Sony- a Japanese Multinational Company - Case Study Example

Title: Operation and Enterprise management Student’s Name: Instructor’s Name: Course Name and Code: University: Date of Submission: Operation and Enterprise management Introduction The reduction of production costs is given significant importance in the contemporary organization and has been a major point of focus for most organizations. The cost of production is dependent on number of alternating factors and may be affected by varying levels of performance of quality, dependability, speed and flexibility. Subsequent studies indicate that by varying the factors identified above, it is possible to reduce or increase the cost of production. This is of great importance for the modern organizations where reduction in costs of production is highly emphasized in a bid to improve productivity and consequently improve the level of profitability. This paper will analyze the impact of these factors on the cost of production through a study of Sony, a Japanese multinational company. Analysis Brief description of Sony Sony is a household in the field of electronics and is ranked the globe’s fifth largest media conglomerate. Sony has managed to capture a large market share for its electronics products including TVs, music systems, HiFi systems, radios, play stations, personal computers, camcorders and digital cameras among other products (Sony website). The company also invests in Financial Services, music, pictures, networking and production of semiconductors. Sony’s endeavors to reduce production costs have led to increased profitability within the firm as indicated by the financial reports. Sony recorded over $77.20 billion in revenue in the 2010 financial year. In the year 2009, the company recorded revenues worth $78.9 (Sony website). The reducing revenues can be attributed to reduced demand following the global economic crisis but it was significantly high as compared to competitors. The effect on cost of operation resulting from changes in performance of quality speed, dependability and flexibility Changing the level of performance of quality plays a significant role in determining the cost of production. High quality is associated with lower costs while poor quality leads to higher costs (Hakes 1991, p.87). The production of high quality products ensures that there are fewer returns; which in turn reduces the production costs. This emanates from the process of quality control which ensures that the goods produced in a company are consistent and that they meet the laid down procedures. QC as it is commonly abbreviated ensures that every step in the production process is well followed, such that there is consistency and that any errors witnessed in the production process are avoided. When a company’s products do not meet the expectations of its customers, more resources may be spent in producing replacement goods thus increasing the level of production. Furthermore, inconsistency in the production process is likely to produce significantly different products thus creating mistrust among customers. Additionally, lack of quality control is highly wasteful because the error rate is expected to be high (Hakes 1991, p.171). This insinuates that more resources would be spent in repeating the production process to thus impacting on the cost of production. Enhancing quality therefore eliminates such losses thus leading to a significant reduction in production costs, hence the reason why companies should invest highly in the development of quality. Sony places a high level of importance in maintaining quality products such that their products are rarely defective. The company takes proactive measures to ensure that quality is maintained including investment in research and development and conducting market research to establish customer reactions to their products. Sony actually maintains a Quality Hot Line where customers can lodge their complaints and thereby help the company in identifying quality related problems (Sony website). The hotline can also be used by employees to report issues that are beyond their ability. This reporting ensures that the quality of the company’s products is maintained and that customers are satisfied. This is bound to reduce the amounts of returned goods, which reduces the cost of operation. Speed is highly important in reducing production costs due to the savings in costs such as energy and manpower. This may be enhanced by ensuring efficiency of machines thus speeding up the production process (Shaaban & Hudson 2010, p.71). Increasing the speed of production would lead to the consumption of fewer resources within an organization and also increase the company’s productivity (Shaaban & Hudson 2010, p.109). Costs such as electricity, water consumption and manpower among other costs are expected to reduce significantly. Speed could however affect quality in that errors are likely to be more evident as production is done in a hurry; thus leading to the elimination of certain processes such as quality control. Sony has utilized the concept of speed in improving the cost of operations through the use of automated machines. This has led to faster production and thus led to a significant reduction in operating costs for the company. Errors are also likely to be reduced as opposed to when manual operations were used thus leading to reduced returns. The company is therefore expected to cut down on costs required to handle faulty products. The dependability of a company’s products plays a significant role in reducing the cost of production. Dependability insinuates the ability of the products to meet the customer’s needs according to the specifications and without failure. Dependability means that the products can be relied on and they are unlikely to cause a disruption in the customer’s activities while using the product. If a company ensures dependability, they are likely to experience less returns on faulty products. The cost of repair, which is included in the production cost, is therefore reduced. Dependability is also expected lead to a significant increase in the demand for a company’s products (Kash 2002, p.51). Increased demand would lead to an increase in productivity as the company seeks to satisfy the growing demand. This would in turn lead to economies of scale, as the company undertakes large-scale production. As noted by Baumol and Blinder (2007, p.143), economies of scale ensure that a company can reduce costs through bulk procurement and production such that costs are greatly reduced. Bulk procurement gives a company a higher level of bargaining power so that raw materials are likely to be produced at lower prices (Baumol & Blinder 2007, p.143-144). Similarly, bulk production saves costs because the same resources available to the firm are used in the production of many products thus reducing the cost of production. Comparing Sony with other companies illustrates that the company’s products are highly dependable (Sony website). This insinuates that Sony is expected to produce more products due to increasing demand; which helps them to benefit from the economies of scale. Sony’s production costs are therefore expected to reduce as more products are demanded. Lack of flexibility affects the cost of production to a large extent. This is because rigid production processes are likely to cost the company significantly before solutions can be found to address them. It is therefore important for a company to be flexible in its production processes in order to avoid losses (De Groote 1992, p.49). An example is where a company insists on waiting for a certain line of production to be repaired instead of looking for an alternative. This could lead to huge backlogs that may be highly costly to eliminate. Accordingly, costs are expected to go up when the production process is not flexible. Flexibility also encompasses the elimination of certain production processes and production plans without necessarily stopping production. At Sony for example, a significant number of changes have been made in order to reduce production costs. In the recent global economic crisis, the company sought to eliminate 10% of its manufacturing sites by March 2010 in order to cut down on expenses (Sony 2010). While this meant reduced production, it saved the company from excessive costs which were not accompanied by increasing sales and was therefore a well calculated move for the company. The company has also invested highly in replacing older machines with newer and more effective machines which make production easy and consequently reduce the cost of production. Such flexibility has helped Sony in maintaining low costs of production thus playing a significant role in increasing profitability. Recommendation and Conclusion This discussion undoubtedly establishes that the cost of production can be changed by varying quality, speed, dependability and flexibility. It establishes that the cost of production is highly influenced by these factors and that changing the performance of these factors may either increase the cost of production or vise versa. Companies must however aim at reducing production costs through improving quality, increasing speed, enhancing dependability and promoting flexibility. With Sony as a case study, it is notable that the cost of production is kept low through ensuring that high quality of products is maintained. This is because costs associated with repairing or replacing returned products is eliminated. The same applies to dependability which ensures that products can serve the purpose they are intended in a significant manner such that there are fewer returns. Speed and flexibility ensure that the company can save costs of production through reducing the resources required and enhancing continuity of production respectively. Companies should seek to emulate Sony’s approach with an objective of achieving low operation costs. In conclusion, altering various factors at reasonable levels could highly impact on the cost of production thus improving a company’s profitability. Reference List Baumol, WJ. & Blinder, AS 2007, Economics: Principles and Policy, Cengage Learning, London. De Groote, X 1992, The flexibility of production processes: a general framework, INSEAD, Singapore. Hakes, C 1991, Total quality management: the key to business improvement : a Pera International executive briefing, Springer, London. Kash, R 2002, The new law of demand and supply: the revolutionary new demand strategy for faster growth and higher profits, Currency/Doubleday, New York. Shabaan, S & Hudson, S 2010, Production Line Efficiency: A Comprehensive Guide for Managers, Business Expert Press, New York. Sony 2010, Sony Announces Initiatives to Improve Profitability and Enhance Operational Efficiencies in its Electronics Businesses, viewed 20 December 2010 < http://www.sony.net/SonyInfo/News/Press/200812/08-150E/index.html> Sony website Read More