BYD of China 1

BYD of China
 BYD of China 2

Summary: BYD, or Build Your Dreams, is a Chinese privately held business established in 1995

by Wang Chuan-Fu. BYD began by manufacturing batteries of better quality than those of other

Chinese producers. Mr. Chuan-Fu investigated the better efficiency/higher price tag batteries

manufactured from Japan in order to devise novel methods of producing a comparable battery of

the same quality at a lower price point. Mr. Chuan-obsession Fu's with batteries started in

graduate school, and he now hopes to bring his fascination to the global car industry. With the

popularity of EVs (Electric Vehicles) on the rise, BYD aspires to remain at the forefront of the

auto industry (Rarick, Firlej, Angriawan, 2011). BYD also played a major role in markets such as

electronics, cars, new technologies, and rail transport after twenty years. They are committed to

delivering a zero-emission electricity solution and emphasis on energy production and storage

(N.A., 2018).

This paper would examine the theories and strategies behind how gross-to-net estimates for

resource specifications preparation (MRP), essential route approach (CPM), program assessment

and analysis methodology (PERT), the four key priority principles for job sequencing, the

principle of restrictions (TOC), and how those theories can be implemented at BYD. We would

also assess the hypotheses and strategies underlying a forecasting scheme, supply chain risk, Just-

in-Time (JIT), Toyota Production System (TPS), Lean, and complete quality management (TQM)

to determine the benefits and drawbacks of implementing each of these principles at BYD. This

paper would also discuss the new idea of the triple bottom line and its elements, how BYD

incorporates ISO 14000 requirements in their production facilities, and how BYD should

incorporate corporate responsibility practices into their existing activities to achieve sustainability.

Finally, using a cause-and-effect diagram, a hypothetical process chart, a weighted requirements

matrix, and an inventory management procedure, this paper would demonstrate data analysis.
 BYD of China 3

These would demonstrate that there are current challenges with BYD's supply chain and where it

will be beneficial for them to launch their next position around the globe. The research presented

would look at the various fields of operations management and how they play a significant role in

BYD's performance.

Generating Value: BYD extracts profit in a variety of forms through Operations Management.

Operations management (OM) is described as "a collection of activities that generate value in the

form of products and services by converting inputs into outputs." It is made up of operations

managers who schedule, organize, personnel, direct, and monitor in order to make decisions in

the OM function (Heizer, Render, & Munson, 2019). These would ensure that BYD operates

effectively and produces the high-quality materials that they need.

BYD employs these Operations Management roles to draw on what they are best at: producing

high-quality batteries. They manufacture ferrous lithium ion batteries, which are stronger and

more cost efficient than rivals (by about half). They were also much quicker than their rivals in

introducing an all-electric vehicle. To do this, BYD devised an innovative method for lowering

production costs by reverse engineering the costlier Japanese battery and substituting cheaper raw

materials for the more expensive raw materials. Wang Chuan-Fu realized from his experiments

that the Japanese battery was superior to others, so he worked out how to produce a lower cost

version and began producing it himself, eliminating the need to import from Japan. Using the

same thinking pattern as their rivals, BYD took a separate path with EVs. The lithium-ion

batteries used by their rivals were costly and bulky, so BYD preferred to use their technologies,

allowing for a faster release of an e6 EV car. BYD saved money on R&D by deciding to reverse

engineer Japanese batteries rather than beginning from scratch. This not only saves them resources

and effort, but it also saves customers money when they use fewer costly resources. Another

facilities management move that aided BYD's growth was the use of low-cost labor rather than

costly equipment, as well as dedication to detail, all of which have proved fruitful. BYD employs
 BYD of China 4

about 130,000 people in China, India, Hungary, Romania, and the United States. They hold labor

costs down by offering on-site accommodation and other living expenses for their workers

(Rarick, Firlej, Angriawan, 2011).

BYD employs a number of strategies to gain a strategic edge through Operations

Management. Consumers are searching for a more environmentally sustainable alternative,

which is one of the explanations why car firms are choosing to provide EVs. Driving an EV is

more environmentally friendly, but the batteries are also harmful to the atmosphere. BYD also

found a way to make their batteries use a nontoxic fluid that is less harmful to the atmosphere if

they are not recycled. In addition to their nontoxic battery, BYD has developed a system that

provides a longer lasting charge which enables the battery to be recharged over a longer period

of time. All of these are strategic benefits as well as cost efficient (Rarick, Firlej, Angriawan,

2011). Overall, by using these Operations Management functions, BYD has streamlined their

science and engineering requirements, reduced labor expenses, and generated value for their

consumers as opposed to their rivals.

Operations management encompasses both service and industrial operations. Manufacturing

operations applies to a framework in which a man, computer, and material come together to

create a tangible product and will cope with all supply chain tasks such as procuring raw

materials, allocating money, arranging manufacturing, managing inventory, and supplying a

tangible product to consumers. Service activities, such as customer service and customer

engagement departments, are intangible goods provided from one person to another in return

for income. Manufacturing processes in the case study for BYD involve battery processing,

manpower, and operating requirements. BYD's service activities will provide geographic

outlets for sales, job perks, and customer interactions. They are the same in that a certain

quality is supposed to be followed and both engage human and physical capital to achieve a

desirable performance. They vary in that production operations concentrate on processing

BYD of China 5

products and holding them, while service operations focus on selling those items. - all these

activities add value to the customer based on how effectively it is handled and what products

are used (Service operations vs. manufacturing operations, 2020).

Theories and Techniques: Material Requirements Planning (MRP) is a method that

involves correct bills of material and inventory and helps keep lower inventory, a better-quality

product, tight scheduling, and accurate documents in a manufacturing setting. A gross material

needs plan is a calendar that incorporates a master development schedule with a time-phased

schedule, and it indicates when an item may be purchased from producers if there is no inventory

on hand, or when production of an item may begin to meet demand for the finished product by a

certain date. A net requirement schedule modifies on-hand inventory, which could include

subassemblies or components. The benefits of an MRP to BYD include a quicker response to

consumer requests or the latest e6 due to updated schedules, a faster response to demand shifts,

improved use of their facilities and labor, and having lower inventory costs, which saves them

money. These could help BYD with their business growth in the electric car market, bringing

them to the level they want to perform. Net specifications = Gross demand – Inventory on hand

is the equation used to describe gross-to-net calculations. MRP flow is built on "pull" rules and

is matched with limited missed sizes. The following are the inputs:

I. Master development schedule: what will be produced and where will it be made.

II. Specifications, also known as a bill of materials, are the materials and parts used to
create a component.

III. Inventory availability refers to what is already in store.

IV. Outstanding purchase orders: what is on stock, also known as scheduled receipts.

V. Lead times: the amount of time it takes to obtain

different materials. (Heizer, Render & Munson, 2019)

BYD of China 6

BYD may utilize a variety of management methods to finish their tasks to ensure their

products follow their requirements. The Critical Path Method (CPM) and the Program

Evaluation and Review Approach are two of the more popular methods used (PERT). Both of

these were created to help administrators plan, track, and coordinate vast and complicated

programs. They vary in language and network design, but their goals remain the same. The

distinction is that PERT uses three-time ranges for each operation to compute expected values

and standard deviations for the activity at hand, while CPM believes the activity periods are

known with accuracy and therefore includes onetime element for each activity. PERT is used

where there are several or unpredictable variables that may influence development time, while

CPM is used where the variables are identified (Heizer, Render & Munson, 2019). BYD could

use PERT to manufacture batteries and CPM to manufacture EVs. BYD has been manufacturing

batteries for a long time and has it down to a science and knows the conditions of their

production, while manufacturing EVs is fresh ground for them and would have more variables

than only making batteries.

BYD of China 7

BYD uses the four key priority guidelines for work sequencing:

I. First Come, First Served (FCFS): Jobs are performed in the sequence in which they

are received. Using this technique, BYD would be able to handle orders in the order

they were sent, but it would also trigger a pause as larger orders were received.

II. Shortest Processing Time (SPT): Jobs with the lowest processing cycles are

prioritized. Smaller orders would be delivered first, and larger orders would take

longer to complete for customers if BYD used this process.

III. Earliest Due Date (EDD): Employment with the earliest due dates are allocated first.

This strategy could benefit BYD since orders with a later due date will be processed

first. The only disadvantage is that if someone's due date is in the future, they may

have to wait that long to obtain their product.

IV. Longest Processing Time (LPT): Jobs that need the most computing time are

allocated first. BYD could prioritize orders with a longer processing period, but

orders with a shorter processing time would have to wait longer for their product.

Depending on the product, each corporation may have a different sequence. BYD

manufactures batteries as well as the upcoming e6 cars. EDD is most likely their only bet for

them. It reduces the maximum amount of lateness, which will be detrimental to their brand if

BYD promised to deliver a vehicle by the deadline, but fail (Heizer, Render, & Munson, 2019).

Theory of Constraints is a body of information that deals with something that could limit or

constrain an organization's ability to accomplish its goals. This will include physical resources

like sources or raw materials, as well as nonphysical materials like processes and preparation

(Heizer, Render, & Munson, 2019). The theory of constraints has five stages, which are as

follows:
BYD of China 8

I. Identify the constraints: BYD can use this phase to identify some obstacles to achieving

their objectives. This move is for BYD to find something that could be preventing them

from meeting production targets and delivering their upcoming e6 electric vehicles on

schedule.

II. Develop a strategy for overcoming the defined constraints.: After BYD has identified the

potential obstacles, they must devise a strategy for overcoming the identified constraints.

One example will be their failure to manufacture batteries owing to a supply shortage

with their supplier.

III. Concentrate capital on achieving Step 2: After BYD has devised a strategy for solving

the established limitations, they must allocate their capital to achieve their target. If

they encountered a supply shortage, BYD will have to devise a solution, such as

seeking a different source.

IV. Offloading work or extending capacity may help to mitigate the impact of restrictions.

Ensure that all those who might have an effect on the restrictions are aware of them:

BYD would need to assess their own capability for their current provider and choose

another if a supply scarcity occurs.

V. Return to Step 1 and define new constraints after one collection of constraints has been

overcome: When BYD has established their constraints and followed the protocol before

they are solved, they must circle back around and find any further constraints. Business

is constantly evolving, and they must constantly recognize any new restrictions that

might emerge.

(Heizer, Render, & Munson, 2019)

BYD of China 9

The application of the Theory of Constraints to BYD's vendors and other market

processes has many benefits. To begin, the Theory of Constraints is simple to grasp and apply,

making it a viable option for BYD executives. It also creates a pattern to adopt, allowing those

making the list to concentrate on the fields that need the most attention and to achieve results as

soon as possible. BYD would be able to see benefits more easily by improving performance and

saving money in the long term because of its versatility. Finally, by implementing the Theory of

Constraints, labor expenses, overtime, and inbound or outbound logistics may be reduced

(Rarick, 2011).

In order to create a development plan and maintain success, BYD would need to use the

forecasting method to assess potential needs. The forecasting method requires seven stages,

which are as follows:

I. Determine how the projection will be used: BYD will base their personnel and

development forecast on previous revenue and existing demand.

II. Pick the following things to forecast: BYD will attempt to predict potential

revenues and schedules.

III. Determine the forecast's time horizon: BYD can consider all short- and long-

term predictions, such as weekly, quarterly, and a 5-10-year forecast.

IV. Collect the information required to render the forecast: BYD would have to

consider whether to recruit more staff or hire an outside firm to conduct the

forecasts.

V. Create a prediction: BYD can use its staff or an outside firm to make a

forecast based on the data collected.

BYD of China 10

VI. Validate and apply the results: BYD would collaborate with management to

ensure that all models, conclusions, and evidence are correct and to put the

analysis given into effect. (Heizer, Render & Munson, 2019).

Another aspect that BYD must understand is Supply Chain Danger, which refers to the

various threats that may occur in the supply chain (Heizer, Render & Munson, 2019). BYD

would need to do analysis to determine which threats their company is most likely to face and

what the best strategy is for mitigating such risks. For example, BYD may reduce the likelihood

of natural disasters such as the 2011 earthquake and tsunami that destroyed areas of Japan. BYD

must understand the location of their company and what natural disasters which occur before

deciding what form of policy is required to cover the costs if they occur. One of their areas may

be more vulnerable to earthquakes and tsunamis, while another may be vulnerable to fires or

tornadoes. Each location would have to decide what protection they need as well as backup

options in the event of a catastrophe. The table below depicts the supply chain vulnerabilities and

risk-mitigation strategies for BYD to consider.

Table 11.3 Supply Chain Risks and Tactics

Risk Risk Reduction Tactics

Failure of the supplier Use several suppliers; use effective terms with penalties; keep
to deliver subcontractors; and schedule ahead of time.
Supplier production Supplier collection, preparation, registration, and testing must all be done
defects with care.
Outsourcing Take control of the manufacturing process; supply or execute the service
yourself.
Delays or disruption to Multiple/redundant transportation forms and warehouses; safe packaging;
logistics successful contracts with penalties
Distribution Prudent contracting, inspection, and effective contracts with penalties.
Information loss or Loss or manipulation of information.
distortion
BYD of China 11

Political Insurance against political risk; international diversification; franchising

and licensing
Economic Hedging against currency exchange risk; buying contracts that address
market volatility
Natural Security; alternate procurement; global diversification
catastrophes
Theft, Insurance; copyright protection; surveillance controls such as RFID and
vandalism, GPS; diversification
terrorism

(Heizer, Render, & Munson, 2019)

Just in Time (JIT) is a constant and pressured problem-solving technique that focuses on

throughput and limited inventory. It lowers the cost of quality, increases quality, and as a result,

BYD would need to maintain fewer inventory due to the quality of their batteries and e6 car.

BYD's use of JIT has the advantage of being able to be extended to a wide range of

company processes, including their HR department, banking, supply chain, logistics

management, and partnership management. They will also obtain a higher-quality battery by

eliminating waste in the manufacturing phase, and this solution can lower BYD's inventory costs

and inventory specifications. A downside for BYD if they want to employ this method is that it

does not deal well with rapid fluctuations in supply and demand, and it may be time consuming

to initially incorporate the system (What is just in time (JIT), n.d.). This might be a challenge if

one of BYD's manufacturers were to go bankrupt or if demand for the e6 fell dramatically.

Toyota Production System (TPS) is designed for assembly lines and is made up of three parts:

I. Continuous improvement: The TPS procedure can be performed by hand at first before it

is mastered. When this occurs, they can configure machines to do the same thing such

that any object is exact and up to their specifications. BYD would have fewer

maintenance to think about when this phase is implemented, saving them time and

resources (Toyota Motor Corporation, n.d).

II. Respect for people: By using TPS, BYD would be able to hold their costs down for

their customers, rendering purchasing one of their electric cars more competitive.
BYD of China 12

III. TPS is connected to Just in Time, which means that each process generates just what is

required for the next process in a continuous flow. If a malfunction arises, the machinery

will shut down to discourage the production of faulty goods (Toyota Motor Corporation,

n.d). BYD will be able to easily and rapidly manufacture not just their battery, but also

their e6 vehicle whilst being kept to a high level one after the other. Including eleven

factories and over 130,000 workers, BYD's process will be consistent throughout the

board. (Rarick, Firlej, Angriawan, 2011)

TPS benefits the enterprise by producing high-quality results and ensuring continuity around

the board. The time it takes to drive there will be a downside. BYD will have to install this

machine in all of their factories and educate all of their employees on how to do it properly

(Heizer, Render, & Munson, 2019).

By quality management, lean operations give the consumer what they want, when they want

it, with little waste. It is driven by a workflow that is triggered by the "pull" of a customer's

request. Overproduction, queues: idle time, packaging, and waiting, transit, material, motion,

over manufacturing, and faulty goods are the seven wastes that are intended to be eliminated by

lean operations. It also emphasizes the 5S's: Sort/segregate, Simplify/straighten, Shine/sweep,

Standardize, and Sustain/self-discipline. Managers in the United States also follow the 7S's,

introducing Safety and Support/Maintenance to the list (Heizer, Render, & Munson, 2019).

BYD aspires to be a pioneer of the “green” industry by manufacturing environmentally

sustainable hybrid vehicles. They are developing batteries with nontoxic fluids that are less

harmful to the atmosphere if discarded incorrectly. BYD will use lean operations to manufacture

their e6 vehicle easily and safely, with less capital and at a lower cost to them. BYD would have

less e6s in hand, which might cause a problem if one of their vendors went down. Another

drawback is that the implementation is initially expensive. For BYD to utilize this method, they

must first ensure that the investment is worth it in the long run (6 benefits of lean management

and 4 DISADVANTAGES, 2020).

BYD of China 13

Complete Quality Management (TQM) is the quality focus that extends across BYD, from

its vendors to its consumers. It essentially involves delivering the finest commodity possible to

its consumers while also providing the best environment for its workers in order to achieve long-

term success. The PDCA Cycle, which stands for Plan, Do, Check, Act, may be used to increase

efficiency in a company. They will define the issue and strategy, test the plan and see how it

works, and execute and log the plan. Heizer, Render, and Munson (2019). Wang Chuan-Fu was

aware of the superiority of Japanese batteries and desired for his organization to be of the same

caliber. He conducted extensive analysis on their batteries to see what they were made of and

how they were constructed in order to develop his own superior, less expensive battery. As a

result, BYD manufactures ferrous lithium ion batteries that are cleaner and cost almost half as

much as their competitors.

After studying Japanese batteries, they discovered a way to manufacture batteries that involve a

nontoxic solvent that is less harmful to the atmosphere if they are not recycled and generates a

longer charge than their competitors, all of which hold their costs down (Rarick, Firlej,

Angriawan, 2011).
BYD of China 14

Data Analysis:

BYD Time Function Map

The diagram above depicts a fictitious mechanism or time-function map. It is yet another

method for process analysis and design, showing operations, the path of flow, and the length of

time each may take. It is used to recognize and remove any unnecessary moves, duplicates, or

delays in BYD's current procedure. Once delays are detected, BYD will reduce waiting time and

increase order handling for their logistics and consumers (Heizer, Render, & Munson, 2019).
BYD of China 15

BYD Cause-and Effect Diagram

The diagram above is a cause-and-effect diagram, also known as a fishbone diagram,

that BYD may use to classify any quality problems or inspection points (Heizer, Render, &

Munson, 2019). BYD will use this diagram to determine what is causing their supply chain

partners to struggle with introducing new components, thus slowing the introduction of their

new e6 car. It is important to complete one of these maps and the issue could be caused by a

single factor or by a combination of factors. A lack of supplies can often trigger a pause, but

other factors that companies overlook, such as connectivity and system servicing, may often

cause major delays.

BYD of China 16

Factor-Rating Method

The map above is a factor-rating system that depicts various choices for BYD's current

manufacturing plant site. Each factor's weight indicates its value to BYD. To determine the

position is better, calculate the score by the weights for each element and sum them for each

location. The city with the most people is in a better place (Heizer, Render, & Munson, 2019).

Mexico City will get a ranking of 73 if anything were done. Using the same procedure, they will

get a score of 71.25 for Columbia, SC. This suggests that Mexico City will be a better site for

BYD's current production facility. Taxes, labor rates, housing costs, and labor efficiency are all

lower in Mexico City than in Columbia, South Carolina. Despite the fact that Columbia, SC is

safer in terms of political danger and transportation prices, Mexico City is always the better

choice when all factors are considered.

Inventory Management Process

BYD of China 17

BYD claims it has inefficiencies in the product control mechanism and would use the

ABC grading scheme to make proposals to improve it. The chart above shows ten items and their

classes. The ABC rating scheme must be understood in order to determine which objects are the

most relevant. An ABC report would classify BYD's on-hand inventory into three categories

based on annual dollar volume, which is calculated by multiplying the annual demand of each

inventory component by the cost per unit (Annual Dollar Volume = Annual Demand X

Cost/Unit). Furthermore, to calculate the percentage of the Annual Dollar Volume, divide the

annual dollar volume by the overall annual dollar volume (percent of Annual Dollar Volume =

Annual Dollar Volume for the item/Total Annual Dollar Volume). Class A products are those

with a large annual dollar volume. This class would account for only 15% of BYD's overall

inventory but will account for 70%-80% of their total dollar consumption. Class B products have

a medium annual dollar range, accounting for around 30% of their inventory and 15% - 25% of

their overall value. Class C products have a low annual dollar value, accounting for only 5% of

BYD's annual dollar volume and 55% of overall inventory items. BYD may use this knowledge

to obtain accurate inventory estimates, reduce prices, and eliminate surplus inventory of specific

goods (Heizer, Render, & Munson, 2019).

Sustainability: The triple bottom line principle of humans, earth, and benefit is a

mechanism that BYD would employ on a regular basis in their Operations Management to

ensure that their products and services are environmentally sustainable and profitable for their

customers (Heizer, Render, & Munson, 2019). BYD has also made a strong start to this idea by

allowing their workers (including engineers and scientists) to reside on company grounds

through their eleven factories in China, Hungary, India, Romania, and the United States. BYD

covers rent and other living costs for their staff, so it's one fewer expense they have to think

about. They are still quite conscientious regarding the production of their batteries. They also

discovered a way to not only manufacture a battery that lasts longer than its counterparts, but
BYD of China 18

also to make the battery safer for the world if it is disposed of improperly. While doing so, they

have discovered a competitive way to hold their prices considerably lower than their competitors

while also making a profit. Their income has steadily grown as a result of low labor costs,

limited outsourcing, and competitive innovation (Rarick, Firlej, Angriawan, 2011).

ISO 14000 is a compilation of international environmental protection principles,

recommendations, and scientific papers that define the criteria for establishing an environmental

management strategy. This would assess the environmental value of a product or service, plan

goals, enforce programs to achieve those objectives, and perform disciplinary action and analysis.

The primary goal of ISO 14000 is to encourage organizations to adopt an efficient environmental

protection scheme (What is the ISO 14000 criteria series? n.d.). In 2004, BYD earned ISO14001

Environmental Management System certification (BYD Electronic, n.d). They have really well

integrated the ISO 14000 requirements into their production plants. The e6 car is an all-electric

vehicle with negligible emission and minimal noise, as well as a promise that the chemical

compounds in its batteries are recyclable. The car may be charged at home, and the battery can

last for almost 250 miles before having to be recharged. They also make the batteries used in their

engines, which, as previously mentioned, are made with a nontoxic fluid (Rarick, Firlej,

Angriawan, 2011).

Corporate Social Responsibility (CSR) programs are those that consider a company's natural,

economic, and financial consequences when making decisions. An organization that

practices CSR creates community equity, which boosts BYD's productivity while improving

the economic and social conditions in the societies in which they work (Heizer, Render, &

Munson, 2019). BYD demonstrates this by manufacturing zero-emission electric cars,

ensuring that their manufacturers adhere to ISO requirements, and holding market prices

down.
BYD of China 19

To summarize, BYD will use the principle of restrictions and overall quality control

tools and strategies to identify and minimize various threats within the enterprise or supply

chains. BYD will also use lean output, JIT, and TPS to streamline the method of producing

batteries and the upcoming e6 electric car, all while lowering overhead and reducing waste.

BYD can not only keep their business going efficiently, but would still be able to succeed in the

electric car market as they use the various strategies and strategies offered on a daily basis and

continue to stick to the triple bottom line, be an ISO 140001 accredited company, and

demonstrate that they are a corporation that meets corporate social responsibility.
BYD of China 20

References

6 benefits of lean management (and 4 DISADVANTAGES) from https://status.net/articles/lean-

management/

BYD electronic (INTERNATIONAL) Company Limited. (n.d.) from http://www.byd-

electronics.com/qa/index.jhtml

Heizer J., Render B., & Munson C. (2019). Operations Management. [MBS Direct]. Retrieved

from https://mbsdirect.vitalsource.com/#/books/9780135202722/

Javed, R. (2020, January 17). Theory of CONSTRAINTS (TOC) - DEFINITION,

EXPLANATION, CONCEPT, advantages and disadvantages from

https://www.accountingformanagement.org/theory-of-constraints/

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(1), 19-27. doi: https://www.abacademies.org/articles/jiacsvol17no12011.pdf

Service operations vs. manufacturing operations from https://smallbusiness.chron.com/service-

operations-vs-manufacturing-operations-25843.html

Toyota Motor Corporation. (n.d.). Toyota production System: Vision & Amp; Philosophy:

Company from https://global.toyota/en/company/vision-and

philosophy/production-system

What is just in time (JIT)? (n.d.) from

https://www.cips.org/knowledge/procurement-topics-and-skills/operations

management/just-in-time/

What is the iso 14000 standards series? (n.d.) from https://asq.org/quality-

resources/iso-14000