Hyundai Steel's Ramp-up Strategy and the Learning Effect

Abstract

IntroductionOnce a company begins its development process, putting products into the market as quickly as possible to get a return on investment is the fundamental corporate activity. Leveraging operational knowhow and reducing costs are critical for maintaining a company's competitive advantage although these begin after a company has begun production. In other words, once a product and process design has left the engineering division and after test production runs have begun, all that is left is to put everything together and determine whether the product can be produced as designed. Once the design stage is completed, commercial production runs begin. In other words, the production ramp-up begins with a gradual ramp-up toward mass production. Thereafter, products are delivered to customers and the company begins to recoup its investment.The entrance to automotive expressways is often called rampways, shortened to ramps. This word has a similar meaning in the production activities of manufacturers. A ramp-up refers to the period in which a company starts its production activities, eventually arriving at its production quantity, quality, and cost goals (Wheelwright & Clark, 1992).Given the time taken by a company to deliver a product to a customer as the total lead time, it goes without saying that both development time and ramp-up target time reductions. A product's time to market can be categorized into the product and production process development time and production ramp-up time. Numerous studies have focused on reducing the development portion of time to market. Concurrent engineering and innovations such as overlaps in the design cycles of products and production processes have been observed in the automotive industry (Clark & Fujimoto, 1991; Itohisa, 2013). In addition, in the case of the semiconductor industry, after new manufacturing equipment begins operating, the initial yield may be less than 5 percent, although that increases to 80 percent after seven to eight months (Appleyard, Hatch, & Mowery, 2000). Thus, this paper focuses on the importance of reducing the ramp-up time, which has been a subject of attention to date.A ramp-up is necessary for two reasons. First, as operators become familiar with new equipment, they climb the so-called learning curve and are able to perform their work with greater efficiency. Next, they discover new problems that were unimagined in the development stage and work on resolving them. Just as they view development as a problem-solving process (Clark & Fujimoto, 1991; Kuwashima, 2015), ramp-ups can also be understood as problem-solving processes (Hayes, Pisano, Upton, & Wheelwright, 2005; Wheelwright & Clark, 1992).Why are rapid ramp-ups important? First, they enable recovery of funds invested in development by beginning production per commercial goals as quickly as possible. In doing so, a company improves financial metrics such as return on assets and return on investment.Second, a rapid ramp-up is vital not only for financial reasons but also for a competitive strategy. If a company can ramp-up faster, it can shorten the time it takes to permeate a market. A company can also achieve mass production faster and reduce manufacturing costs. There is no shortage of cases where a company wishes to take an innovative product to market as soon as possible, but problems such as poor quality and taking too much time to reach mass production cause the company to end up losing to competitors. Industries with short product life cycles can use quick ramp-ups as important competitive weapons.Critical Issues in Production Ramp-upWhat are the critical issues in ramp-ups? First is to achieve mass production targets in a short time and at the required cost and quality levels. A conflict exists between the low levels of production prior to beginning commercial production and high levels of demand (Terwiesch, Bohn, & Chea, 2001). …