Introduction
The success and continuity of any business or the broader industry is largely defined by its ability to develop effective business operational processes which are in line with the prevailing social economic as well as political environment. This calls for a high level of flexibility and ability to accurately assess the conditions in advance so as to react accordingly. Throughout history, various industries have faced different challenges in different measures. Businesses in those industries have had to develop reaction mechanisms to face the challenges. The witty and most responsive have survived; the rigid and unresponsive companies have perished. This paper evaluates the operational processes applied in the airline and the automobile industries. It highlights the success stories in applying certain processes while establishing limitations of the practices in improving the performance of companies operating in the industry.
Main Body
The airline and automotive industry have similarities in the fact that they both fall under the very important category of transport and communication. In the light of these, some of the challenges are shared between the two industries and are tackled in similar manner. It is however true that the airline industry is a service industry whiles the automobile industry offers durable goods in the form of vehicles and other movables. On this front issues of diversity are heavily apply to the airline industry in comparison to the automobile industry.
Historically, the automobiles challenges were mainly on the production element. The companies focused on developing new products to meet the varying tastes in the market as well as achieve sophistication levels which can be fully appreciated by consumers in order to gain royalty. The airline industry on the other hand has been aiming to expand over even greater destinations to gain larger revenues. This was however only in the past. The present is presenting different challenges and the frequency is rapidly increasing (Investopedia 2009, Par 3).
Airline companies today have a myriad of challenges. Every year the industry is battered by unpredicted forces which wipe out huge revenues from dealers in the industry while at the same time degrading their performances. In this front both the big well known traditional airlines as well as the emerging low cost airlines have found themselves faced with real threats from time to time. The most pronounced challenges facing the airlines in the recent times are the unexpected drastic changes in fuel prices. Bearing in mind that fuel is the most important material input in the airline business, this challenges has continually proven to be the hardest to surmount. Others are the fierce competition from new entrants especially in the low cost category, vulnerability to the occurrence of natural disasters, higher frequency of delays which anger customers, economic downturns which reduce levels of traffic and more importantly, the presence of strong workers union in the industry which continually drives up costs (Doganis, 2006, p24).
Faced with these challenges, airlines have strived to develop business models which are responsive and flexible to ensure they survive. This has even led to the upcoming of airline consultants who focus on analyzing trends in the industry as well as other closely related industries to advise the operations of the airlines in a bid to make them competitive and responsive to the challenges facing them. An important ingredient in ensuring survival has been the ability to predict the future directions thus adjust in advance in a bid to minimize or totally eliminate the effect of the challenges facing the industry and most importantly take advantage of opportunities presenting themselves in the marketplace (David, Charles and Vera, 2004, p3).
The automobile industry on the other hand is capital intensive though the labor element remains a significant factor. Issues of labor, materials and the environment continue to challenge vehicle manufacturers. In the 1980’s the Japanese car manufacturers revolutionized the car manufacturing industry. Led by Toyota, Japan introduced higher quality, affordable and fuel efficient cars and introduced the philosophy of Just In Time (JIT) manufacturing. American automakers had to adapt to these changes in order to remain in the market. Another important milestone in the Automobile industry in the 1980’s is that the car manufacturers set up production lines in various parts of the world. The move was to take advantage of comparative advantages prevalent in various countries availability of factors of production such as cheap labor and raw materials while at the same time getting closer to the market thus cutting on freight costs. The period was marked by mergers between multinational automakers in a bid to exploit economies of scale in operations while at the same time reducing competition through the establishment of stronger oligopolies. This way, the vehicle manufacturers were able to access local markets much easily and at lower costs. The customers on the other had a much wider range of vehicles to choose from.
The success of this rationalization of operational processes is clearly visible today. The companies which applied these tactics have survived to date and continue to be profitable (Donald, B., et.al. 2005, p2).
Five major challenges facing the auto mobile industry today are shaped by the underlying economics of the industry. They originate from the supplier all the way to the consumer. The first is globalization. Along the value chain effects of globalization are increasingly becoming significant. Supply chain economics prescribe that rational suppliers should focus on setting up plants near assembly facilities to minimize costs. There has been remarkable success in this front but discontent is growing. There are signs among the supply community that they are not willing to put up huge investments which at times cannot be fully utilized until the expiry of fifteen years. The cost implications of these tendencies are threatening the competitiveness of some vehicle manufactures.
In countering the moves by suppliers many manufacturers are establishing own plants for the manufacture of the necessary supplies to feed the main manufacturing plant. Many are doing this in close collaboration with the suppliers in order to ensure optimal efficiency in the production of the parts. The economic plausibility of such action cannot be questioned since it leads to enhanced control of the production process. The gains made in reducing vertical integration are in the form of reduced labor costs as well as costs of fixed assets. It also improves the use of consumer needs hence reduce incidences of “market misses”. The supply structures for some vehicle parts are also very rigid. The supply of quality ABS breaking systems is only from four dealers despite the increased number of large scale vehicle manufacturers who by today are close to 20. It however amounts to additional responsibility on the management both in the financial aspect as well as the human management aspects.
The dwindling markets in the west have led to the emergence of the problem of over capacity in the western nations. The idle time resulting impose extra financial costs from the management accounting point of view. Unit costs are not minimized due to the averaging effect of the amount of production. These means funds committed to these plants are not fully utilized. The affected firms have led the park towards mergers and acquisitions. The aim of these acquisitions is to hike the utility of the facilities already available. Secondly, they have shifted significant capacities in the form of human resource as well as machinery towards the east where the market is expanding and costs of production can be maintained as low as possible.
The second important challenge apart from globalization is product differentiation. Today the car buyer is faced by a wide range of choices within one brand as well as without. Focus is on functional as well as performance characteristics. Bearing in mind the high costs in research and development incurred in developing new products, this challenge is unique. Continuously rolling out new models, promoting them in the market to attain the product break-even point is proving a difficult task to accomplish. In tackling such challenges companies like Toyota employ unique management tactics as well as organizational cultures which offer immense opportunities to all working in the plant to utilize their own ideas and come up with unique inputs which can help in the development of new products on a continuous basis. Again, the production processes are developed in a manner which allows maximum flexibility. In addition, the larger portions of the car are standardized. Differences are introduced on the outward functional parts. With such operational processes it is possible to have Toyota in various varieties of salons such as Corolla, Caldina, Spacio, Corona and Cygnus all having extremely similar engines but different outlooks with implications to the pricing levels for each model. The success of these models of operating can be witnessed from the impressive history of world leaders in the automotive industry such as Toyota (Investopedia 2009, Par2-5).
The marketing and distribution chains also present challenges. Competition is cut throat especially in the western nations. The need to establish ways to create and capture value hence becomes a real necessity. The two ways have emerged. The fist is dubbed ‘follow the car. This approach seeks to participation of the manufacturing plant in the stream of post assembly transactions relating to a vehicle beginning from the initial retail sale all the way to the scrap yard. This ensures that the company not only gains feedback on the vehicles performance but also ensures that the benefits accruing to the firm from the sale of the car are maximized. The second is dubbed ‘follow the customer’. The approach is developed to exploit more durable relationship with customers throughout their vehicle buying lifetimes. The aim here is to develop royalty among customers by influencing them to identify with the company’s products. A case in point is the situation prevalent in North America and Europe. Most vehicle manufacturers have networks of franchised dealers across the globe. They transfer returns back to the vehicle manufactures back home. The model appears feasible but analysts think otherwise. The intermediaries are responsible for the reduced effectiveness of marketing programs. They do a poor job serving their customers leading to the loss of economic advantages. The shield from competition among dealers is the main cause if these inefficiencies. Clearly, the benefits gotten by the car manufactures from ‘following the car’ are less than the loss of market efficiencies through franchises (Customer Centric Aviation, n. d, Par 4).
The best option is to move towards liberalization of distribution. This will introduce the missing competition among the dealers which should eliminate inefficiencies and improve customer satisfaction. It will also detach the marketing role from the administration, a prerequisite for better performance in each of the two. This will involve allowing many qualified dealers to compete in the supply of the vehicles while the management concentrates on production.
The airline industry also experiences a wide combination of problems which attract different actions. Today, there are several new developments in the airline industry which have drastically improved the level of service delivery in the industry. The most important consideration in the airline industry has been to improve customer satisfaction while at the same time ensuring costs are low in order to remain profitable. The advent of information technology has revolutionized the airline industry in the recent times. Bookings can be made online and in the same way confirmations can be made. This not only cuts on administration costs but also improves the service delivery boosting customer satisfaction (Customer Centric Aviation, n. d, Par 8).
Booking and even paying online is possible but the loss of luggage presents a persistent problem in the airline industry. Many passengers complain of lost time in queuing for boarding passes at the airport. In this front a new system has been developed and used by some major airlines such as KLM. The system enables passengers booking tickets to print their boarding passes from their personal computers. This way, they can go straight to the baggage drop-off points where the documents are counterchecked and the bags weighed and linked to the boarding passes usually using barcode readers. The success of this system in airlines such KLM is impressive. Staff efficiency has undoubtedly improved and more importantly, the system has drawn in more users due to the convenience hence boosting the customer base for KLM (Customer Centric Aviation, n. d, Par 6).
For small airlines operating within national boundaries, employing ticket less bookings is a brilliant development in cutting material costs as well as reducing labor costs. On this front, information technological solutions are now in place allowing such ticket less operations and the savings made are enormous. Personal identification documents have replaced physical tickets.
As concerns the fluctuating costs of fuel, the airline industry is constantly seeking ways of improving the level of preparedness as well as minimizing the loss in revenues. Focus is on ways of improving fuel efficiency. In improving the efficiency, the industry players cooperate in ensuring that passengers get to their destinations at the best possible costs. This is through connection flights involving different airlines. An airline popular in an area may carry passengers up to the areas of profitability and contract other airlines to ferry passengers in the remaining distances. This cut on the number of empty flights made and is thus an economically plausible practice (Customer Centric Aviation, n. d, Par 7).
Optimal assignment of aircrafts and crew members is also a challenge for many aircraft operators. In this area the experts have come up with tools to approach and solve resource disruption issues in very short periods, maximize asset utilization and reduce costs of passenger re-accommodation costs. The savings accruing from these initiatives are in the range of five million dollars on major disruptions.
Conclusion
In addition, airlines have teamed up with weather experts to come up with real-time connections which relay the most recent weather patterns likely to disrupt flights. This ensures that passengers are well advised before making bookings hence saving the airline loads of cash annually. Also warning on disasters can be received in the shortest time possible hence reducing inconveniencies caused to customers (Doganis, 2006, p4).
As can be seen the automobile and the airline industries have developed numerous mechanisms for improving profitability. The most visible common point for the two industries is the high level of competition. In the war to gain markets shares, the players seek to develop competitiveness internally as opposed to engaging in price wars. The players appreciate the fact that the price war may ultimately lead to loss making instead of expansion of markets. Differentiation in the automobile reigns supreme. In the airline industry, technology is the key towards establishing internal competitiveness which drives the profits. It also ensures that the industry is able to withstand constant turbulence especially on the economic front. It is however clear that the cut throat competition in the airline industry is hurting companies through the ever shrinking profit margins.
Reference
Customer Centric Aviation, n. d. Achieving high performance for Airline business models. 2009. Web.
David J. Ketchen, Jr., Charles C. Snow and Vera L. Hoover, 2004. Challenges Research on Competitive Dynamics: Recent Accomplishments. Journal of Management. 2009. Web.
Donald, B., Bruns, M., Fleming, A., Jay, L., Lauren, M., & Felipe, R., 2005. Automotive Industry Analysis. Web.
Doganis, R., 2006. The airline business. Web.
Investopedia 2009. The Industry Handbook: Automobiles. Web.