A Series of Make or Buy Decisions on a SUV Program Development

Topics: Cost, Economics, Costs Pages: 7 (1113 words) Published: May 30, 2014

Managerial Economics

Course Assessment 1

Prepared by: 7307442(UID)
Date: 24 Feb, 2014
Word Count: 1065

The University of Manchester
Manchester Business School
A Series of Make or Buy Decisions on a SUV Program Development Program Background
JMC stands for the Jiangling Motors Company. Ford operated a commercial vehicle joint venture with JMC since 1997. At the beginning of 21st contrary, the explosion in the passenger car demands in China, specially, the SUV segmentation attracts the domestic vehicle OEMs to entry (economics of scope). The CEO in JMC was a LL3 (Leadership Level) marketing director in Ford APA (Asia-Pacific-Africa), who is extremely sensible on this potential marketing opportunity. The advanced planning and basic engineering team submitted the marketing and engineering proposal in 2005, and after the approval of senior management team members, the program kick-off officially. Here are several key product strategies stated in the program KO documents: To position S350 as a premium indigenous brand to compete with a plethora of domestic brand entries To self-develop a platform which is flexible enough for additional top hat opportunities and protect for right hand drive. To deliver leadership in design, craftsmanship, and vehicle dynamics against domestic competitors To cooperate with global styling and vehicle engineering companies to deliver flexible platform and best-in-class styling and vehicle dynamics To use ford 2.0L Puma diesel engine to deliver "amongst the leader" in performance and fuel economy The key parts tooling will use import equipment to deliver best in class craftsmanship Approach 2008 CNCAP (Domestic Crash Test) 5star.

In later 2010, JMC released the S350 SUV that was over budget, 2 years delayed and slow moving on sales. Review the program development strategies and cases by Transaction Cost Economic approach, several reasons can be found out. Contracted Design House

As JMC was the contract-manufacturer of Isuzu and Ford for a long time, the S350 program is the first original program for the company, they decided to “buy” engineers from famous Italia styling and U.S. engineering design house. In the vehicle development practices, asset specificity relevant to worker skills, knowledge, know-how, and information. JMC needs to provide the design specification and internal product development process to DH, which are the critical elements for engineers to design the vehicle. To protect those secret documents, JMC rejected the request from DH to access the data base directly. They decided to send several engineers from each PMT (Program Module Team) and PAT (Program Attributes Team) to DH’s location to work with them together, with all the requested data inside the laptop. If the engineers from DH need to access the data base, JMC engineer will check the data and input to them. This specific assets protection increased the total traveling budget of the program team and reduced the work efficiency. Full service supplier

The concept FSS (Full Service Supplier) consists giving the client an additional service, faster and more flexible as support to handle the necessary processes going from the design to the delivering of test runs. To achieve the leadership in the craftsmanship and cost advantages by using platform based (economics of scale), JMC chose FSS to provide the design solutions for almost of the Key-Commodity parts. For example, a global leader company has been chosen as the FSS on S350’s front lamps. The contract stated: “all the lamp design work will be done by this company, the final purchasing order will depends on the design quality and cost.” After the second styling survey the problems occurred.

According to the target customer’s opinion, the shape of front lamps are too small that made them out of the tune. The Chief Program Engineer (CPE) negotiate with this FSS for a long time, finally they agree...

References: and bibliography
David Besanko, et al. (2013). Economics of Strategy (6th edition).
Hoboken: John Wiley & Sons, Inc.
Patrick A. McNutt (2014). Decoding Strategy – Patterns and Predictions (2rd edition).
Asia: McGraw-Hill Education.
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