The Impact of Improvement in Productivity on the Creation of Value in the Automotive Parts Sector

The Impact of Improvement in Productivity on the Creation of Value in the Automotive Parts Sector

Ricardo Prada-Ospina (EAN University, Colombia)
Copyright: © 2020 |Pages: 27
DOI: 10.4018/978-1-5225-9425-3.ch023

Abstract

Improvement in productivity is not an end in itself. It is an intermediate situation applied to exert an impact on results. For its part, created value is the company's power to adapt to environmental conditions, to make relevant adjustments that not only allow its survival, but also the option to enter into other markets successfully. Thus, every interaction that takes place must create value. This chapter identifies present associations between improving productivity by creating value in Bogota's auto parts companies.
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Introduction

In Colombia, small and medium-sized enterprises (SMEs) are the fundamental basis of economic activity. However, these SMEs, including the auto parts sector, which represent almost all (more than 90%) of the companies in the industrial sector, have poor production organization as well as variability in product quality, among other drawbacks. Colombian SMEs today face the challenge of internationalization as an opportunity for growth (Garay, 2012).

The sub-sector of SMEs of Auto parts is an important chain of the automotive sector, representing 6.2% of the GDP and has two large markets in the automotive industry: assembly of vehicles and sale of spare parts, both are concentrated in Bogotá, Cali and Medellín and seeks to provide parts and parts of the car, such as wheels, tires, suspension, glass, electrical components, air conditioning and ventilation systems, exhaust, elements for the interior conditioning of the vehicle, among others. This sector, constituted primarily by SMEs, is characterized by the low volume of production per piece, the wide range of references and its versatility to change or modify production lines to meet the specific demands of the market.

Even though the manufacture of components or value-added systems is one of the smallest items in the generation of income, the transition from an “assembly country” to a “manufacturing country” is one of the most important challenges facing the industry. . The foregoing could represent an increase in the degree of specialization of the auto parts (Boletín Tecnológico, 2012).

Productivity improvement is not a goal in itself, but an intermediate situation applied to exercise an impact over results. Value creation, for its part, is the power companies have to adapt to environment changes, thus making the pertinent adjustments allowing the organizations not only to survive, but also to successfully penetrate other market possibilities. Each interaction occurring should necessarily be translated into value creation. This study aims to identify the present associations between productivity improvement and value creation through descriptive research in auto parts companies in Bogotá.

Productivity has gained increasing importance in recent years as an indicator of business management and competitiveness as well as in the development of a country's economy (OCDE, 2004; Brynjolfsson & Hitt, 2003; ICO, 2004; Almunia, 2005). In this sense, Heizer & Render (2009) argue that productivity is the relationship that exists between outputs (goods and services) and one or more inputs (resources such as labor and capital). This relationship inevitably leads to improved productivity, and thus improves efficiency, which is nothing more than doing your job well with minimum resources and waste. This improvement can be achieved in two ways: reducing input while output remains constant, or by an increase in output while input remains constant. Both forms represent an improvement in productivity. For the purpose of this investigation improvement in productivity is defined as a measure of a company’s operational efficiency, which associates production with the consumption of resources to develop its activity.

The particular operating conditions imposed by the geographical variation of the country and the state of the road infrastructure generate a space for the development of specific components for these conditions, without which situations of bad operation of the vehicles can be generated. Although the main activity of the Colombian Auto parts Industry has been concentrated in the development of products based on the technical specifications required for homologation and integration in local assembly, in recent years the technological capacity of the country to propose innovations has been demonstrated incremental ones that allow adapting the suspension components to the Colombian geography. There is evidence, albeit on a small scale, of the local manufacturing of value-added components, which in two ways have set off alarms in terms of identifying opportunities and errors committed against the intellectual protection of said inventions (Boletín Tecnológico, 2012).

Key Terms in this Chapter

Value Creation: The performance of actions that increase the worth of goods, services or even a business. Many business operators now focus on value creation both in the context of creating better value for customers purchasing its products and services, as well as for shareholders in the business who want to see their stake appreciate in value.

Productivity: A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical determinant of cost efficiency.

Efficiency: The comparison of what is actually produced or performed with what can be achieved with the same consumption of resources (money, time, labor, etc.). It is an important factor in determination of productivity. See also effectiveness.

Resource: An economic or productive factor required to accomplish an activity, or as means to undertake an enterprise and achieve desired outcome. Three most basic resources are land, labor, and capital; other resources include energy, entrepreneurship, information, expertise, management, and time.

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