piramid. However actions that need to be done to achieve an objective are described in a Business Plan of Innobus. Currently Innobus should use sustainable growth strategy due to its dying market value. Longer it holds the condition of repose the more dramatic effects will there be. Throug the usage of McKinsey Growth Piramid we can easily identify core functions to aply.

Diagram displays the choices of possible growth methods from less efficient in the bottom to more efficient on the top. On the other hand economical risk rises with the efficiency of ideas. In future depending on market environment Innobus can use another type of strategy to retain the position on overtaken markets.

Innobus case. Part 2 done by Edgar Nebylitsa

Question 4
Sustainable competitive advantage should be gained through improvement of these factors: 1. Price 2. Quality 3. Time from order to it completion As described in the first part of the case Innobus competitive advantages till this moment were: 1. Production of a no emission public transport electric trolleybus and there is almost no competition with biggest margin through all market. 2. Ability to produce a low floor bus while competitors just started building prototypes. And so there is no competition yet. 3. Being first to start producing low floor bus and have experience over this field. Improvement and maintaince of these factors will give Innobus an opportunity to bring its competitive advantage to higher level. Because Innbus should concentrate on lean thinking methods Price, Quality and Time can be improved through usage of logistics. Lean thinking methods can be identified with company which is structured the same way Innobus is. These methods are efficient when pull scheduling takes place as a reaction to market demad. Lean thinking is an idea of eliminating waste (muda) from all enterprise. In my opinion Innobus Price, Quality and Time factors will improve removal of waste. By observing seven wastes Innobus should concentrate on these: - waste of waiting - waste unnecessary motions - waste of inappropriate processing Not only production wastes to be eliminated, but these as well: - order to production waste - product development waste

Order to production waste and product development waste

When order is placed it takes in average 6 month to start production. It costs money. Order received Engineering Production Assembly is the process be to shortened. Assembly can be started earlier by - locating new suppliers with better conditions and delivery time - choosing parts that need to be produced in shorter period - taking shorter time to engineering the project through usage of lean design philosophy Lean design philosophy is - a reduction in number of parts that are needed to produce

Innobus case. Part 2 done by Edgar Nebylitsa aid assembly features modular design that allows parts to be upgraded through products life

Waste of waiting
If time is not spent properly production can be either stop to wait for order or work on stock filling. Last leads to overproduction waste which is not needed. Waste of waiting can be found at assembly shop as well. In document N27 Assembly labour requirements of Innobus case it is visible that production line must have 83 people to make the line operate. In this case this workforce must be 100 percent efficient, this means no talking, no smoking, no other actions not related with production. While each shift has 128 man which leads to interactions between each others, this lowers the efficiency of production line. This waste of wating can be tightened or excluded by: - keeping assembly shop motivated with appropriate number of employees so that interactions stop - elliminating waste of unapropriate processing

Waste of inapropriate processing

It is seen from document N22 The assembly shop scheme it visible for me that the production line track throug assembly shop is eficient and does not have interacting processes to use one piece of equipment on several processes. However simplifications can be used. For instance instalation of a technology of assembling alredy painted parts would leed to shortenning assembly time therefore shortening delivery time to customer. As well a usage of materials that do not obligatory need paint aplied on would shorten assembly time and lower inventory involved. Mechanichal System instalation processes on station 39a and 39b technicaly are similar to 670 690 therefore can be done a reduction of working places. The workshop needs more space for each station. Imaginable is the situation when 100 percent work load is in action it will lead to even higher rate of interactions between workers due to a shortage of space. Therefore Innobus should: - shorten a number of working stations where processes are repeted or use the same equipment to perform assembly - painting should be avoided on parts where it is unncecessary - make shure that all parts and materials of assembly process are delivered just-in-time they are needed.

Question 5 - Business plan.

Description of current situation of Innobus
Innobus current finacial performance looks like this:

Innobus case. Part 2 done by Edgar Nebylitsa

Net profit margin Net profit/Net sales Year 98 Percent Return on assets Net profit/Assets Year 98 Percent

97 -27

96 11

95 13

94 -8

93 -1

14

97 -45

96 2

95 30

94 -36

93 -2

37

Return on investment Net profit/Investments Year 98 97 Percent

96

95

94

93

As it is seen from Consolidated balance sheet of Innobus: Inventory is rising as well as Assets. Since 1992 Inventory has incresed more than 20 times however Net profit is not stabily rising with the usage of biger productional facility and biger work force.This meens there is no result in producing more busses. The bigger they become the harder problems they face. Operating costs are increasing dramaticaly but not with the company Income growth. That meens a usage of bigger amount of people involved in assembling process and bigger amount of resources consumed. Return on investments is negative. Innobus is not an interesting company to market if it decides to make Initial Public Ofeering (IPO) or Secondary Public Offering (SPO). Essential in current investment strategy of Innobus is a debt before the bank. And it is increasing instabily. On the other hand on the Statement of financial position change it is seen that this money is spent on purchase of Fixed assets and Inventory purcases.

Strategic goals
Depending on the the fact that Innobus has to be saved and it needs sustainable growts. Strategic goals should be: Make company atractive to market: Lower expences Decrease time of order placed and product received Make use of current competitive advantages Go public (IPO)

Innobus case. Part 2 done by Edgar Nebylitsa

Sales forecast
As it is seen from ready made sales forecasts there will be a stable increase in demand in next 6 years. The shift in demand will be up to 20 percent. And that is a demand for USA.

Action plans
Lowering expenses Marketing and sales department: 1. Research the supplier chain and approach more suppliers for locating a lowest prices for parts, rearrange the logistics of order placement and delivery. Production department: 1. Fire 20 30 people at the same time increase the salary of remained workers proportionally. This will motivate the assembly line. Higher output will lead to a decrease of price of a produced item. 2. Rearrange the work shop. Make better use of space and lower the number of stations involved in assembly. 3. Make a revision of part assembly methods. It would be found out that some parts can be assembled simultaneously. Do not apply paint where it is unnecessary. Decrease the time between order placement and product delivery to customer Marketing and sales department 1. Use lean design methods in offers to customers. 2. Insist on own design rather than what is asked by customer. This could help lower the ratio of parts decide by customer Vs. parts offered by Innobus. This can help gain in quality and lower the price of some parts through better suppliers. 3. Rearrange delivery and vendor orders placement methods. Engineering 1. Make use of a modular design. Offer examples to customers. 2. Use a lean design philosophy while engineering the bus. 3. Implement aid assembly features. Make use of current competitive advantage