Roll Royce usually sources its component of cars from different suppliers. Some of the suppliers include Bulls leather and some of BMW main suppliers such as BorgWarner and Mahle (BMW, 2019). Sourcing of component helps Roll Royce to focus mostly on design. The company has also programs that ensure the supplier meets the quality requirements. Some of the programs include rewarding suppliers and set of policies that must be met by the supplier for them to qualify to roll Royce business partners. The manufacturing value chain is good since customers have always found that the product offered by roll Royce are usually of the best quality in the market. Besides ensuring that the suppliers meet the quality requirement roll Royce also takes it employee to quality intensive training to ensure that they always give the best (Rolls-Royce, 2019). Besides, each car is individually made in such a way that the concentration is made to the finer details (Eng, 2015). The result has always been the best quality in terms of performance and luxury of its brand's offers. Therefore, manufacturing value chain can be described as the being the best in delivering quality. The customer order penetration point for Cullinan is an assembly to order. The reason for this selection is due to the fact that the company made the limited number of cars when ordered, it is customized to meet the customer requirements. The car is expensive and surely they need to be unique as only high-end buyers will afford. Therefore, for any buyer to pay such an amount it is clear that he/she will need a unique vehicle that is different from the other. Therefore based on the nature of the vehicle, it makes sense not to make them for stocking but rather to assemble them to orders.
The position of the OPP is influenced by three factors which can be categorized into market-related, product-related and production-related factors. For market-related, Cullinan is designed as a luxurious vehicle. Although the demand volatility for a luxury vehicle is expected to be low compared to normal vehicle, the industry also suffers from fluctuations from time to time. For example, the profit for BMW a parent company of roll Royce dipped in 2018 due to demand fluctuation (Rosevear, 2018). Demand fluctuation and the high cost of luxury vehicles is the main reason why the vehicles are not made to stock since it is known that most of the luxury brand purchaser are attracted by customization of the vehicle (Elliott, 2019). For the luxury brand, the lead time is mostly longer than other vehicles which are made to stock. The fact that Cullinan will need customization it means on order, it will take a minimum of 7 days to deliver but to build from scratch it takes 6 months since nearly every part is handmade (Glassdoor, 2019). The 7 days will be used to customize it including the color and interior design. Luxury demand ordering is not frequent. Therefore, the expected order frequency is mostly on monthly basis. It should be noted that it has always been very hard for roll Royce to sell more than one car per day per model (Guardian, 2015). Most of the production process of roll Royce utilizes the manual process. Therefore, the process is usually slower. The production planning occurs mostly two to three years before production, For instance, roll Royce Cullinan was planned to be produced from 2018 in 2015. The fact that most production process is done manually it means that the labor is a bottleneck resource and production process itself is a bottleneck.
The process of production itself is slow and the fact that it is a luxurious product costing 10 times more than competitors’ model, it means that only a limited number will be produced. The expensive nature of the vehicle also means that expensive material will need to be used. The material cost contributes to the overall cost of the final product. The nature of the car considering material used costs and availability of labor and automation level of the process, it means that changing the determined production level to meet extra demand will be difficult. Therefore, the need of the customer to have a highly customized product that meets the specification in most unique ways and also the nature of the products including the material used and the cost, best places the product at assembling to order OPP.
The roll Royce Cullinan design is already produced and basic features such as engine, body and entire shape are already made. Therefore, when a customer places the order, the only part to be added is the color and the interior based on their specification. According to Kemnton (2018), in assemble to order basic parts of the products are designed in advanced but not yet assembled. Therefore, when orders are made by the customer assembling is done based on customer specification.
One of the greatest forces causing movement of OPP in the value chain is pricing. As the price of Roll Royce is high, customers expected a highly customized product. Therefore, if the future model of Cullinan will be more expensive than today model, the customer will be expected more and it is likely that it will move from assembly to order OPP to make to order. Increase in cost of the product result to decrease in demand which in turn affects supply. The expensive nature of the product makes it risky to tie the cost of buffer inventory. Therefore, the best way is to produce when there is order. Besides, it can require additional engineering even though some part of the product will be already made. It might also involve ordering specific component based on customer specification. Besides the expensive nature of the product will also be a factor not to assemble to order or make to stock since doing so will make it not financially feasible. Besides, if the cost of the product will reduce in the future, there will be less need to customize and demand is likely to increase. Therefore, it is most likely that the production will move from assemble to order point to make to the stock point.
C0ompetition level is another factor that can influence the movement of roll Royce in the value chain. If there will be high competition which is based on the ability to customize, quality of material and prices. It is highly likely to hit the customer base of roll Royce Cullinan. High competition is highly likely to force the company to lower prices. With low prices, the company is likely to increase production to meet operation cost. That would move the OPP to make to stock (Logistiikanmaailm, 2019). Besides if competition increases, the company may consider moving the OPP from assembling to order to make to order. The reason for moving up is due to demand fluctuation and uncertainty caused by rising in competition. To reduce the risks of losses due to high supply and low demand, the company can focus on producing only when they have received the order.
Another key factor that influences the position of OPP in the value chain is the need for customization. If future customers of Cullinan and other Roll Royce motor product will need even more customization specification in exchange for high costs, then the company is likely to engineer each product differently. That means even the shape for each Cullinan will be unique or will provide a range of choices. Besides, even the engine type will be different. Currently, customers are only allowed to choose color and interior customization. However, if the company will need to charge, even more, more customization will be required and that means that the IOPP will move from assemble to order up even to engineering to order.
For luxury brand order penetration point depend heavily on customization rather than the prices and lead time. That is the main reason why a customer can preorder and wait for one year for their car to be produced. Many customers are willing to pay more for a unique machine that is different from what others have. That is the main reason why roll Royce provides its customers with a chance to choose the interior design and the color combination of their cars. However, demand fluctuation is one of the greatest challenges of the luxury brand. Therefore, to reduce the effect of demand variance, the companies usually produce in limited number, or use make to order or assemble to order to achieve their goal of reducing inventory costs.
References
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