Operations management can be referred to a process that seeks help from various established theories and the expert’s views. It is very important for any organization as it provides supportive hands to an organization in managing its business operation. Indeed, it works as an associate to the management (Hill and Hill 2012).
This assignment tries to cover in brief the operational management in the Goodyear Tyre & Rubber Company. Frank Seiberling of America laid the foundation for this Company in the year 1898. It manufactures tyres for various purposes such as for commercial trucks, airplanes, race cars, light cars and many more. The first manufacturing of tyres from the Company became popular for its easily detachable qualities. They brought of their first ever factory in 1898 in Akron, Ohio. The year of 1903 was a significant year for the Company as it received the status of a patent Company to manufacture the tubeless tyre for automobile. In the year 2008, the Company received the highest ever acclaimed from the Fortune magazine for being the most influential Company in the world to manufacture motor parts (Corporate.goodyear.com, 2017).
This assignment analyses the operation management of the Goodyear Tyre & Rubber Company in the light of the theory of constraints. It also discusses some of the issues that are highlighted in the analysis portion of the assignment.
A brief introduction of the Company
Frank Seiberling founded the Company in the year 1898. Ever since its inception, the Company is adding various new dimensions & recognitions to its achievements. In early ages, it successfully opened up its first factory in Akron, Ohio in 1898. They started their journey with only 13 employees, which collectively manufactured numerous products such as carriage tyres, bicycle, poker chips and many more. In the year 1903, the Company received a great recognition as it got the status of a patent Company manufacturing the tubeless tyres. In 1909, it manufactured a tyre for the aircraft. In the year 1927, the Company found a significant place in the New York Stock Exchange. After this, it never looked back and piled up the success for the Company. In coming years, it eventually transformed its image from just a small Company to a multinational corporation. During the World War II, the Company contributed in the cause by manufacturing some of the fighter planes for the US army such as F4U Corsair (Corporate.goodyear.com, 2017).
Inception of radial tyre technology
Out of all the five biggest tyre companies in US in 1970, only Goodyear Tyre & Rubber Company could survive its stature as an independent Company. Moreover, to shift towards the radial tyre technology did produce a resonant support to the Company (Brown, Bessant and Lamming 2013). At the time of its inception by the CEO, Charles J. Pilliod, Jr in 1974, it received severe criticism for the proposed move. However, the then CEO of the Company had a good analysis of the potentiality of the radial tyre technology. It was his sheer beliefs that had kept him detached with the proposed technology against severe criticism (Panneerselvam 2012). Indeed, Mr. Charles did invest heavily in new factories that were dedicated for the manufacturing of radial tyres only.
Gaining back the lost market shares
In the year 1986, the Company received a major shock from Mr. James Goldsmith who was the British financier. Mr. Smith with the help from Hanson group of investment did purchase 11.5% of outstanding stock of the Goodyear Company. They had a plan to take over the Company; however, few days later Goodyear again acquired the lost shares. They did actually buy the shares at an above than normal rates, which was $49.50 per share (Corporate.goodyear.com, 2017).
Fortune magazine held the Goodyear Company as the most admirable Company in the world for its motor vehicle equipment. The Forbes Magazine & Audit Integrity Inc. listed it at the sixth position for the most trustable Companies of America. The Company made a shocking announcement in the year 2009 as a part of its strategy. It made an announcement about closing its Philippines tyre plant for its lower than expected performance globally. To maintain its competitive edge in the market, the Company did go to an extreme end and closed its entire operation in the Philippines tyre plant (Corporate.goodyear.com, 2017). In the year 2016, Goodyear was privileged with the TOP Employers Europe Award for providing its employees with excellent service conditions. The company even received the biggest honour given by the U.S. Department of Defence to the organizations in support of military.
The Goodyear Company is working in various domains through which the Company is bringing out various products that are worth for the transport equipment industry. It works in three different sectors such as Automotive, Non-tyre section and Commercial. It is engaged in various products in the automotive sector such as Wrangler, Assurance, Integrity, Eagle and many more. The Non-tyre section comprises of Air springs, Hydraulic products, Rubber track and many more. In the commercial sector, it has the reputation to manufacture various products such as Commercial truck, ATV tyres, Aviation, off the road tyres and many more (Corporate.goodyear.com, 2017).
A Company can never exist without any internal or external issues (Walker et al. 2014). It rather finds its strong footholds a larger number of big organizations. The Goodyear is no any exception and its past has some controversies for various reasons such as relationships with Indonesia, Environmental record, Lawsuits for Sexual discrimination and few others. The Company was held guilty against an unfair distribution of salaries in its employees as claimed by its supervisor, Lilly Ledbetter, at the Gadsden plant. The supervisor claimed that the Company paid a less amount of salary to her than others men doing the same work. The case did reach to the Supreme Court. However, the United States Congress overturned it later (Corporate.goodyear.com, 2017). Goodyear needed to recall about 48,500 Fortera HL tires that are being manufactured from November 30th to January 10th. The company reported that these tyres might not have passed the regular endurance test.
Another most important issue that held against the Company was for its poor environmental performance (Khanna 2015). Some of the researches have also held the Company as one of the most effective contributor in polluting the environment in the United States. Indeed, it stands at the 19th position in the list of most powerful corporate companies contributing in the environment pollution. Moreover, the University of Massachusetts Amherst conducted the research.
Theory of Constraints
The Theory of Constraints can be referred to a management philosophy that was proposed by Eliyahu M. Goldratt in the year 1984 in his famous book, The Goal. It states that every organization do exist with some kinds of constraints that retards its progress to a notable amount. It has few components, which needs to be identified in order to reduce its negative impact to attain the desired goal (Mahadevan 2015). Following are the components of this theory:
- Identification of constraints in system
- Taking decisions to exploit and neutralise the effect
- Prioritising the decisions above every odds in the system
- Highlighting the constraints to acquire a focus from its employees
- In case of failure of any of the steps, the system needs to go back to the step one to avoid any other addition in the list of constraints
Its application in the Company
Two of the most important instances of constraints have taken place in the history of the Goodyear Tyre Company (Slack 2015). Radial tyre technology was the first constraints, which was identified by the CEO of the Company in the year 1974. Charles J. Pilliod, Jr. was the CEO of the Company at that time (Evans and Lindsay 2013). The sheer quality of identifying the constraints and implementing a counter solution for the same above every criticism was the main highlight of its operation style (Heizer and Barry 2013). The idea to incept the radial technology had invited various inside criticism to the CEO. The CEO held its point firmly and went against all the odds to implement the proposed technology. Indeed, it opened up numerous factories and invested a huge amount of sum without caring any criticism. The sheer efforts that the CEO had put on the project resulted in the enormous success to the Company (De Waal 2013). It was one of those sheer moves of the Company, which has maintained it as an independent Company; however, no four biggest firms of U.S. in 1970 could sustain the same reputation. According to Sam Gibara who was in charge from 1996 to 2003, Goodyear would not have achieved the same dignity if Pilliod had not taken its move against the identified internal constraint (Corporate.goodyear.com, 2017).
In 1986, another important incident occurred, which put an external constraint to the operation management of the Goodyear Company (Drucker 2013). The British financier did purchase a healthy 11.5% of outstanding common stock shares of the Company with the help of Hanson group of investment. Indeed, they challenged the management and claimed that they would even take over the Company. However, Goodyear did produce a solid counter action to this claim just after one or two months. The Company acquired all the stock shares held by Goldsmith & its group. Most interestingly, the aggressive approach of the Company had compelled it to go for an above than a normal rate for a share. The Company bought 40 million of its stock shares at $50 for one share (Corporate.goodyear.com, 2017).
Applying TOC was certainly difficult in case of Goodyear’s as its constraint was not corporeal with a lot of possible capability available in the plants. The ongoing challenge for the company was to induce the production leaders in allocating more capability of production for prototypes. The capacity of the prototype was ultimately précised in the company annual plan of operations where some of the plant managers plunged into the temptation of prototype capacity for scarcity of production figure.
Theory of TQM
Total quality management is an important theory to find out the quality performance of a Company. It finds out the quality performance of the Company with the help of following techniques:
- External Failure
- Internal Failure
External Failure – The Company is struggling to maintain its dominating position in the Singapore market as it is getting stiff competition from some of the best tyre brands in the global world. It could not outplace the stardom of Bridgestone in Singapore. Moreover, MRF and CEAT are some of the companies that have their strong hold in the Asian market. It is becoming very difficult for the Company to outdo the popularity of local companies.
Internal Failure – It has struggled to satisfy some of its employees for several of reasons such as salary payment. Salary payment is one of those internal failures that have affected its reputation, as it is evident in the statement given by the one of the supervisors at the Gadsden Plant, Lilly Ledbetter. The Company did pay a less amount of salary for the same work as done by the men workers.
Inspection – Quality audits in the total quality management theory is the best way to find out the quality and commitment related flaws in the Company. It opens up door to identify the problems and to provide a solid solution to the identified problem.
Prevention – Quality planning and quality assurance are the two most important tools to identify a prevention method against the identified internal and external failures of the company. It would encourage the Company for bias behaviours among wide culture of employees. It would also help the Company in finding out the solution to uplift the performance of the Company in the Singapore market. An ISO standard of manufacturing in Singapore is a valuable asset for the Company, as its implementation would ensure the adherence of several policies for the betterment of quality such as Customer focus, continual improvement, customer centric and many more.
Discussions and Conclusions
Inception of radial tyre technology
The redial tyre technology was the newest technology in 1970s, which was used to make more durable than the bias ply technology. This type of tyre is more flexible and powerful sidewalls and helped the company to tackle with deficiency of petrol because it reduced resistance created due to rolling. The stronger sidewalls reduce the tension and provide more absorption of shock. This allows the rider or the driver to have a more comfortable and safer journey (Rodgers, B. ed., 2015). Today all redial tyre finds use in bikes, cars and all other automobiles. The credit of introducing this technology in Goodyear Tyres and overcoming all criticisms goes to Charles J. Pilliod, the CEO. Being the CEO, he overcame the operation constraints of technology and placed Goodyear among the top companies of America at that time. His contribution led the company towards manufacturing tyre even for commercial aircraft and the worldwide sales was more than $ 10 billion (GOODYEAR 2017).
As an operation manager, I would have supported Pilliod and would have entered into joint venture with the contemporary tyre companies in Asia and Europe who had already pioneered in the technology. Around the same time Apollo tyre was founded in India and already had a strong shareholder base at that time. I would have entered into partnership with the Apollo, entered Indian market, and exploited its huge consumer base to finance the closed factories. I would have also entered into joint venture with CEAT, another tyre manufacturing who was a strong player at that time (Ceat.com 2017).
Gaining back the lost market shares
The introduction of redial tyre by Pilliod and its conquest over the tyre market provided the financial strength to Goodyear. The tyre company exceeded $10 billion and this gave it the power to overcome the financial constant and buy back its shares from James Goldsmith. The goodwill the company had earned by introduction of redial tyre helped the company to attract investment.
The company however failed to run all its factories because the new technology was not available at all the factories. The company was undergoing restructuring and that required closing old and unprofitable plants.
A study of contemporary tyre companies around the world during that period shows that the tyre market in Asia has already evolved due to expansion of industrialization. I would have suggested Goodyear to buy shares of Asian companies to expand into the continent (Azmeh and Nadvi 2014).
The company underwent significant restructuring and emerged as one of the world’s largest manufacturers and exporters of tyres that finds its wide application in the automobile industry. The leadership that enforced innovation and modernisation of the plants helped the company to win over its lost market position. Goodyear finds mention in the reputed magazines and business journals in the world like Forbs Magazine and the Wall Street Journal. As per Forbes Global 200 list, on May 2016 the company’s market capitalization was $8.7 billion while its sales was $16.44 billion (Forbes.com 2017).
Among the operational challenges which Goodyear, which failed to overcome, are the legal charges and allegation of sexual discrimination among its employees. Lilly Ledbetter sued Goodyear for paying less compared to her male fellow employees. The case became famous as Lilly Ledbetter Fairpay Act of 2009, which set a benchmark and was signed as a law by none other than Barrack Obama (Fox 2015).
The problem stated was a legal problem, which did harm the goodwill of Goodyear but could have been abated. I, as an operation manager would have paid equal salary to the Ms Ledbetter. The matter was an illegal act violating the U.S Equal Pay law by Employment Opportunity Commission of U.S Equal (Eeoc.gov 2017). I would have definitely looked into the matter along with my team.
Best practices for the companies applying the constraint theory
Constraints are factors concerning equipment, human resource and policies, which hinders the smooth functioning of a company or an industry and needs to be broken or overcome. It is assumed that there is one constraint in the system, which is capable of affecting a specific part while the other parts work freely. Buffers can be used to overcome or break the constraints of equipments, people and policies. The drum-buffer-rope can be used to produce the same amount of output as under normal conditions. The operation department ensures that buffer stock of goods also fills in the gap created by unavoidable wastage of resources like those that petrol and diesel are used as fuel in many factories. They are volatile substances and are lost, thus buffer stock of fuel have to be maintained to reduce idle time and machinery breakdown (Shancita et al. 2014). Similarly, reserve human resource should be maintained to back up during season of demand when the normal labour force is strained due to pressure of production. This will help in distributing the pressure and reduce wastage and errors (Lambert 2017).
Equipment up gradation
The companies must upgrade their machineries and plants. They should install plants using latest technology, which is capable of giving more output. The companies, who are under the constraint of capital and cannot invest in purchase of new plants, can opt for leasing and hiring them. They can increase their output and sell these outputs to earn extra revenue and invest it in new plants. Up gradation enhances labour productivity giving the companies advantage that is more competitive.
Environment has proved to be a matter of concern for all the sectors and every country has passed environmental acts obliging the industries to abide by. Modern plants using modern eco-friendly technology and method for production can be installed. Such investments help the companies cut down on the amount of pollutants and as a result gain several facilities from the governments. This constraint breaking method is applicable especially in the automobile companies and their ancillary units (Mahlia et al. 2014).
Every company, irrespective of size wants to cut down expenses and increase its profits. The operations department should follow ethics, laws and all other rules in order to avoid penalty. The operations department should ensure installation of plants using the latest technology and capable of handling the output pressure. This will help in reducing fuel charges and expenses like repairing costs and depreciation (Badami et al. 2014). The operation department should ensure that the other departments work efficiently so as reduce wastage of resources like labour and electricity.
Restructuring of product line
This technique is a response to the external constraint of competition, which affects the revenue generation of firms. This is especially applicable for multinational companies like those that Unilever, P&G and Goodyear cater to the international market. These companies are continuous under the constraints created by the market and have to restructure and adapt their product lines to retain their competitive advantage. These companies restructure their product lines in response to change in the consumer demand. They also change their pricing strategy in order to increase their market penetration and enter new markets. These strategies go a long way in helping the multinational companies maintain their international market positions (Forbes.com 2017).
Limitations to the constraints theory
The constraints theory finds use in a wide range of sectors and is used by companies all round the world to deal with their constraints. This theory has the following defects, which make tough for application by the operations departments:
The operations department has to detect constraints in order to break them. The complexity of the operations, the interdependence of departments and several other factors hinders recognition of constraints. The operations department has to obtain the support and cooperation of all the other departments to be able to break constraints.
The second shortcoming of the constraint theory is the variation in the factors. Constraints in one department may affect another department or can be the outcome of actions in a different department. Variation of variable factors like human resource, raw materials, inventories and variable expenses hinder recognition of constraints. Sometimes, these factors hinder breaking of constraints even if they are recognized. For example, if the operations department detects that a new plant does not meet the requirement of the company, it cannot change the plant because the amount already invested in the purchase of the plant has to be recovered from the market before a new plant can be installed.
Period is a very important factor because every business needs to achieve its targets within stipulated time. Often constraints detected late lose their benefit or have affect in the long term.
The constraints can only be managed if it is being identified and at many times the source of such problems remain a widespread source. The output constraint is the preventive factor for output in any system where productivity and consumption of the limitation has to be exploited. The subordination advises the constraints of the organization should not be endorsed by something else that is not external to the control, habits and policies.
The key learning points
The following are the key learning points that can be summarised or derived by the operations team and used in the future:
Every sector including the ancillary transport equipment sector making wheels and tyres is subject to the theory of constraint.
The company in the study, Goodyear was subjected to constraint but was able to overcome it under the capable leadership of Pilliod, the then CEO. Companies undergo restructuring to break big external constraints.
The operations departments have important role to play in breaking constraints which has its own challenges.
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