A.

COMPANY OVERVIEW

General Motors is an American corporation that was the world’s largest motor-vehicle
manufacturer for much of the 20th and early 21st centuries. It was originally founded by
William C. Durant on September 16, 1908, as a holding company, with the present entity
established in 2009 after its restructuring. GM operates manufacturing and assembly plants and
distribution centers throughout the United States, Canada, and many other countries. The
company’s major products include automobiles and trucks, automotive components, and
engines, and it is also engaged in financial services. GM’s headquarters are in Detroit.

Presently General Motors is the largest American automobile manufacturer and the fourth
largest in the world behind Toyota, Volkswagen, and Hyundai. As of 2019, General Motors was
ranked #13 on the Fortune 500 rankings of the largest United States corporations by total
revenue.

General Motors has been pushing the limits of transportation and technology for over 100
years, and envision a future of zero crashes, zero emissions and zero congestion, and has
committed them to leading the way towards this future.

As an open, inclusive company, they are also creating an environment where everyone feels
welcomed and valued for who they are. One team, where all ideas are considered and heard,
where everyone can contribute to their fullest potential, with a culture based in respect,
integrity, accountability and equality.

Currently GM is:

 Over 180,000 people

 Serving 6 continents
 Across 23 time zones
 Speaking 70 languages

GM believes in policies and technologies that promote a cleaner planet from supply chain to
manufacturing to the vehicles that they manufacture.

General Motors believes strongly in innovation and continues to invest heavily in it. As the first
automotive company to mass-produce an affordable electric car, and the first to develop an
electric starter and air bags, GM has always pushed the limits of engineering.

GM is the only company with a fully integrated solution to produce self-driving vehicles at scale
and they are committed to an all-electric future. 2.6 billion EV miles have been driven by drivers
of five GM electrified models, including the Chevrolet Bolt EV.
OPERATIONS

General Motors operates through four segments: GM North America (GMNA), GM International
(GMI), GM Financial, and Cruise.

GMNA generates more than 75% of revenue and manufactures vehicles marketed under the
Buick, Cadillac, Chevrolet, and GMC brands. GMI (almost 15% of sales) sells these same brands
to customers outside North America with the addition of the Holden lineup of vehicles. The
company also has ownership stakes in companies in China, where vehicles are also made and
sold under the local Baojun, Buick, Cadillac, Chevrolet and Wuling brands.

GM Financial contributes about 10% of the company's total revenue. It provides automotive
financing and retail loan and lease lending products and services. It also offers commercial
products to dealers such as new and used vehicle inventory financing, inventory insurance,
working capital, capital improvement loans, and storage center financing.

The company's GM Cruise unit includes the business operations of its autonomous vehicle
technology development.

GEOGRAPHIC REACH

Headquartered in Detroit, GM has more than 100 locations in the US engaged in

manufacturing, assembly, distribution, warehousing, engineering, and testing. It has locations
with similar functions in more than 30 other countries. Its major facilities outside the US are in
Argentina, Brazil, Canada, China, Colombia, Ecuador, South Korea, and Mexico.

GM Financial operates at nearly 45 locations globally. Around 30 are in the US. The US
generates about 80% of GM's overall revenue.

SALES AND MARKETING

GM's cars and trucks are marketed and sold through a network of approximately 12,600
independent distributors, dealers, and authorized sales, service, and parts outlets all over the
world. Vehicles are also sold directly to fleet customers, including rental car companies,
commercial fleet customers, leasing companies, and governments.

GM is a constant presence on television and other media, spending $3.7 billion, $4.0 billion and
$4.3 billion in the years ended December 31, 2019, 2018 and 2017, respectively
FINANCIAL PERFORMANCE

For the last five years, GM's revenue struggled to maintain its growth and net income also
fluctuated.

In 2019, the company revenue decreased by 7% to $137 billion compared with $147 billion in
2019. It was primarily due to decrease in net wholesale volumes due to lost production
resulting from the UAW strike and to unfavorable Other primarily due to the foreign currency
effect resulting from the weakening of the Canadian Dollar against the U.S. Dollar.

Net income also fell 16% to $6.7 billion from $8 billion in 2018. Cash at the end of fiscal 2019
was $22.9 billion, a decrease of $553 million from the prior year.

Cash from operations contributed $15 billion to the coffers, while investing activities used $10.9
billion, mainly for purchases of property and leased vehicles and investments in securities.
Financing activities used another $4.7 billion for dividends to stockholders and payments of
debt.

STRATEGY

One of GM's long-term strategy is to reduce petroleum consumption and GHG emissions by
investing in the development of its hydrogen fuel cell technology. This initiative will help the
company identify consumer and infrastructure needs to understand the business case for
potential production of vehicles with this technology.

The Company is also focusing on the production and manufacture of electric vehicles that they
envision to be increasingly important to their business. GM is committed to an all-electric
future. Its next-generation vehicle technology will be launched in the new Cadillac EV scheduled
to debut in 2022. It's also exploring light weighting its new transmission systems and engines.

GM views Chinese market as important to their global growth strategy and are employing a
multi-brand strategy led by its Buick, Chevrolet and Cadillac brands. In the coming years the
Company plans to leverage its global architectures to increase the number of product offerings
under the Buick, Chevrolet and Cadillac brands in China and continue to grow its business under
the local Baojun and Wuling brands, with Baojun focusing its expansion in less developed cities
and markets. The Company operates in the Chinese market through a number of joint ventures
and maintaining strong relationships with its joint venture partners is an important part of its
China growth strategy.
 B. CAPACITY PLANNING:

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demands for its products. In the context of capacity planning,
design capacity is the maximum amount of work that an organization is capable of completing
in a given period. Effective capacity is the maximum amount of work that an organization is
capable of completing in a given period due to constraints such as quality problems, delays,
material handling, etc. In operations, management capacity is referred as an amount of the
input resources available to produce relative output over period of time.

In general, terms capacity is referred as maximum production capacity, which can be attained
within a normal working schedule.

Capacity planning is essential to be determining optimum utilization of resource and plays an

important role decision-making process, for example, extension of existing operations,
modification to product lines, starting new products, etc.

NEED FOR CAPACITY PLANNING

Capacity planning is the first step when a company decide to launch more or a new product.
Once the capacity is decided and a need for a new expanded facility is determined, facility
location and process technology activities occur.

 It is done to estimate whether the demand is higher than the capacity or lower than
capacity
  It helps an organization to identify and plan the actions necessary to meet customer’s
present and future demand

STRATEGIC CAPACITY PLANNING

A technique used to identify and measure overall capacity of production is referred to as

strategic capacity planning. Strategic capacity planning is utilized for capital intensive resource
like plant, machinery, labor, etc.

Strategic capacity planning is essential as it helps the organization in meeting the future
requirements of the organization. Planning ensures that operating cost are maintained at a
minimum possible level without affecting the quality. It ensures the organization remain
competitive and can achieve the long-term growth plan.

There are three principle methods to approach capacity planning. Each method is based on
reacting to or planning for market fluctuations and changing levels of demand.

These capacity planning strategies are Match, Lag, and Lead.

Match

Matching is a strategy that involves monitoring the market for demand increases and decreases
on a regular basis. Capacity is then changed to match demand.

Matching capacity is considered to be a moderate strategy that requires near-constant,

incremental adjustments. It can require a considerable amount of work, but it is a low-risk
strategy that is ideal for many organizations.

Lag

As its name suggest, the lag strategy involves waiting until there is true demand before adding
additional capacity. This is the most conservative strategy, as hiring is only initiated when
demand is at 100%. This method virtually ensures the lowest possible staffing costs but can lead
to the loss of potential customers, if there is not enough talent on hand to deliver products or
services.

Lead
Lead capacity planning is the most radical of the capacity planning strategies, as it involves
changing capacity in anticipation of market demand. Hiring can be a slow process, and lead
capacity planning allows organizations to be prepared for growing or rapidly evolving markets.
When demand increases, businesses that successfully deploy lead capacity planning will be
ready to meet client needs. Granted, incorrect or off base assumptions by management can
result in overstaffed teams and have a significant negative impact on the bottom line.

CAPACITY PLANNING CLASSIFICATION

Capacity planning based on the timeline is classified into three main categories long range,
medium range and short range.

Long Term Capacity: Long range capacity of an organization is dependent on various other

capacities like design capacity, production capacity, sustainable capacity and effective capacity.
Design capacity is the maximum output possible as indicated by equipment manufacturer
under ideal working condition.

Production capacity is the maximum output possible from equipment under normal working
condition or day.

Sustainable capacity is the maximum production level achievable in realistic work condition and
considering normal machine breakdown, maintenance, etc.

Effective capacity is the optimum production level under pre-defined job and work-schedules,
normal machine breakdown, maintenance, etc.

Medium Term Capacity: The strategic capacity planning undertaken by organization for 2 to 3

years of a time frame is referred to as medium term capacity planning.

Short Term Capacity: The strategic planning undertaken by organization for a daily weekly or
quarterly time frame is referred to as short term capacity planning.

GOAL OF CAPACITY PLANNING

The ultimate goal of capacity planning is to meet the current and future level of the
requirement at a minimal wastage. The three types of capacity planning based on goal are lead
capacity planning, lag strategy planning and match strategy planning.

FACTORS AFFECTING CAPACITY PLANNING

Effective capacity planning is dependent upon factors like production facility (layout, design,
and location), product line or matrix, production technology, human capital (job design,
compensation), operational structure (scheduling, quality assurance) and external structure
(policy, safety regulations)

PROCEDURE FOR CAPACITY PLANNING

Assessment of Present Capacity

The capacity of a department can be measured in their output or inputs. Output measure is
allowed in case of manufacturing firms such as automobile plant (number of vehicles), iron and
steel plant (tons of steel), brewery (barrels of beer), cannery (tons of processed foods), Power
Company, (megawatts of electricity), and a lot more.

Also, service industry such as hospitals (number of beds), airports (number of planes), cinemas
(number of seats), restaurants (number of tables and chairs), university (number of students),
warehouse (spaces), and a lot more, can be used to measure capacity in terms of inputs.

Estimating Future Capacity Needs

Short term capacity requirements can be estimated by forecasting product demand at different
stages of the product life cycle. It is more challenging to anticipate long-term capacity
requirements due to the uncertainties of market and technology.

Capacity forecast helps to determine the gap between the existing capacity and estimated
capacity so that necessary adjustments may be made. For example, a company that engages in
the manufacturing of two products may find that one product has low demand in summer (e.g.,
coffee or tea) while another product has low demand in winter (e.g., cold drink).

Identifying Alternative ways of Modifying Capacity

In a situation where the present capacity is not enough to meet the estimated demand
capacity, an expansion will be needed to meet up with the shortage. This way, more shifts or
overtime will be needed to improve the capacity. In the same vein, the expansion will offer to
scale and help in meeting the demand forecast, but it needs extra investment and a danger of
falling short of expectations in future demand.

When the present capacity more than the one forecasted, there is a need to cut down on
excess capacity. Building new products, selling present facilities, laying off workers, or getting
more jobs from other companies are all ways to stay on top of this.

Evaluation of Alternatives
Different alternatives for capacity improvement or reduction are calculated from economic,
technical, and other standpoints. The reactions of staff and locals should be considered during
the evaluation to get the correct analysis. Some main evaluation techniques include cost-
benefit analysis, queuing theory, decision theory, and others.

Choice of Suitable Course of Action

After carrying out the cost-benefit analysis of different alternatives to increase or reduce the
capacity, the best alternative is now closed.
 C. APPLICATION OF CAPACITY PLANNING AT GENERAL MOTORS

"Capacity limitation was the main reason for lower Spark sales. It was not the best strategy a
company in GM India’s position should have adopted. You need to have the product available in
the showroom."

- Mohit Arora, Senior Director, JD Power Asia-Pacific, in 2007

On April 17, 2007 when ‘Chevrolet Spark’ was launched by General Motors India Private Ltd.,
which intensified price war in the small car segment. GM India priced the model around Rs
12,000 less than Zen Estilo from its closest competitor, Maruti Suzuki.

However, despite of a sparkling debut and sending a lot on media and promotions and thus
creating a buzz which was planned to remain there for at least a year, Spark failed to deliver to
the promises. Prior to this launch, the company was way down in terms of media voice, market
share, product line up, and capacity constraints, and was badly affected by the phase-out of its
once popular Opel brand.

Moreover, due to capacity constraints, Spark was offered only in the northern and western
parts of the country. GM initially could only roll out 2000 units per month due to the fact that
the production will only be possible at Halol plant and it has a capacity constraint. The plant in
Halol has only a plant capacity of 85,000 units in a year which is around 7083 units per month.
While GM India hoped to increase its revenues with the launch of the Spark, its sales failed to
live up to expectations. However, it managed to bag some prestigious awards like the J.D.
Power Initial Quality Study (IQS) Award for four consecutive years from 2007 for its top-quality
features. The Spark also began receiving good reviews from auto experts and consumers for its
comfort and performance and GM recorded an annual growth of 68% in 2007. To overcome the
existing capacity constraints, the company had built a facility at Talegaon in Maharashtra by
2009. This plant has an annual capacity of around 140,000 units which they planned to use it for
production of spark only. As a result, there was a reversal of the situation and the company had
excess production capacity. With excess capacity, GM India planned to extend its portfolio.
However, during 2010-2011, its production facilities in Gujarat where its mother plant named
as Halol Plant is situated faced labor unrest and the company was left with production
losses. Labors had an issue with poor working condition and the pay they received. The plant
has less manufacturing capacities than the newly made plant at Talegaon, and the company
focused on this plant more to generate revenues. GM India, therefore, proposed to lay off some
 of its employees at its plants. With such problems surfacing, industry observers feared that GM
India might again face capacity constraints.

We have observed above that there are three types of capacity planning strategies. Out of
those, the one that was followed during that period resembles closely to the Match strategy.

Matching is a strategy that involves monitoring the market for demand increases and decreases
on a regular basis. Capacity is then changed to match demand.

Matching capacity is considered to be a moderate strategy that requires near-constant,

incremental adjustments. It can require a considerable amount of work, but it is a low-risk
strategy that is ideal for many organizations.

Here in this case we saw that initially the capacity of the plant producing spark was only 2000
per month and due to this capacity constraint, they were losing out on sales. After realizing this
and seeing the increased demand following ample good reviews about the model, GM India
decided to increased its capacity by setting up a new plant at Talegaon which has a plant
capacity of 140,000 units annually. Thus, GM here tried to match the demand and thus
responded to it.

In the past four years, GM globally has refocused capital and resources to support the growth
of its crossovers, SUVs and trucks, adding shifts and investing $6.6 billion in U.S. plants that
have created or maintained 17,600 jobs. With changing customer preferences in the U.S. and in
response to market-related volume declines in cars, future products will be allocated to fewer
plants next year.
 

Assembly plants that will be unallocated in 2019 include:

 Oshawa Assembly in Oshawa, Ontario, Canada.

 Detroit-Hamtramck Assembly in Detroit.
 Lordstown Assembly in Warren, Ohio.
 

Propulsion plants that will be unallocated in 2019 include:

 Baltimore Operations in White Marsh, Maryland.

 Warren Transmission Operations in Warren, Michigan.
 

In addition to the previously announced closure of the assembly plant in Gunsan, Korea, GM
will cease the operations of two additional plants outside North America by the end of 2019.
These manufacturing actions are expected to significantly increase capacity utilization. To
further enhance business performance, GM will continue working to improve other
manufacturing costs, productivity and the competitiveness of wages and benefits.

D. LEARNING OUTCOMES

The General Motors India’s case clearly depicts us the transformation made by them by
managing capacity constraints problem.

It initially had no market in India because of many reasons which includes heavy competition,
down in terms of media voice, market share, product line up, and capacity constraints, and was
badly affected by the phase-out of its once popular Opel brand. Then GM-India realized the
major problem was the capacity constraints and actually not the former.

They then started expanding their product portfolio by merging or taking over different
automobile companies and started to re-enter the market with new names and new brands.
GM rebranded and re-launched the products from its collaborations and later had huge market
share and also won the bestselling car (Spark) award for many years.

The learning we got form this article is, it is not only the marketing department deciding the
sale of the product but also the production department which does not have capacity
constraint as its problem decides the sale of the product. If the capacity constraint was not
taken into account and the marketing activities continued continuously GM would have not
been in a position which they are today.

Now after learning this much about capacity planning, if we were asked to open a new
subsidiary of GM in some foreign countries lets say in Africa, then we as a team would have
consider the following pointers before designing the plant capacity-

 The existing demand and future forecasted demand of the passenger car segment.
 The capacity of the other manufacturers and the feasibility of GM merging with
them.
 The feasibility of the car in the market.
 The marketing force involved in selling the product.
 The available workforce in the particular region.
 The number of Original Equipment Manufacturers in the country.
REFERENCES

1. OR Practice – A scenario approach to capacity planning, Article by Gary Eppen,

Kipp Martin, University of Chicago
2. Chevrolet Spark fails to ignite GM’s fortunes, Article published in Business
Standard written by S Kalyana Ramanathan
3.