Following a rebound in the United States market, Volvo has decided to invest in the company’s first United States plant. This investment totals to be another 1 billion dollars to the factory already under construction. In this expansion, Volvo will add a second production line to the factory in Charleston, South Carolina. The plan for this new plant is to make the S60 Sedan in late 2018, along with another unnamed vehicle.
This expansion for Volvo will almost double the amount of jobs initially planned for the plant. 2,000 jobs were planned initially and this expansion will add 1,900 more to the company size. By expanding the plant and adding more workers, the plant’s capacity (the maximum rate of output of a process or system) will increase. This is because more workers are now able to produce more output, cars.
The Charleston plant is part of Volvo’s United States growth bid. The company wants to expand its United States market even more. Volvo’s “sales have rebounded over the last two years amid a strong U.S. marketing push”. By creating a plant within the United States, the company hopes to increase its sales even more moving forward.
Volvo is expanding its product line through the creation of the new plant. Further research in Automobile News shows that the company aims for “800,000 global vehicle sales by 2020-50% more than last year’s record total”. One of the only ways Volvo’s goal for 2020 is attainable is through an increase in production capacity with this new plant and expansion.
Volvo’s competitive priority in the past was mainly focusing on passenger safety. Now, Volvo is becoming a “leader in driver assistance systems and autonomous vehicle development” (Automobile News). With this shift in competitive priorities, the company must find ways to increase their capacity and sell more automobiles.
Volvo’s decision to expand the Charleston plant is classified as capacity planning or a long-term capacity decision. The company’s investment in a new facility plans to cover at least two years into the future. At this point in time, the company’s overall success depends on the success of this plant to increase capacity.
From the article, it is apparent that the company measures the capacity based on output measures of capacity. These output measures are best utilized with companies that have a small number of standardized processes with high volumes. This makes sense for the car manufacturer, Volvo, as their capacity can be measured as the number of cars produced per day. Volvo’s capacity measurement also fits well with the company’s overall goal. Because the company aims for an increase of 50 percent in global vehicle sales, it follows that Volvo would measure the capacity based on output measures.
Also involved in Volvo’s planning of long-term capacity was the company’s decision about timing and sizing expansion. An important decision companies must make is in determining when is the appropriate time to adjust capacity and by how much. It has been seen that capacity expansion is done in response to the change of market trends. Volvo followed this trend to expand their plant after an improvement in the United States’ market conditions.
Overall, do you think Volvo will be successful in the company’s expansion of the plant? Will the company meet its goal for 2018 of selling 800,000 in global vehicle sales? How can you relate Volvo’s decision of expanding the plant to linking process capacity to other operating decisions?