AGW 617/3

Operation Strategy

Graduate School of Business

Universiti Sains Malaysia

Semester II, Academic Session 2013/2014

Name:

Kartiban Asokan (PGSM 0224/12)

Yong Jing Yi (PGSM 0049/12)

Solihaton Hanim Binti Halim (SGSM0438/11)

Project Title : Main operations of Proton addressing product/service design, supply networks and

operations strategies

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TABLE OF CONTENTS

2

Background of PROTON 3

SWOT Analysis of PROTON 4

Issues and Concerns in Proton 7

Operations of Proton 9

Recommendation 20

Conclusion 23

Appendix 24

References 26

Background of PROTON

The Malaysian government took a very long term strategic view to create an

automobile industry. Although the establishment Proton arose in the 1980s, the national

industry automotive had begun in 1962, when Ford Motor Company of Malaya was

incorporated and began operation with 16 employees fitting wheels, doing body repair and

paint touch-up work in a rented shop in Singapore. Then, in 1962 and later in 1963,

Malaysian government initiated to move the production in local area.

The establishment of Proton Sdn. Bhd. started when the CEO of Mitsubishi

Corporation visited Malaysia in October 1981, when Tun Mahathir Mohammad ruled as

Malaysian prime minister. Tun Mahathir proposed a joint venture to manufacture national

car. Then, in 1982 a team was assigned at HICOM (Heavy Industries Corporation of

Malaysia) to do a research and sign a settlement with Mitsubishi.

Proton was launched on 7th May 1983 with the aim of building a national car. Proton

is the first established automobile company in Malaysia that manufactures, assemble and sell

motor vehicles and related products, including accessories, spare parts and other components.

The goal of this national car project is to rise up the Malaysian industrialization. Proton used

the technology of Mitsubishi and its hardware parts. Proton Saga was officially launched in

the year of 1985. It was Malaysia's first domestically produced car and is still sold in

Malaysia and other countries today.

Malaysia made an enormous leap in the year 1980s and 1990s by emerging as the

fastest developing country across the ASEAN region. The leadership of Dr. Mahathir was the

one who introduced in a national development policy document entitled Vision 2020. The

portfolio of Proton models includes the Waja, the Gen2, Arena, Savvy, Satria Neo. The range

of 1.3, 1.5, 1.6, 1.8 and 2.0 litre engines satisfies a wide spectrum of customers both locally

and abroad. Proton cars are exported to more than 50 countries worldwide. Key export

markets include Australia, Singapore, the Far East and the UK.

The headquarters is in Shah Alam, Malaysia, includes the original Main Plant and

Multi Vehicle Factory (MVF). The Main Plant's capacity is 150,000 units while the MVF

capacity is 50,000 giving a total capacity of 200,000 units per year. Proton's total workforce

in Malaysia totals just over 6,000 personnel working in all areas of vehicle design, R&D,

production and manufacturing.

Proton took a major step forward in upgrading its engineering capabilities when it

acquired a share in Lotus Group International in October 1996. This stake was increased to

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100% in 2003. Since the acquisition, personnel from Lotus are closely involved in Proton's

new model development, with a team of engineers permanently based at the design and

development centre in Malaysia. Proton was publicly listed on the Kuala Lumpur Stock

Exchange in 1992, and it was acquired by DRB - HICOM in early 2012. Proton is strongly

recognized in the industry and it is the biggest automobiles manufactures in Malaysia. Strong

industry recognition would further enhance the brand image of the company and gives it a

competitive advantage.

SWOT Analysis of PROTON

Strengths

Proton's strength lies in its competitively priced product. Its extensive nationwide

distribution network helps the industry to move forward with the support from Malaysian

government. It has the recognition leading to a strong brand image in Malaysia. Proton

started to have a strong focus on R&D projects in their future plans.

Weaknesses

Proton relies more on the concentrated operation as it’s over dependence on the

Malaysian market. As it goes by, Proton's cash position was declining. It was predicted that it

could reduce the availability of resources to pursue growth plans.

Opportunities

Proton ventures into strategic alliances as it expand its product portfolio by signing up

into strategic agreements and strengthen its position in the industry. Collaborations within

industry players could enable PROTON to do many things. Through research and

development more innovative products could be invented, ensure that PROTON as a brand

name remains in the industry, and also enhances new opportunities globally.

Threats

Proton faces intense competition in its market segments. Their close rivals would be

Perodua, Toyota and Honda. The basic competition would on the pricing, service quality,

development and customer service. The government had also tightened the emission

standards align with the 'Go Green' campaign.

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Generation Y

Majority of Proton's users are from generation Y, who are born in the mid-1980 and

later. In a global survey of consumers in year 2014, Gen Y consumers will account for

approximately 61% of the car-buying population in the next three years. Consumer Gen Y is

more focused on affordability and practicality. It is more on to the style and features of the

vehicle.  Gen Y concerns more on the fuel efficiency, needed features, reliability and the

integration of the features.

Expectation of Generation Y

To capture the attention of Gen Y, the company must use few famous media sources

to attract their interest. The famous media usage will be the Internet, where an Internet

strategy had to be used. An interactive web site is needed which provides name, location,

offerings, background and contact information.

1) Affordability

With 48.8 million consumers planning to purchase or lease a car in the next three

years, the opportunity to cater to this generation is coming on fast. Making that purchase

affordable is the top priority to Gen Y. A study reported 64% of Gen Y consumers love their

cars, yet they are three times more likely than other generations to abandon their vehicles if

they become too costly.

2) Fuel Efficiency

Young consumers want fuel efficiency to come from new technology in order to save

gas and money. Due to the price increase in petrol, fuel efficiency is being considered as one

of the main concern in car-buying decision.

3) Be available 24/7

Nowadays the consumers are collecting the information whenever they want and how

they want at any time. Gen Y in particular has become habit to instant gratification and they

prefer to receive lots of feedback whether is positive or negative. They are so impatient and

need answers immediately. Thus we must be careful to take that into consideration when

marketing with Gen Y. Moreover, Web site and listings on our Web sites, also consider

having a blog site, for example Proton Fan Club page or blogs. For Proton Inspira, they do

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have a club web page which is PROTON INSPIRA CLUB. This allows users of proton

Inspira to interact with each other about their opinions and problems.

4) Listen

Gen Y is very optimistic and expressive and making their point is vital for them.

Listen carefully to their wants and needs with that analyze their behaviour carefully.

According to a Cone Business study in September 2008, 94% of people using social media

trust a company should have a presence appearance in social media and 84% believe a

company should go further ahead than just having a presence and should also interact with its

consumers via social media.

5) Be creativity

The Gen Y likes to jumble everything into one and keep it new. So your advertising

skills and techniques to them need to be creative in order to grab their attention. Things

you’ve done in the past may not necessarily work for the future purpose. Being innovative

minded and thinking outside the box skills is important. This concept gives users lots of

flexibility route with their responses and also allows for plenty of room for fun and creative

interpretation.

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Issues and Concern

Although Proton had gone through numerous achievements in the recent years, there

are few talking points where it highlights the problems that Proton for the past decade. The

problem with Proton Holdings Bhd is that it feels that Malaysia owes it a living. It wants to

continue to make profits at the expense of Malaysians. It does not realize that 25 years is too

old for it to be babied (P.Gunasegaram, 2010).

Proton wants to joint venture with Perusahaan Otomobil Kedua or known also as

Perodua. In these recent years they have surpassed Proton in sales and turn out to be the

market leader. But Perodua is a reluctant bride and its top management has openly, and

understandably, expressed opposition against the merger because it gives no benefit to

Perodua while being potentially rather harmful (P.Gunasegaram, 2010). This had lead Proton

to find a technological merger with a high reputation and large manufacturer.

From the observation, were identified the problem whereby it come from these joint-

venture talks were unsuccessful and MG Rover subsequently collapsed and it was acquired

with another European car manufacturer through merger. Increased competition and

liberalisation within the domestic automotive industry, rapidly changing trends and industry

challenges, Proton found out that it is a need to re-strategize how it should compete. It was

clear that Proton can utilise its limited resources more efficiently via strategic collaborations

rather than going it alone. The study found that Proton employed a partial part of JIT in their

production activity. Simpson et al. (1998) believe that this could be a potential core of

competence for Proton. The main factor that enabled Proton to maintain its JIT system is its

vendor development system.

Proton Holdings Sdn Bhd applies process strategy intends to make low-volume, high

variety production in placed called job shops. In addition, this also enables proton to achieve

economies of scale in order to reduce price (however, this strategy has not yet existed

because of low level of demand that result in low level of production).

The study made a decision to find out some of the factors that from the product

design. Example establishing new factory, introducing new models, technology development,

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human capital development and quality enhancement. It is also to find out whether the

pricing of Proton car matches the standard of its quality. We also look into Proton’s customer

service quality and delivery of its services throughout the whole Malaysia. Apart of that, we

had look onto the performance and quality of the Proton products that have been

manufactured and automated in Malaysia.

The role of supply chain management in extending JIT from an internal approach to

an external approach has been documented. However, there is some argument offer advice on

several common pitfalls in dealing with supply chain inventory. Proton decided to work

closely with the vendors to ensure continuous improvement in quality and efficiency is

implemented. Proton found that they must foresee the inefficiencies within their factories

improving once quality improves and expect this to translate into automatic cost savings. 

Therefore, all of those should be identified and analyzed, in order to improve the

service which subsequently could build and maintain the relationship between the company

and their customers and as a result, the customers would satisfy with the service provided.

This is important for improving their business performance and relationship to deliver a “high

standard quality” of services in order to achieve the “total customers’ satisfaction” for their

customers. In addition, Proton Holdings should show that they care about their customers

which is important to project the image of a “customer-oriented” provider in ensuring long-

term relationships and as a “smart company”, Proton Holdings should aims to delight their

customers by promising only what they can service, and service more than they promise.

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Operations of Proton Holdings

The brief history of Proton

The Malaysian government took a very long term strategic view to create an automobile

industry. Although the establishment Proton arose in the 1980s, the national industry

automotive had begun in 1962, when Ford Motor Company of Malaya was incorporated and

began operation with 16 employees fitting wheels, doing body repair and paint touch-up work

in a rented shop in Singapore. Then, in 1962 and later in 1963, Malaysian government

initiated to move the production in local area (Simpson et al, 1998).

The establishment of Proton Sdn. Bhd. Started when the CEO of Mitsubishi Corporation

visited Malaysia in October 1981, when Tun Mahathir Mohammad ruled as Malaysian prime

minister. Tun Mahathir proposed a joint venture to manufacture national car. Then, in 1982 a

team was assigned at HICOM (Heavy Industries Corporation of Malaysia) to do a research

and sign a settlement with Mitsubishi.

Based on technology and parts from Mitsubishi Motors, production of the first model, the

Proton Saga began in September 1985 at its first manufacturing plant in Shah Alam,

Selangor. Initially, the components of the car were entirely manufactured by Mitsubishi but

slowly local parts were being used as technologies were transferred and skills were gained.

The 100,000th Proton Saga was produced in January 1989. Until the end of the 1990s, the

car's logo featured the crest from Malaysia's coat of arms, featuring a crescent and a fourteen-

pointed star. The new Proton logo features a stylized tiger head.

In 1993, a model called Proton Wira was introduced based on the Mitsubishi Lancer/Colt.

More than 220,000 units were sold between 1996 and 1998.  Proton Perdana, based on the

Mitsubishi Galant/Eterna, was first produced in 1995, intended for higher end market. By

2002 Proton held a market share of over 60 per cent in Malaysia, which was reduced to

barely 30 percent by 2005 and is expected to reduce further in 2008 when AFTA mandates

reduce import tariffs to a maximum of 5%. Proton Waja (Proton Impian in UK) is the first car

model designed internally by Proton. It was launched in early 2001.

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With the acquisition of Lotus technologies in 1996 from ACBN Holdings (a company owned

by the same person who owned Bugatti), Proton has gained an additional source of

engineering and automotive expertise. This led to the production of Proton Gen-2 which was

code name Wira Replacement Model (WRM) before the launch. The Gen-2 is the first of cars

to be manufactured and assembled at the new manufacturing plant in Tanjung Malim, Perak

which is part of Proton City development project. The plant was opened in 2004. On June 8,

2005 Proton introduced the second model to be manufactured in Tanjung Malim, the 1,200 cc

5-door super-mini, the Proton Savvy. Both the Gen-2 and Savvy, were models that MG

Rover was looking to rebadge when the British firm entered into collaboration talks with

Proton. However these joint-venture talks were unsuccessful and MG Rover subsequently

collapsed and it was acquired with another European car manufacturer through merger.

Proton strategic plan and Just In Time (JIT)

Since the 1986, Proton has developed two main strategic plans; those are Industrial Master

Plan (IMP) 1 and 2. The main goal in these two master plans is to move the stage of

production from Completely Knock Down (CKD) Car to Complete Made Locally (CML)

Car. The IMP 1 (implemented effectively in 1986-1995) has three main objectives:

a)    Ensure rapid expansion of the economy through a spurt in growth of manufacturing sector

b) Promote efficient and optimum utilization of natural resources through value-added

manufacturing activities

c)   Lay foundation for the development of local technological capabilities

With these plans, Proton tried to achieve an industrial-strength car manufacturer and

contribute to national economic growth by providing jobs for Malaysian citizens.

After Proton made a successful attempt from the sales of Saga, Proton initiated another

strategic plan called IMP2 in 1995 with six main objectives, those are:

a)      Indigenous research and development technology

b)      Design capabilities

c)      Integrated supporting industries

d)      International marketing

e)      Development of own brand

f)      World class, world sale

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Based from the objectives above, we can notice that Proton had an ambition to be a part of

global car manufacturer. As explained in page 1 above, Proton achieved this goal by

acquiring technologies from Lotus Inc. in 1996. In fact, Proton had done this since 1986 with

their Saga, although it is not stated in the IMP 1. They had exported to more than 50 countries

around the globe, with main market share in Australia, South East Asia, Africa, and United

Kingdom.

Likewise, Proton move further by expanding the production through the establishment of new

plant in Tanjung Malim (Perak State) with size five times bigger than Shah Alam plant. In

addition, the new plant also equipped with sophisticated car manufacturing technology and

improvement in production line. The improvement in production line from process focus to

assembly line is the important feature that helps Proton to increase its capacity. With the new

plant Proton can increase its production from 230,000 cars per year to one million cars per

year.

Despite the public scepticism and negative critics from customer and other stakeholders

recently (due to drop in sales), Proton in fact has a state-of-art operation strategy (although it

has not reached the sophisticated level yet). Simpson et al (1998), explained about this fact in

their research. Simpson and his colleagues analysed the level of JIT implementation in Proton

Shah Alam Manufacturing plant at that time.

The study found that Proton employed a partial part of JIT in their production activity.

Simpson et al. (1998) believe that this could be a potential core of competence for Proton. In

addition, Proton’s strategy to compete in price with other car manufacturer adds another

value in its competitive advantage. For example, Proton Saga has a lower price compared to

other brands in Sedan-type car.

Furthermore, the main factor that enabled Proton to maintain its JIT system is its vendor

development system. With the system, it is possible to ensure that parts and components are

sent at the right time with less inventory cost and without reducing their quality (Simpson et

al, 1998).

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What’s more, Simpson et al (1998) argue that Proton also has other supporting mechanisms

such as the Quality, Cost, Delivery (QCD) targets and the “3M” and “2S” improvement

mechanism. The “3M” (Mura, Muri and Muda) approach is an improvement programme

which focuses on the elimination of these “3Ms”. These are, according to Proton:

a)   Irregularities (Mura): often caused by uneven performance, lack of coordination in

operations and the repair of rejected parts

b)   Excessiveness (Muri): can be the result of over-provision in Proton’s operations

c)  Wastefulness (Muda): results from unnecessary work and operational waste which has

occurred in the factory

In addition to the “3M” improvement programme Proton uses the “2S” approach to achieve

its objectives. The “2S” requires tidying up (Seiri) and ensuring that things are put in place

(Seiton). This “2S” approach is only a part of the “5S” kaizen movement, of which the other

three are: Seiso (clean up), Seiketsu (personal cleanliness) and Shitsuke (discipline). To

implement these programmes, ten teams comprising five people each from various

departments and supplier representatives were formed at Proton to support the QCD targets.

Process Strategy

Generally speaking, Proton applies process focus in its process strategy in Shah Alam

manufacturing plant. As explained by Heizer and Render (2004), this strategy intends to

make low-volume, high variety production in places called job shops. The system applied in

Shah Alam manufacturing plant proved to be a successful attempt, making it possible for

proton to produce Saga, Wira, and Satria for more than 100,000 units (although it is still

considered under capacity).

Moreover, the establishment of Tanjung Malim manufacturing plant signifies Proton long-

term goal to achieve increase in output production. In addition, this also enables proton to

achieve economies of scale in order to reduce price (however, this strategy has not yet existed

because of low level of demand that result in low level of production).

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Experience

Simpson et al. (1998) believe that Proton competitive advantage comes without doubt from

the experience it gained since the first team was initiated in HICOM in 1983. A strategic

alliance by joint venture allows the technology to be passed from well-known multinational

car manufacturer such as Mitsubishi, Renault, and Peugeot to local people. Thus, it will

improve human capital in Malaysia. Likewise, joint venture also gives experience to Proton

in improving its operation management.

There is a good movement to maintain proton situation from the red flag. Recently by

introducing persona, they show that with launching new model they are able to capture their

lost market share. They also have tried to control their costs and achieve operational

efficiency and product portfolio rationalization as well as increase exports to boost earnings.

With those strategies they were able to reduce their loss; net loss narrowed to RM46.8 mil in

the first quarter this year compared with RM58.6 mil a year earlier despite lower revenue of

RM1.1bil against RM1.4 bil previously. The most important events which have taken place in

Proton Company in recent year are listed below:

Product design

a)    Establishing new factory

Previously proton had one plant in Shah Alam with its combined capacity of 200,000 units

annually, comprises the main factory which produces the Saga, Wira, Perdana and Arena

models, and the medium volume factory which produces the Waja and Chancellor models for

the domestic and export markets. Proton’s casting, engine and transmission factories are also

located in Shah Alam and these facilities are capable of producing 180,000 units of CamPro

engines per year. The Shah Alam plant also supplies CKD (Completely Knocked-Down)

parts and components to Zagros-Khodro in Iran to assemble and market Proton vehicles in

the Middle East region. In the period under review, 1,740 vehicle sets were delivered for

assembly. In the period under review, various initiatives focusing on improving the quality of

products, operational efficiency and new product variants and introductions, were

implemented.

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Recently Proton establishes the ultra-modern manufacturing and assembly plant in Tanjung

Malim with annual capacity of 150,000 units and is capable of producing three different

platforms and multiple variants. This plant consists of engine, stamping, body assembly,

painting and final assembly facilities, inclusive of end-of-line vehicle testing equipment that

is fully integrated into Proton’s Automated-Assembly Line Controller (PALC) application.

The Tanjung Malim plant has the potential of assembling up to one million vehicles,

to date; only 240 acres of the total 1,280 acres have been developed. In the period under

review, several initiatives aimed at improving the quality of products and operational

efficiency as well as new products variant and introductions were implemented.

Concurrently, preparations for the Gen.2 and Savvy LHD-export variants, including a new

Satria model, are being undertaken and these models should be ready in the next financial

year. The financial year saw the Tanjung Malim plant’s built up quality improving by almost

25%, while its cost per unit was reduced by 1%.

b)    Introducing new models

In recent year, they are trying to capture the share market by launching new models, it was

started by introducing GEN-2 and after that they come up with New Satria and recently with

Persona. It could be an efficient strategy because as we can see in table 2.1 the leading

companies generate the main portion of their sales from new products.

For introducing new models they design the product development system which is very

efficient, we can see the changes on the product/service design as a benchmark on the

company’s evolution. In order to develop a complete new model, it required a complicated

and highly detailed process. For Proton itself, usually it takes 36 months from initial concept

stage, to the production of a road-worthy model. Proton has tried by using facilities combined

with the expertise of Proton engineers reduce the process of developing new models to 24

months.  These are some ideas of concept development that implement recently by Proton.

(Please refer to the Table 1 in the Appendix)

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As it is obvious from the table 1, the new model development begins with Concept

Formulation, in this stage a brainstorming process take place, trying to forecast exactly what

customer will expect and need from the car.

Idea Sketches are hand-drawn and modelled using computer tools like ALIAS. Small Scale

(1:3 ratios) is built, and upon concept approval, the concept will progress to the Design

Development phase. This phase of the development begins to fill in the details of the concept

car, supported by sophisticated digitizing layout planning computer modelling software

which creates external surface (A-surface) data for form and shape. A 1:1 full-size scale

model is built, finished and painted, and if this is approved, a Styling-Engineering Feasibility

study examines the practicality of body engineering and car internal systems installations,

while 3D computer modelling adds refinements to the computer simulated model, together

with internal surface data (B-surface). Engineering Development phase is from the Model

Fix; engineers produce component drawings and simultaneously simulate the properties of

body shell rigidity, strength and crashworthiness, using Computer Aided Engineering (CAE)

to comply with safety standards. Prototype Development phase involve Soft Tooling parts

are which were developed with the specified designs & materials Proton’s Prototype Shop is

able to assemble and produce the Final prototype car testing & validation. The last phase

is Testing Development. At this phase, normally it will offer comprehensive testing for

Component, Material, Safety, Strength and Complete Vehicle Validation.

c)    Technology development

Proton also has tried to continue to keep abreast of technological advancements in the

automotive industry by undertaking projects that aim to enhance the technical know-how and

capabilities in high-technology areas to provide potential long-term benefits. Some of these

new technologies are:

• ALUMINIUM PERFORMANCE CROSSOVER (APX)

Proton had developed a concept prototype that utilises the Versatile Vehicle Architecture

(VVA) that was developed through Lotus Engineering. The APX was built with aluminium

based VVA powered by a V6 supercharged engine and is a seven-seat crossover vehicle.

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• COMPOSITE MATERIAL RESEARCH

The Lotus Europa S which made its debut along with the APX at the Geneva Motor show

signifies the Group’s intent to enhance Proton knowledge and capabilities in the area of

composite materials. The end product saw a low volume production line set up at the Shah

Alam manufacturing facility. The Europa project had also established an industrial

partnership between Proton and Composite Technology Research Malaysia.

• PARALLEL HYBRID ELECTRIC VEHICLE (PHEV)

Proton had embarked on a project with the Lotus Group to develop a hybrid vehicle capable

of running on either electricity or gasoline. They argue that this programme aims to elevate

Proton technology to a level that is on par with their global competitors by creating an

alternative vehicle for the future which provides customers with better fuel economy, reduced

emissions and uncompromising performance.

d)    Human capital development

One of the operation management critical decisions is emphasizing on human development.

Therefore Proton has found that they should also focus on this area. Every employee,

representative and even the business partners must not only understand what is required of

them and have the appropriate resources at hand, more importantly; they must be equipped

with the right knowledge and skills. As Managing Director of Proton mentioned, “the people

are the greatest asset”. So they provide more training for their staff.

e)    Quality enhancement

Proton was aware of the numerous quality complaints that may plague the brand. They

started to offer better quality products. They intend to put the best practices into every car

that rolls out of the factory. It is going to be done via training, having managers and

supervisors frequently conducting checks, through visualization, and through a strong belief

in quality. They also set higher benchmarks. A Quality Improvement Committee has been

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tasked with coordinating and improving all quality programmed found to be inconsistent in

the past. Their processes and relationships with vendors are also being reviewed so that all

parties understand their respective roles in ensuring quality products.

Supply chain network

A community of suppliers has developed in the vicinity of the plant complex ensuring

effective and efficient logistics network. To date, more than 10 major modules and system

suppliers are operating in the Proton City Vendor Park. The role of supply chain management

in extending JIT from an internal approach to an external approach has been documented.

However, there is some argument offer advice on several common pitfalls in dealing with

supply chain inventory. Previously, Proton has mentioned to reduce the 1,700 third party

suppliers of raw materials and other non-automotive components and will deal directly with

the source. This will minimize transactions that do not create any value for Proton. They try

to review production process to eliminate any inefficiency in manpower and machinery. The

reductions in suppliers which were observed in that work were due to changing from multiple

to single source suppliers. The main advantages as Proton said, were found to be better

quality, reduced costs and the ability to produce products which are highly desirable in the

marketplace. There was also the benefit of vertical integration but without actually taking

over companies. The disadvantages were seen as the cost involved, the openness required by

the development process and the need to manage change. There was also emphasis on long-

term strategy associated with developing the supplier base.  Also in Proton 2006 strategic

planning for 2006, their focus is to reduce their middle man of supplier for raw material.

Therefore, this strategy is helping Proton in reducing the production cost.

Distribution channel   development

As a national car company and as the backbone of Malaysia’s automotive industry, Proton

has both a national and social obligation to ensure that local distributors have the necessary

expertise, resources, skills, international accreditation and competitive edge to take

Malaysia’s component manufacturing industry several notches up.  Proton decided to work

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closely with the vendors to ensure continuous improvement in quality and efficiency is

implemented. Proton found that they must foresee the inefficiencies within their factories

improving once quality improves and expect this to translate into automatic cost

savings. They also found that they have to reduce their vendor and reorganize them, as a

result they started to reduce vendors’ number and their plan is to have only 200 vendors by

end 2008 instead of 310 outlets they have now.  They also try to initiate a program to

consolidate our dealer network system. It can help them to have more control on them and

reduce their costs. In recent years Proton has opened new markets .Saudi Arabia and Pakistan

are the latest to be penetrated by Proton, and they believe that will start showing results

within the future financial year.

In light of the increased competition and liberalisation within the domestic automotive

industry, rapidly changing trends and industry challenges, Proton has to re-strategize how it

should compete. It is clear that Proton can utilise its limited resources more efficiently via

strategic collaborations rather than going it alone. Proton does not have the luxury of time to

develop the necessary range of products from scratch. Consequently, the previous operating

strategy to develop multiple platforms in-house has to be revamped to reflect current

challenges. Thus the pursuit of strategic alliances with international partners for mutual

benefit.

Joint venture strategies

Because of increased competition and liberalisation within the domestic automotive industry,

rapidly changing trends and industry challenges, Proton found out that it is a need to re-

strategize how it should compete. It was clear that Proton can utilise its limited resources

more efficiently via strategic collaborations rather than going it alone. Proton believes that

they do not have enough time to develop the necessary range of products from scratch.

Consequently, the previous operating strategy to develop multiple platforms in-house has to

be revamped to reflect current challenges.

In the last year, Proton undertook a review of its alliance and collaboration strategy. Clearly,

the proposed collaboration in the past could not meet the specific needs of the Group at the

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moment. Going forward, Proton starts to find collaborative strategy that is flexible, balanced,

mutually beneficial and specifically tailored for the group requirements. It focuses on

establishing collaborations aimed at acquiring the right technology, expertise and know-how

to become a competitive car manufacturer globally. As they mentioned these collaborations

are also for the purpose of acquiring products, where appropriate, to optimise capacity usage

and even for gaining market access.

Proton could conceivably establish alliances and collaborations with different partners for

different purposes. It is in line with this new philosophy that on 3 February 2006, Proton

entered into a Memorandum of Understanding with Japanese automaker, Mitsubishi Motor

Corporation (“Mitsubishi”). The collaboration with Mitsubishi is part of the Product Alliance

strategy and they believe it can help Proton to quickly develop additional products and

technical expertise in specific areas. In addition to the agreement with Mitsubishi, Proton had

also entered into a Memorandum of Understanding with Chery Automobile Company

Limited (“Chery”) on 23 May 2006. The business arrangement with Chery provides the

opportunity for both companies to work together, amongst others, to co-source materials and

components. Proton via Lotus Engineering Malaysia, had also entered into a Memorandum of

Understanding with Jinhua-Youngman Automobile Limited (“Jinhua-Youngman”) on 23

May 2006. The collaboration with Jinhua-Youngman is particularly significant from a

business standpoint as it provides Proton with the opportunity to improve its revenue

generating capabilities from the licensing of some of the Group’s technologies. More

importantly, this collaboration will also assist in introducing Proton’s products to China, one

of the most vibrant automotive markets in the world.

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Recommendation

As for the recommendation, here are the few suggestion that can actually improve the

operations in Proton.

a)    Human Resources Development

Human resource development remained the key priority in equipping employees with

knowledge and skills to face the challenges ahead in an increasingly knowledge based

economy. Therefore, we should focus on this area. Every employee, representative and even

the business partners must not only understand what is required of them and have the

appropriate resources at hand, more importantly; they must be equipped with the right

knowledge and skills. Due to that, we would like introducing and implementing an internal as

well as the external training programmed which conducted for all employees to develop and

enhance their competencies in information communications technology and customer

service. Moreover, we want to have a good relationship with their staffs (customers and car

distribution centre). Meaning to say, we want to treat their staff like an ambassador to gather

feedback from customers about what customer want. Having a good relationship will

motivate every employee to increase the productivity. In addition, we would like in still the

brand ownership of national car in their mind set throughout the length and breadth of the

organization if they struggle to improve themselves.

b)    Product Development and Design

Dr.Badrul, Head of Strategic Management of Proton, he says that Proton now is producing

vehicles that are not only exciting, of a diverse range and model, but also those that are in line

with what the market wants and of better and higher quality. Therefore, they can develop new

cars of its own and collaboration with other car makers, to replace some of Proton’s existing

models which have been on the road for too long. In term of technological advance, Proton

has the expertise and it is slightly better than other developing country like in Indonesia,

Thailand and Myanmar.

In moving forward, we suggested the company should emphasize on the electronic business

applications like Systems Applications Programmed (SAP) which has been implement by

Honda. This system offers more functionality to cater for future system integration with other

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systems. With the increasing growth in the Malaysian internet population, we also suggested

to form a team to introduce electronic commerce to enhance delivery channels.

c)    Cost Improvements

In the operation management perspective, cost improvements or cost savings do not

necessarily translate into lower or cheaper quality products and services. Instead,

improvements focus on the entire network’s ability to operate in a more productive and

efficient manner thus further reducing wastage or unnecessary costs. Review the number of

outlets we have against the volume we want to push and will initiate a programmed to

consolidate the dealer of the network system. This will translate into better response and cost

efficiencies. Improvements in quality and factory efficiencies will further contribute to cost

savings. As a national car company and as the backbone of Malaysia’s automotive industry,

Proton has both a national and social obligation to ensure that local vendors have the

necessary expertise, resources, skills, international accreditation and competitive edge to take

Malaysia’s component manufacturing industry several notches up. We think the company

should work closely with the vendors to ensure continuous improvement in quality and

efficiency is implemented. As a manufacturer, we must review that vendors not just as the

business partners; Proton needs one another to survive. Going forward, Proton must allocate

the resources and work hand-in-hand with their vendors to improve the situation by reducing

any inefficiencies. We suggest that Proton must foresee the inefficiencies within their

factories improving once quality improves and expect this to translate into automatic cost

savings.

Besides that, we would like to address some argument on the inefficiency within the two

plants (Shah Alam Plant and Tanjung Malim Plant). We would somehow tend to proposed of

closing one plant and expect to translate into automatic cost savings. We will also review the

entire supply chain from the components and production, to sales and marketing. Another

thing we would like to raise up is about the inefficiencies undoubtedly exist. Many vendors

do not rise to the level of quality which may result in many rejections which directly impact

on cost. Another element on cost is about the after sales service activities which we looks in

term of delivery. This is very important point to ensure customer loyalty and trust. We would

introduce the JIT system as an indicator to convince the customer in an efficient manner. If

Proton keeps delaying the delivery, it results in increasing in costs like transportation cost,

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warehousing cost and also the operating cost. Other initiatives here will also include creating

synergies in logistics, distribution, spare-parts and training. We must bear in mind that Proton

is no longer in the business of just manufacturing and selling cars, but must, however,

undertake measures to enhance its pre, in and post-customer service efforts.

d)    Lack of market research

We think another problem that PROTON has to solve it, is about market research. Usually

they do not have enough and accurate estimation about market and its direction. They created

new car without attention to customers need. It is obvious that they offered models that

catered to limited market. Like Satria New or GEN2 which were for niche customers. They

have to produce that catered to a broader market. So they need to have enough information

about market and its needs. Whit precise market research they can reach this aim.

e)    Strategic Alliance and Partnership

This strong strategic alliance has resulted in a win-win situation, bringing Proton closer

towards it is goal of becoming the king of compact cars in not only Malaysia but the region.

It plans to ramp up production at Cikarang, Indonesia plant by 25% in preparation for new

models and increased export. In times of rising oil prices, compact cars are gaining popularity

because of the perception that they are more fuel efficient, though this is not always the

case. We think the most problem that need to figure out is this area. Again, as a national car,

Proton has a lot of objectives to fulfil. However, to fulfil the need of the consumer lifestyle

request for MPV and SUV type of car, Proton needs to find a suitable partner who is already

a big player in the industry. Since, it is the fastest growing market segment in Malaysia,

therefore, Proton needs to compete as well fulfil the needs of consumer. The one option we

have of entering this segment is to engage strategic partnerships and alliances. Here, a

strategic alliance may not necessarily involve equity participation. There are many other

forms of cooperation including the sharing of resources. In today’s auto industry, it is

common for two to three auto manufacturers to collaborate to save on cost, time and

development expenditure and in the process obtain a larger volume. Once we identify who

has these attractive products, it is about courting them to see if they are willing to work with

us in a win-win situation. The problems that can be occur include wrongly choose the partner.

Secondly, the partner is unwillingness to share the technology. Besides that, the strategic

alliance only may be successful if they able to present together in a market.

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Conclusion

As a conclusion, we acknowledge that PROTON needs to regain its sales and market share as

the leading car brand in the domestic market, mainly through the consolidated effort on sales

operations and quality improvement. The export revenue and brand presence abroad must

also be increased. On top of it, customer satisfaction is an important element where various

initiatives will be rolled out to make the experience of owning a PROTON, a satisfying one.

Additionally, improvements on manufacturing operations, production systems and purchasing

processes; as well as the consolidation of vendors, shall deliver a better financial position for

PROTON. At the same time, we will also explore strategic collaborations and alliances,

which will form the base for PROTON’s future products, improved quality and operational

efficiency. We will also implement a more structured human capital development

programmed with an emphasis on technical training and exposure to the world’s best

practices, and, conduct this on an ongoing basis. In recognition of the fact that the people are

the company’s key asset, we will deploy experienced and skilled personnel to key support

functions to strengthen our competitive edge in our markets.

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Appendix – Table 1

Concept Development

                                                                          Concept Approval

Concept Formulation Idea Sketches Scale Model

Rendering Digital/ Manual 1:3 Scale model milling & manual

Design Development

                                                     Model Approval                        Model Fix

Digitalizing Surface Modelling 1:1 scale Clay Model (milling)

1:1 scale Clay Model (milling)

Surface

Refinement Preparation

ALIAS Data & CATIA Data Preparation

Finishing & Painting  

Surface & Part Checking

Technical F/S

Engineering study Body & installation

Engineering & Testing Developement

                                                                               Master Model

Production Surface Prototyping Complete Testing Final Production Surface

B Class CATIA Surface Making

Vehicle Build up Component & complete Vehicle Validation

A Class Data Surface Making

Layout Drawing Part Drawing

Engineering Data Production Data Production Preparation

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References

Book

Heizer, J. and Render, B. 2004. Operations Management 7th Edition. Pearson Prentice Hall:

Singapore.

Annual Report for Proton (2002-2007)

Case Study and Research Paper

Im, J.H. and Lee, S.M. 1989. Implementation of Just-In-Time Systems in US

Manufacturing Firms. International Journal of Operations and Production Management,

Vol. 9 No. 1, pp 5-14.

Simpson, M., Sykes, G. and Abdullah, A. 1998. Case Study: Transitory JIT at Proton Cars,

Malaysia. International Journal of Physical Distribution and Logistics Management, Vol. 28

No. 2, pp. 121-142. MCB University Press.

Naughton, K. (2014). Most Gen Y Consumers Plan to Buy High-Tech Cars, Survey Says. Retrieved from http://www.bloomberg.com/news/2014-01-16/most-gen-y-consumers-plan-to-buy-high-tech-cars-survey-shows.html. Date Accessed: 18 April 2014.

Proton Cars UK (2014). About Us-Background. Retrieved from http://www.proton.co.uk/about/background.php. Date Accessed: 18 April 2014.

PROTON Holdings Berhad (2014). About-History. Retrieved from http://corporate.proton.com/en/About/Brand/History.aspx. Date Accessed: 18 April 2014.

WikiSWOT (2014). Proton SWOT Analysis. Retrieved from http://www.wikiswot.com/SWOT/4_/proton.html. Date Accessed: 18 April 2014.

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