1 Lean Supply Chain Management .docx

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Lean Supply Chain Management
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Table of contents
1. Introduction
...............................................................................................
............. 3
1.1 What is lean
………………………………………………………………………
4
2. Why leans supply chain is

needed?........................................................................
5
3. Benefits of lean supply chain management
.......................................................... 6
4. Implementation of Lean SCM:
................................................................................... 6
5. Challenges faced while implementing lean SCM:
.................................................... 8
6 .Best practices that support Lean SCM
process:.......................................................... 9
7. Concluding
remarks...................................................................................
............. 11
8. References.
...............................................................................................
..... 12

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Lean supply chain management
1-Introduction
Supply chain is an established network of processes that starts
from procurement of raw material;
conversion of raw material into final product and then
distribution of that finished product to
customers. Over last two decades, the concept of lean supply
chain management has gained great
importance from both academics and practitioners. To gain
competitive advantages and to
survive in this dynamic environment firm are in need of
delivering quality product with
minimum wastage of resources. Therefore the concept of lean
Supply chain management is more
practical now a day’s then before it. Lean production is an
integrated activity in SCM that is
aimed at achieving high volume production with minimum
wastage of raw materials. It focuses
on improving the efficiency of processes on continuous basis,
minimizing wastage and

eliminating almost all activities that does add any value in
overall supply chain. Lean production
is considered a innovative way of thinking and thus it includes
the integration of firms vision,
culture and strategy in such a way that it can serve the customer
by providing high quality
product with in low cost and on short delivery Alabama
Technology Network, 1998; Inman,
1999; Davis and Heineke,( 2005) cited by Agus&
Hajinoor(2012).
Lean production is such a socio-technical system that is aimed
on removing wastage by
minimizing supplier, customers and internal variability among
firms operations. Lean production
is not only element that helps in achieving goals of Lean Supply
Chain, it also includes product
development phase and aspects of distribution channel. Firms
that want to implement LSCM
must also manage variable supply of product, processing time,
demand and also manage
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relationships with all parties in value chain. In lean production

the major factors is to manage
external relationships rather than internals (Jurado, Fuentes, &
Diaz. (2012)).
1.1 What is lean?
According to Ohno,1998;Monden,1983 Cited by
Turner,Parry,&Mills(2010) Lean is derived
from Toyota motors who firstly introduced this concept by
improving its processes not only
on shop but also in its design and development. Lean is a value
system that is based on
company customers and chain partners. Womack and Jones in
1996 cited in
Turner,Parry,&Mills (2010) described the lean to eliminate
wastage and increase efficiency.
They also identified its five principles that are:
That is defined by customers in term of their satisfaction in
shape of product for price
they are giving.
Actions that are used to transform product and services through
problem solving,

information technology etc.
Reducing cycle time and batch size to make production more
visible
Customers make demand about special product or service.
Improvements will be made to make product or service perfect
for customer.
5
2-Why leans supply chain is needed?
Lean supply chain improves the firm’s performance and also
produce superior quality product to
customers. A comparison was conducted by Nightingale (2005)
Cited in Zai, Manzouri, &
Rahm(2013) between conventional SCM practices and lean SCM
practices. They also
highlighted numerous issues when companies shift from

conventional to lean practices. Lean
SCM practices helps in achieving goal of superior quality with
minimum resources. To survive
in this dynamic environment it is necessary for firms to adopt
lean SCM practices to gain better
performance.
Characteristics Conventional practices
Lean practices
1-Competition No competition among members
Competition exists
Of supply chain
2-Role of supplier less involvement
Greater involvement
3-Data interchange less interaction
very frequent at
&interaction
Operational level
4-Structure vertical
clustered
5-Procurement personnel large
limited
6- Outsourcing cost based

strategic
7-Nature of interaction adversarial; zero sum
cooperative: positive
8-Realtionship focus transaction focused
mutually beneficial
9-Selection criteria low cost performance
10-Contract length short term long term
11- Price changes upward downward
12-Quality inspection-intensive designed in
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Above table is complete comparison between conventional
practices and lean practices. Lean
SCM is required because to superior quality, customer focused
approach and cost effectiveness.
according to Zai, Manzouri, & Rahman(2013) In lean SCM there
is collaboration at all that
improves firm’s process and performance in turn .
3-Benefits of lean supply chain management
Lean production is philosophy that is based on many practices

like TQM, JIT to remove wastage
and improve performance. The use of Lean production practices
results in following outcomes (
Hofer et al, 2012).
rease collaboration between all parties
4-Implementation of Lean SCM:
The term lean production is mainly associated with Toyota
production system where it was
firstly implemented with JIT to improve quality and delivery
time.
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Health care sector:
An example from real life is implementation of lean processes
in health care organizations.
Supply chain in hospitals is interconnected within its all
departments. As due to less budget
available hospitals has to cut its budget by implementing lean
manufacturing techniques. The
tendency to reduce supplies especially in hospitals is difficult
task. Hospitals are notorious in
wastes and misuses of supplies that is less attention towards
these issues and limited qualification
of professional in field of management. To implement lean
practices is difficult task because
processes are more complex in hospitals and required a different
combination of product and
services for each patient (Machado, &Vaccaro (2014) ).
The main changes that were made in health care organizations
especially hospital are the
modification in work structure by building multidisciplinary
teams and tasks are divided that
who is responsible for what. In this way administrative work is
made more easily so time is left

for other tasks. Following steps were made
f to
full extent.
-it means documenting in same way and
making same forms for
visitors(Hansan,2012)
By implementing the lean production system in hospital,
organization culture is changed and
team (doctors, nurses worked is promoted to satisfy end
customers i.e. patients. Satisfaction is
only possible if entire supply chain in integrated into coherent
way.
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Pork sector:
Another example of practical implementation of lean production
is pork sector ,that has adopted
demand management techniques. This implementation is

example of greater collaboration of
supply chain collaboration to gain competitiveness in market.
Members of this sector directed
their future strategies on innovation and collaboration to gain
desired outcomes. Pork system has
cultural capability to apply lean system Castro, Gimenez ,&
Simon(2010).
5-Challenges faced while implementing lean SCM:
A study conducted by Womack et al. (1990) Cited by by
Agus& Hajinoor(2012) Despite the
benefits of lean production system there are many
implementation challenges faced by
organizations. These are
changes their minds to adapt
this new processes. So workers especially Blue collars find their
jobs more challenging
for them as lean processes are implemented. Workers may find
their job more stressful at
that time than even before.
cited by Agus&
Hajinoor(2012) said that It is takes time to distinguish value

added activities from non
value added activities i.e. elimination of wastge.Wastage
include overproduction, defects
in product, waiting for transportation, underutilized people etc.
of skilled work force
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A company can cope up with these challenges by arranging the
training session for workers,
making their minds that new processes are beneficial for all
stakeholders. By streamlining all
processes from manufacturing to distribution non value added
activities can be avoided. So lean
SCM is customer oriented.
6-Best practices that supports Lean SCM process:
According to Shah and Ward, 2003, 2007; Bhasin and Burcher,
2006; Pettersen, 2009; Agus and

Hajinoor, 2012 as cited by(Jabbour,Junior,& Jabbour, 2014)
main practices that support Lean
SCM especially lean manufacturing are
For reducing in production size it is important to make better
control over production by
continuous flow of processes that reduces wastage.
By using kanban cards, it is easier to plan and control
production flow to the extent that
production is done only when needed. It is produced only in
required quantity
By using SMED techniques machine setup time is reduced and a
combination between
production quantity and variety is made.
By doing minor daily repairs or keeping machinery up to date
can help avoiding
unnecessary stops during production. This reduces wastage and
saves time.

The main pillar of lean manufacturing and SCM is
autonomation. This concept involves
employees in proposing suggestion for better performance and
in this way in tough or
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hard time employees provides support in achieving objective of
minimizing wastage and
delivering high quality.
According to Naslund, 2008; Arnheiter and Maleyeff, 2005
cited by ( Jabbour,Junior,&
Jabbour, 2014) by using quality management techniques like
total quality management
and PDCA (plan do check act) it is possible to find causes that
are barrier in cyclic flow
and it is also possible to find their solutions. Companies are
using an integrated
approached between lean manufacturing and six sigma to gain
required performance. Six
sigma is tool for process improvement by defining, measuring,
analyzing and controlling

the production process.
According to Liker (2005) as cited by (Jabbour,Junior,&
Jabbour, 2014) supplier
development is a main principle of lean manufacturing that is
supporting and challenging
the partner i.e. supplier in a way that it improves its own
processes. It can be achieved by
collaborative efforts from supplier and manufacturer.
Logistic management
Logistic management is main component of Lean SCM
practices; timely delivery of
product is an important for firm. For this purpose logistic
network should be designed in
best way and should be greater collaboration with logistic
services provider. Logistic
network should have flexibility of providing services according
to demand. Smooth flow
transportation eliminates the need of buffer stock at all (Kodali
&Jasti, 2015).

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EDI are used to communicate between different departments.
There is centralized
database for documenting .ERPS are employed at customer
based for effective
communication. Effective and transparent flow of information is
base for lean
SCM.Computer based decision aiding systems are used by firms
(Kodali &Jasti, 2015).
While in lean SCM there should be good collaborative network
among all parties i.e. supplier,
distributors and customer so that desired goals can be achieved
(Jabbour,Junior,&
Jabbour,2014).Toyota motors was first to implement the concept
of lean manufacturing and
followed all above practices.
7-Concluding remarks
Implementing lean SCM practices leads towards minimization
of wastage, improved
performance, greater productivity, lower cost and best quality.

To gain desired results in lean
production is well structured, well developed and collaborative
relationship between customer
and supplier’s .the success of lean production depends upon
long lasting relationship with
partners in supply chain. Lean production implementation in
health care is discussed in this
report.
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References
noor,M.S.(2012). Lean production supply
chain management as driver
towards enhancing product quality and business performance
Case study of
manufacturing companies in Malaysia. International Journal of
Quality & Reliability
Management, 29 (1), 92-121.

of lean supply chains:a case
study of the Catalan pork sector. Supply Chain Management: An
International Journal
15(1), 55-58.
university.
production on financial
performance: The mediating role of inventory leanness. Int J.
Production
Economics(138), 242-253
Jabbour, A.Junior, J. & Jabbour,C.(2014). Extending lean
manufacturing in supply
chains: a successful case in Brazil. An International Journal,
21(6), 1070-1083.
supply chain and lean
production adoption:Evidence from the Spanish automotive
industry. International
Journal of Operations & Production Management 32(9), 1075-
1096.

supply chain management
frameworks: proposed framework. production planning &
control: The Management of
operations.
integration of theories in operations
management practice. Supply Chain Management: An
International Journal15 (3), 216-
226.
13
SUPPLY CHAIN
MANAGEMENT: MINIMIZING WASTE AND COSTS.
INDEPENDENT JOURNAL
OF MANAGEMENT & PRODUCTION (IJM&P), 5(4), 1071-
1088
practices in the Halal food.
International Journal of Lean Six Sigma,4(4),389-408.

TOC and Supply Chain Management
[Name of the Writer]
[Name of the Institution]
TOC and Supply Chain Management
Summary
The book “the Goal” tell a story about a plant manager, who is
named as Alex Rogo.

Being the plant manager of the factory Mr. Alex is trying hard
to save his plant. He is aimed that
the plant would show some improvement within the time span of
90 days to keep the plant
working. The main problem of Alex is this that the plant where
he is working is failing to
produce the products which are high in quality on time at the
particular cost which is enough to
beat the competition. Mainly because of this reason the plant is
losing a large amount of money
and if Mr. Alex fails to make the plant as a profitable entity, it
has been decided by the
management that it will shut down the plant. Alex is putting all
his effort to stop the plant from
shutting down. Alex is being helped by a physician who is
named as Jonah (Goldratt, et. al.,
2004). With the help of Jonah Alex finds that goal of any
manufacturing organizations and every
of the association in general is to make high profits. Jonah has
helped Alex in achieving this
particular objective. Jonah explains Alex that there are three
measurements which mainly
express the prime goal of making money or profit in a highly
different manner. These three

measurements are as follows:
Knowing the term throughput is mainly known as rate at which
system will be generating the
money with the help of sales. The inventory is defined as the
investments which the organization
makes to produce any of the products it wants to sell. The
operational expense is defined as all
the costs which are required to turn inventories into the
products which could be sold in the
market (Rahman, 1998, pp. 336-55). Jonah explains Alex that if
the organization wants to
achieve its goals of making money that it has to clearly work on
all of these major principles as it
mainly turn out the major goal of the organization to increase
throughput, and at the very time
reducing all the operating expense and the inventory expense.
To help Alex to achieve his goals by solving his problems
which he faces at his plant in

the terms of measurements this expressed the prime goal of the
money making. Jonah also knew
another method related to production which can help any of the
organization to make money in a
highly efficient manner. The concept of theory of constraint is
primarily based on the major
possibility that output of the different machines in any of the
production process can be different
from the of another production process. The machine with the
slow speed will always decide the
speed in which the products can be made. Therefore the speed in
which the sales can actually be
realized will determine the turnover. The machine having the
slowest speed is known as the
bottleneck (Watson, et. al., 2007, pp. 387-402). Cost of the lost
production hour on any of the
bottle neck machine can be easily calculated by mainly
determining output of machine which is
the number of the products and then multiply it with selling
price of the end manufactured
product.
Theory of Constraint is mainly put into practice by the Drum
Buffer Rope (DBR)

principle which is used to optimize the efficiency and the
effectiveness of the bottlenecks.
DRUM Buffer Rope
Drum is described as the speed in which the machine should
produce the given product.
This is the speed which is based on the customer demand and on
bottle neck. By making no
machine to produce faster as compared to the bottleneck
machine, prevents the building up of
inventories. The buffer is mainly place before bottle neck
machine so it can prevent the machine
from idling, starving for the material. An hour of no production
costs the organization an hour of
sales which could be produced. Rope represents the maximum
amount of the work in progress
which is in the line. By having the accurate picture of the length
of the rope the work in progress
can be prevented. The DBR principle helps the company to
maximize the production throughput
(Gupta & Boyd, 2008, pp. 991-1012). Possible measure for the
throughput of any of the factory
is lead time which is known as the total time which us spent by

the product in factory, from
being a raw material to turn into the end product.
An individual part oversaw as per Drum-Buffer-Rope minimize
inside inventories. To
minimize the stock expenses connected with suppliers and
customer’s material cradles ought to
be utilized. Supports don't need to ensure the aggregate stream
time. In any case, they ought to
be adequate to support the variability in the stream time.
Taking after these rules, a free segment inside of a non-
collaborating supply change can
perform well and develop even in a turbulent domain. An
effective part may create participating
concurrences with suppliers, customers or both. Those segments
who figure out how to be
chipping in grow quicker and speedier. Little pockets of
chipping in segments can soon impact
the entire chain for the advantage of the segment organizations
and the end client (Gupta &
Snyder, 2009, pp. 3705-39).
Applying TOC to theory of Constraint
Theory of constraint is the management philosophy which

particularly aims to implement
and initiate the break through improvement by concentrating on
the constraints which averts the
system from attaining the high level of performance. TOC
solutions mainly initiated to resolve
the deep problems occurring in the production systems which
used the methods of drum buffer
rope, buffer management, scheduling and performance
management. The development of TOC
mainly incorporated the explanations for the marketing and
sales, supply chain management and
the project management.
TOC on the supply chain mainly deals with the management of
supply chain by the
single venture perspective. The concept of TOC is mainly used
to figure out the problems which
are related to the supply chain and this also describes bringing
managers from a number of
different firms together so to cooperate in improvisation of the
supply chain revenue (Inman, et.
al., 2009, pp. 341-56). By the implementation of TOC the
supply chain associates will be able to

track down the developmental initiatives which mainly
concentrate over the supply chain
constraints and simultaneously give its contribution to the
supply chain net profit (NP), cash flow
and the return over the investment (ROI). The ongoing dilemma
can also be easily broken if it
happens that the chain members are able to manage some of the
restrictions as the ordinary
denominator to obtain generally goal of the organization.
Implementation of TOC should be
well adopted with high and intense care because of the rigorous
and detailed preparation
requirement and radical approach which is done through the
experimental learning (Lockamy,
2008, pp. 343-48). The combined replishment policy is being
proposed so to authorize the
supplier to decide on how and when stock should be mainly
distributed to the retailer’s site as
when the product is being sold. Extensive research is also
recommended so to refine TOC
approach when it comes to deal with the quantification of the
replishment and the emergency
level.

Implementation of the TOC
The principles of the TOC can be widely applied to any of the
nonprofit organization
which is organized for the educational and the charitable
purposes to fund the grants and the
fellowships so to innovate the practical applications and to
broaden the development of
knowledge of Theory of Constraint. The prime goal of the
foundation was to increase the
knowhow of the TOC potential, increase its credibility and to
increase the excitement of TOC
through the significant success and new developments. The
ongoing process of the improvement
turns out to be the best when it is combined with the TOC as it
extends its applications into
various new domains, improvises the implementation methods,
simplifies the tools and widens
the applicability depending on understanding of the TOC
principles.
The applicants who are applying for the funds or scholarship
should apply to to the main
principles of the TOC and its various methods (Pauker & Wong,

2010, pp. 1233-35). The
proposed task will need to address a reasonable social need that
can enhance or determined
utilizing TOC. The trust can be utilized just for the sole reason
for the task endorsed by the
establishment and ought not to be utilized for some other
movement. Qualified candidates must
have the ability to actualize the thought in the focused on
region. Associations and people
requisitioning this grant must demonstrate an exhibited ability
to give preparing and specialized
help to finish the proposed venture (Tibben-Lembke, 2009, pp.
1815-34). The beneficiary of the
grant will work in participation with and under the heading of
The Foundation Board of
Directors.
References
Goldratt, E. M., Cox, J., & Whitford, D. (2004). The goal: a
process of ongoing
improvement (Vol. 3). Great Barrington^ eMA MA: North River

Press.
Gupta, M. C., & Boyd, L. H. (2008). Theory of constraints: a
theory for operations
management. International Journal of Operations & Production
Management, 28(10),
991-1012.
Gupta, M., & Snyder, D. (2009). Comparing TOC with MRP and
JIT: a literature
review. International Journal of Production Research, 47(13),
3705-3739.
Inman, R. A., Lair Sale, M., & Green Jr, K. W. (2009). Analysis
of the relationships among TOC
use, TOC outcomes, and organizational
performance.International Journal of Operations
& Production Management, 29(4), 341-356.
Lockamy III, A. (2008). Examining supply chain networks using
VAT material flow
analysis. Supply Chain Management: An International Journal,
13(5), 343-348.
Pauker, S. G., & Wong, J. B. (2010). How (Should) Physicians
Think?: A Journey From
Behavioral Economics to the Bedside. JAMA, 304(11), 1233-
1235.

Rahman, S. U. (1998). Theory of constraints: a review of the
philosophy and its
applications. International Journal of Operations & Production
Management,18(4), 336-
355.
Tibben-Lembke, R. S. (2009). Theory of constraints at UniCo:
analysing The Goal as a fictional
case study. International Journal of Production Research,47(7),
1815-1834.
Watson, K. J., Blackstone, J. H., & Gardiner, S. C. (2007). The
evolution of a management
philosophy: The theory of constraints. Journal of Operations
Management, 25(2), 387-
402.
Introduction
Ford motor company is an American multinational automaker
which was established by Henry

Ford and 11 associate investors in 1903 with its headquarters at
Dearborn, Michigan. It is the
world’s fifth largest automobile manufacturer by production
volume providing employment to
more than 177000 employees and 65 plants worldwide. It is one
of the listed companies in US
stock exchange. It manufactures and distributes automobiles in
approximately 200 markets
across 6 continents. Ford was the only US car company that did
not need the government bailout
and it was first to get the investment status back.
It has vested its operations worldwide. It operates in 2 sectors –
Automotive and Financial
services. The company is indulged in selling automobiles and
commercial vehicles under the
brand name “ford” and the most luxury cars under the brand
name “Lincoln.” The company is
firmly committed to the transformation and success of Lincoln
brand. The company provides
financial service which includes holding companies and real
estate’s through “ford motor credit
company.” The Ford credit segment provides vehicle related
financing, leasing and insurance
through the company’s wholly owned subsidiary Ford Motor

Credit Company, LLC. In 1916,
55 percent of all cars were Ford models T’s. In 1993, five of
eight bestselling vehicles in US
were Fords. In addition to this, the company saw its total
revenue soar to $107 billion in 2001.
Financial Analysis
The financial statement of the company is in accordance with
US Generally Accepted
Accounting Principles (GAAP). The company ensure
compliance with Ford’s legal requirements
and ISO certification process relating to the documents. Ford
was the first international
company which was exporting cars to Europe within 3 years of
its founding. Ford markets its
products through retail dealers and distributors in and outside
the North America. During the FY
2007, the automobile division of Ford recorded revenues of
$154379 million. The total cost and
expenses came around $121.6 billion in 2012. By the end of
December 2012, the company

proved to be a great source of selling automobiles as it sold
around 5668000 vehicles at
wholesale worldwide.
The market share of the company increased sequentially at each
quarter during 2012. According
to the recent data analyzed, the sales jumped to 4.6% to more
than 115000 units, creating the
fourth successive month of sales growth. The entry by Ford into
developing countries like India
and China was hindered by traditional measures such as tariffs
and subsidies. However, China
and India are leading in the run of selling Ford vehicles. The
Chinese and the Latin American
markets are crucial to the Ford’s long term strategy.
In 1908, Ford introduced Model T, which became one of the
most popular cars in the world. In
1988, the company’s worldwide earning came to around $5.3
billion, the highest of any auto
company till date. In 1911, Ford opened its first overseas
factory in Manchester, England. Ford
enjoyed a leading role within the market it had effectively
created until Toyota exported its first
automobile in 1956 to US. The US market share decreased from
25% to 15% from 1997-2007. In

2000, the company has to face a major loss of reputation. The
company faced a tremendous
downward trend. The equity valuation felled drastically whereas
the Ford stock was traded $14
per share in 2005. It focused its efforts on selling SUVs and
Pickups for decades and left the
growing segments of small and medium sized car to its foreign
competitors. The company
reported the worst loss amounting to US $12.7 billion in fiscal
year 2006 in the company’s
history. However, the company plays a dominant role in
financing dealership purchase of real
estate and other larger capital expenditures by the company and
its affiliates. Alan Mullaley
adopted restructuring process to compensate the loss.
The restructuring process recorded revenues of around $172,455
million in 2007. Since 2006,
Ford has improved the fuel economy of US vehicles by 16.8%.
Almost 40% of vehicles sold by
Ford and its management within US were financed by Ford
credit in 2008. By 2009, the sales
increased by 73%. Over the first half of 2010, Ford sold 301524

units. It gained the market share
effectively. Ford sales in US were up 14.3% in 2011 compared
to 2010. In 2011, more than 80
percent of Ford’s growth came from small cars and SUVs.
According to Ford press release, it
grew its sales by 46% in 2012.
The company reflected growth in nearly every aspect of the
business with 25 new vehicles
launched around the world in the year 2012. By 2013, Ford
hybrid sales increased over 100%.
Within Europe, Ford had the threat from its competitors
including Volkswagen, Renault, GM,
Fiat and PSA. The company had sold around 2.3 million
vehicles in the US in the recent year.
Ford experienced much greater success and has managed to
remain competitive in Europe by
designing cars according to the tastes and choices of the people
and trend and by increasing the
quality ratings of its vehicles. This helped the company to
stabilize their market share and profits
and to gain customer satisfaction at utmost level.
Trend Analysis
2012 2011 2010

Revenue 134,252.00 136,264.00 128,954.00
Cost of Revenue 115,693.00 116,959.00 108,796.00
Operating Expense 127,975.00 128,632.00 121,472.00
Operating Income 6,277.00 7,632.00 7,482.00
Net Income 5,665.00 6,372.00 6,561.00
Current Assets 126,228.00 120,905.00 120,801.00
Total Assets 190,554.00 178,348.00 164,687.00
Current Liabilities 76,928.00 76,494.00 78,854.00
Total Liabilities 174,243.00 163,277.00 165,329.00
Total Equity 16,311.00 15,071.00 - 642.00
Cash from Operations 9,045.00 9,784.00
11,477.00
Cash from Investing - 14,290.00 - 3,041.00 6,908.00
Cash from Financing 3,705.00 - 4,241.00 - 24,421.00
Looking at the trend analysis, it can be said that the company
has higher costs of revenues
whereby maximum of the revenue is attributed to the cost of

sales. This leaves no space for the
company to spend on the selling and promotion costs whereby
they can achieve maximum
utilization in the way of gaining customers. The operating
income has been lower in the current
year due to higher costs and lower revenues. The Net Income
has also been lower though the
company has maintained to posts profits instead of losses.
The balance sheet numbers reveals that company has sufficient
working capital and a good
current ratio. This shows their liquidity is good enough to
secure them coverage of liabilities in
the event of revenue failure. The total liabilities are however on
the higher side where the
company uses maximum debt in its profile to tread on the path
of debt. This is good for equity
holders as they achieve more by trading on equity although the
debt component posses a
significant amount of risks on the company. The Cash from
operations has been significant and
able to cater for the financing and investing needs of the
company. The higher investment shows

that the company is positive for the future outlook of the
company as it expects conditions to be
better and economic structure to improve.
Ratio Analysis
Profitability 2012
ROA = 2.07%
ROE = 28.54%
Return on Capital = 3.17%
Gross Margin = 13.60%
Operating Margin = 8.27%
Turnover
Asset Turnover = 0.8
Receivables Turnover = 0
FA Turnover = 5.3
Inventory Turnover = 14.5
Liquidity
Current Ratio = 1.6
Quick Ratio = 1.5

Debt/Equity = 533.2
Debt/Assets = 0.89
The Ratio analysis of the company as above shows that the
profitability ratios of the company for
ROE and Operating Margins are good enough to secure a hefty
return for the company and
shareholders. The lower return on assets implies lesser
utilization of assets. The return on capital
is also lower which implies the company should try and earn
more to increase the same. The
Asset turnover being 0.8 implies lesser utilization of assets. The
company should be able to
generate better revenues than the assets. There being no
receivables, the ratio is zero. The Fixed
Asset Turnover is good for the company and shows optimum
utilization of PP&E. The Inventory
Turnover is also posed significantly where the company
generates sales from their inventory. On
the liquidity front, the current and quick ratio both is higher
than 1 depicts better strength in
liquidity. The Debt Equity being higher due to higher debt in
books and these posses a certain

amount of risks which the investors would demand from their
investment.
Managerial Analysis
Ford is the largest family owned business in the world. In the
year 1919, after a conflict between
the stockholders and Henry Ford, several investors left the
company and it became wholly
owned by the Ford family members. All the CEO’s of the
company have been directly related to
the founder of the company, Henry Ford since he retired from
the position. The organization
structure of the Ford Company is complex in nature comprising
of CEO, a chairman and a
number of vice-president. Ford motor is recognized as one of
the world’s most ethical company.
It has been rated among the top 25 companies in the world in
corporate social responsibility
stating as “Tomorrow’s value The Global Reporters.” Since
September 2006, Alan Mullaley
holds the position of Ford’s president and CEO. The company
owns a stake in Mazda and in
Aston Martin. It had owned 75% of Aston Martin for the last
couple of decades and later

acquired 100% of the company. The board of directors is
elected by and responsible to the
shareholders of the company. The board of directors has the
obligation to scrutinize the
performance of the CEO. Their responsibility is to look after the
activities of senior management
to guarantee the shareholders interests are being served. The
company has formed trustees which
are responsible to set the policies relating to investment,
management, governance and so on.
They also set the compensation and review the performance of
all the officers. The company
reduced the global number of production suppliers from 3300 in
2004 to about 1260 by the year
end 2012. Through the efforts of the management, the company
reduced the number of outlets in
US Ford and Lincoln from about 4400 to 3290 by the year end
2012. This led to the enlargement
of profits.
The company is committed to provide equal opportunity in all
aspects of the business and to each
employee and to foster diversity in the workforce. It aims at
providing an inclusive work

environment in which different ideas, perspectives and beliefs
are respected. The company
ensures that each employee act with the highest sense of
integrity and in a manner that protects
and enhances the reputation of the company. The effective
management of the company
information helps to meet its goals, objectives, and mission and
vision statement and maintains a
competitive advantage. The directors of the company are
required to maintain the confidentiality
of company’s information entrusted to them. The senior
management team of the company
continues to successfully advance the company’s One Ford
global plan. The company had
further strengthened the leadership team by bringing required
changes.
Conclusion
Ford is now the leader in innovation in the automobile industry
right next to BMW. Ford is the
most financially sound American car manufacturer and
possesses enough cash on hand to
continue the operations. The company has remained on the
cutting edge of production vehicle

technology for more than a century ranging from cars and trucks
to SUVs. With the enlargement
of hybrid engines, the market shares decreased to a great
extend. However with the help of recent
strategies and innovations, it had proved to be extremely helpful
in regaining the lost share
especially in United States. After the years of decline, the US
market share has stabilized in the
recent years. The company continues to put emphasis on
customers’ needs and satisfaction and
to face the challenges from their competitors. The domestic
sales grew up by 21% to 9163 units
this year as against the 7577 in the last year. Ford undertook
research and development activities
to reach its goal. In the R&D process, the company took the
advantage of shared technology
which is a more sophisticated model. However, extreme capital
is required for R&D and it is
difficult for the company to entry developing countries. The
manufacturers must be capable of
producing mass automobiles so that it is affordable to all the
individuals.
The company is planning to develop newer electric cars which

will be powered by batteries, sun
and hydrogen fuel cells. It is planning to bring additional
technologies in North America. The
sales have increased recently because of success of new Eco-
sports car. The company has
acquired Livio, a developer of software in 2013. The company
has further announced that they
are aiming to cut the amount of water used to make each vehicle
by 30% globally by the year
2015, compared to the FY 2009. Ford has even pledged to add
12000 hourly jobs in US by 2015.
References
Annual Report, 2012 Retrieved from
http://corporate.ford.com/our-company/investors/reports-
financial-information/annual-reports

Financial Information Retrieved from
http://investing.businessweek.com/research/stocks/financials/rat
ios.asp?ticker=F
https://www.google.com/finance?fstype=ii&q=NYSE:F
http://finance.yahoo.com/q/hp?s=F&a=00&b=3&c=2010&d=11
&e=2&f=2013&g=m
General Insights obtained from
http://www.strategicmanagementinsight.com/swot-
analyses/ford-swot-analysis.html
http://www.forbes.com/companies/ford-motor/
http://www.marketwatch.com/story/pre-market-analysis-ford-
motor-co-general-motors-co-tesla-
motors-inc-and-kandi-technologies-group-2013-09-17

ojeyinka1
ABSTRACT
This paper focuses on International Business Administration
and its control procedures for a
system approach to program management. How cost elements in
China Southern airlines,
research and development logistic
and support services are explored. The full analysis includes
reviewing the competitive strategy,
business models, and fuel impacts, management procedures,
current and potential outsourcing,
current financial markets, and macroeconomic. Additionally, an
analysis of the strengths,
weaknesses, opportunities and threats (SWOT) of China

Southern Airlines, an Asian based
airlines.
ojeyinka2
SECTION 1
Introduction
Defined, international business as a business or firm that
engages in international economic
activities and or the action of doing business abroad (Peng,
Mike, W.2014).Airline travel
internationally provides the transportation of passengers and

cargo to destinations throughout the
world far and near. International airlines encounter additional
issues dealing with economic
impact of foreign currency exchange rates and the rules and
regulations found when operating in
global climate. International companies influence the economies
of several countries around the
world and can be beneficial and detrimental to the economic
base of individual countries in
addition to their country of origin. China Southern Airlines is
based in China representing the
Asian Theater.
SECTION II
Competitive Strategies
To understand what it takes for any airline in the market to
succeed in this dynamic and ever
changing economy, we must look through the vision and success
of our selected airlines
competitive strategies applied in the success of each company.
The competitive market dynamics
and improved problem solving skills help managers succeed in
decision- making. By using the

ojeyinka3
latest technology, we will look at the analyze factors related to
the market dynamic between
other airliner in the global and China Southern Airlines.
The China Southern Airlines is ranked as the largest
number one airliner in China. To
embark in such a successful accomplishment, China Southern
Airlines is measured by the terms
of fleet size, number of passengers, number of routes,
destinations served, and the number of
flight hours flown. Those five qualities within any airliner is a
huge competitive advantage.
These skill sets are also served as competitive strategy within
itself. Being the number one airline
in the largest country in the world has an advantage of
expansion around the world.
A few other competitive strategies China Southern Airline
use was of the “premium
economy class”. Introduced in 2010, this option provides
passengers the opportunity to purchase
the maximum value in the new economy class by enlarging the

seat by forty percent than the
standard economy class seat. This new option became a huge
success because it only raised the
ticket price by ten percent and allowed the enlarged seats to be
filled to the planes maximum
seating capacity.
Business Models
Throughout history civilizations have build up their
societies near centers of transportation. It
only makes sense that the worlds’ airlines companies would
create hubs and market their
businesses to areas that are convenient and popular destinations.
China Southern Airlines is more
focused on their international expansion and maintaining their
current presence within the
country. This strategy involves creating strategy partners with
airlines in other countries. When
choosing airline companies, the hub locations have to be
considered before confirming a
business relationship.
ojeyinka4

China Southern Airlines, acknowledge that in order for their
brands to succeed their locations
must be where many businesses and people are located.
Regardless of the entirety of their
business plan, airlines put forth an immense amount of research
into the location of their hubs
and the location of their partners’ hubs. Airlines must be
flexible and have the capability to
change the number and type of aircrafts they send to various
locations. China Southern Airline
states in their financial statement, “Our network is supported by
a fleet of aircraft that is varied in
terms of size and capabilities, giving us flexibility to adjust
aircraft to the network” (Annual
Report, China Southern Airline, 2012, p.30).
This is very wise to plan and expect changes. The airline
industry obviously has to prepare
for such things as seemingly minor changes can cost a lot of
money. China Southern Airlines
value customer service and brand image. They want to repeat
customers and to be a preferred
airline offering superior service to their competitors. In
reference to the 2013 China Southern

Airlines Financial Analysis, they stated that striving for
customer satisfaction, a positive brand
image and higher revenue quality are important goals and part
of their goals for the future.
All airlines must understand the importance of maintaining
the very best impression and
experience for their customers. “In a time of economic
uncertainty, airline brands need to
connect with both leisure and business travelers. In difficult
economic times, people are looking
hard for value in everything they purchase. Tan Wangeng, CEO,
Brand and Advertising, China
Southern Airlines, says that part of China Southern’s objective
is to make sure that the travel
experience with China Southern is perceived as an “improving
value”. That is a challenging, of
course, because with rising fuel costs, the airline has to cut
some of their services and routes,
which puts an extraordinary burden on their people to continue
to provide the best possible
ojeyinka5
service.”(Lee, Yellow Paper Series) China Southern Airlines

understand this value and are
creating similar goals toward their success.
As with any business entity, the customer is the most
important part of the business plan and
maintaining or improving their business is the end goal. China
Southern Airlines has decided to
invest in developing hubs. They have researched areas of travel
that they feel could be very
profitable in the future. Other airline companies have not
included this specifically within their
future plans. China Southern Airlines mentioned the importance
of being flexible, adapting to
major markets and mentioned it specifically within their
business strategy. Although China
Southern Airlines is seemingly prepping for all aspects of
business, they have recently had close
calls when it comes to their financial security.
“In betting the carrier’s future on premium fliers,
Etihad Airways PJCS such Qatar
Airways Ltd. and Singapore Airlines Ltd. that upgraded their
jets earlier. Asia-based China
Southern Airlines posted five annual losses in six years as labor
spending topped fuel, a reversal

of the situation in the newly efficient U.S. industry”(Lee,2014).
Additionally, China Southern
Airlines plan to trim the labor force and focus primarily on
service, but this will not be the only
aspect of the business he will need to focus on in order to
maintain strength within the industry.
To be competitive in the business world, China
Southern Airlines must be aware of its
competition. Its strategy involves maintaining their current
roles as one of the strongest airlines
on its continent. China Southern Airlines is aware that changed
in economic conditions, or some
type of incident can dramatically impact their place at the top.
The business plan that China
Southern Airlines Company created has been developed in
preparation for almost any situation.
ojeyinka6
Impact of Fuel Expenses
Fuel is the largest single operating expenses to airlines,
surpassing even labor costs. Airlines

attribute 27.6 percent of all operating expenses to fuel (A4a
quarterly cost, 2014). The reliance
on fossil fuels and the resulting costs incurred by the airlines
make the control of these operating
costs a top priority for all commercial airlines both foreign and
domestic. The price per barrel of
oil can fluctuate wildly for many obvious reasons; geo political
crisis, currency exchange rates,
economic sanctions, military conflict, and geographic
considerations are just a few.
Jet fuel is a byproduct of refined crude oil and although
the price per barrel of crude does
have an impact on jet fuel prices, refinement adds extra costs to
the finished product. One can
draw the conclusion that many facets are involved in the final
price of the delivered product that
airlines use to fuel their aircraft. The difference in cost incurred
to produce jet fuel from crude oil
is referred to as the crack spread. The crack spread differential
is determined by converting the
product (jet fuel, gasoline, diesel, kerosene etc.) prices in
dollars per barrel cost and then
subtracting the dollar cost per barrel of crude (“China Southern
Airline’s unconventional

fuel,”2012). This differential factor is influenced by many
factors including refinery capacity,
supply and demand, transportation costs, government
environmental standards, and crude supply
costs.
China Southern Airlines is subject to wild swings in
price of both raw crude and refined
fuel with having its own myriad of influences affecting bottom
line cost to the airlines. It
employed several different tactics to minimize the cost of these
fuel price swings. China
Southern Airlines employed various major strategies to combat
this pricing structure. Fuel
hedging is a strategy that employs buying contracts in advance
for fuel based on the airlines
ojeyinka7
inclination whether the prices will increase or decrease in the
future. These contracts purchased
and sold through commodities brokers amount to gambling on
fuel futures based on a best guess

analysis. For example, you buy a contract for a range of $110-
$130 a barrel and oil prices go to
$160 a barrel, in this instance your hedge pays off and you save
$30 a barrel.
In contrast, if this same contract is in force and crude
drops to $70 a barrel, you have a lost
on your hedge and you are paying $110 a barrel for $70 per
barrel oil. Hedges are very expensive
because the cost for the contracted oil is up front and is very
capital consumptive. China
Southern Airlines is more apt to employ hedges due to access to
capital for upfront cost. It makes
large capital expenditures to update its fleet equipment to newer
more fuel-efficient aircraft that
utilize lighter materials and efficient engines hoping that fuel
savings will help offset the
enormous cost of this strategy. This strategy is effective in the
short range, but as costs of the
new aircraft increases and the price of fuel inflates over time,
the calculations used to make this
decision changes.
This model would not be feasible as a standalone solution
but when incorporated into a
broader fuel strategy could achieve the desired cost saving

results. Fuel surcharges added to
ticket prices as a tool to offset the increased cost of fuel to the
airlines bottom line is a strategy
not accepted well by the flying public and alienates many
travelers from an airlines revenue base.
Airlines have not enjoyed the luxury of passing increasing costs
onto customers as most business
model does. The overcapacity in the industry in recent years has
eroded pricing power and tilted
the advantage to the demand side of the equation. Pricing power
has improved due to
consolidation of the industry of late, especially in the domestic
markets, but lags in the foreign
carrier markets.
ojeyinka8
China Southern Airlines has implemented a unique plan to
combat rising fuel expenses and
met its share of criticism for the strategy it has chosen to
employ. China Southern Airlines
realized that crude oil prices were out of its control in large but
identified a plan it could institute

to control the crack spread of refining the crude. In September
2012, China Southern Airlines set
up wholly owned subsidiary Monroe Energy and purchased the
idled Trainer oil refinery in
Pennsylvania (“China Southern’s unconventional fuel,”2012).
China Southern Airlines acquired
the refinery for $150 Million and invested another $100 Million
to maximize the production of
jet fuel from the plant. The Yuan has fallen against the dollar by
0.95 percent. The weakened
currency has affected the prices China Southern has to pay for
fuel and services purchased at
airports outside of China (Wang, 2012). With the weakened
exchange rate, China Southern pays
increased amounts of Yuan compared to previous years resulting
in a substantial loss in profit
due to no other factor than the rate of exchange. The advantage
of the strong Yuan against the
dollar is not expected to return in the near future (Wang, 2012).
Fuel surcharges are not accepted
well and are extremely unpopular in China due to the intense
competition and over capacity.
Additionally, China Southern has employed a strategy to use
capital expenditures to purchase

newer, efficient aircraft. The corporation currently operates five
Airbus A380’s and is
anticipating the arrival of the nation’s first 787 later this year
(Wang, 2014). China Southern
utilizes a million dollar System Operation Control (SOC)
system to fill its planes with fuel. The
SOC determines the precise amount of fuel needed for a flight
with minimal surplus fuel. This
practice optimizes fuel burn and ensures fuel is not utilized to
haul the extra weight of unneeded
fuel load (“New step to”2006).
Managing in Trouble Times
ojeyinka9
To maintain the success of the Asia’s airliner China
Southern Airlines, trust test of success is
how they manage to stay ahead in trouble times. China Southern
Airlines has had troubled times
in the past but recent news headlines of China Southern Airlines
reported that they sold two
tickets to holders of stolen Austrian and Italian passports. These
stolen passport passengers were

on board the Malaysia Airlines flight MH370 that went missing.
Of the recent turn of events with
this missing aircraft, investigators are still wondering how this
was not caught earlier. Troubled
times will soon again loom from this devastating possible crash
(“Disappearance of Plane
Remains,”2014).
To manage in these troubled times China Southern Airlines
is looking through these ticket
sales and the process of how they scan passports. “With a fleet
of 512 modern aircraft and
serving 193 cities in 35 countries and regions worldwide, China
Southern Airlines has
manifested its leadership in aviation” (CS-Air,2014). In order to
keep the company’s reputation
positive they work hard to ensure aviation safety is a priority.
In 2013, they have recorded the
top safety record of flying over 11.4 million flying hours in
only 230 months with zero defects.
The record in itself honored them with the Diamond Flight
Safety Award received by the Civil
Aviation Administration of China (CS-Air, 2014).
Outsourcing Trends

Outsourcing is a term used to describe a practice used
by businesses to export a function
to an outside company for hire when it has been determined that
cost savings can be obtained.
This strategy is utilized by businesses all across the spectrum to
include airlines. The first step
taken by a business is to analyze their products and establish a
core value or competency to the
company. In other words what does my business do well and
where do we profit? After the core
ojeyinka10
competency is established, the second step is the identification
of areas that were not as efficient
or profitable. Areas of weakness are examined and a
determination is made if it makes good
business sense to contract with an outside firm. One decision
factor includes labor intensity; can
labor be utilized more efficiently elsewhere? The second
decision factor is the availability of
resources. Is it cost effective to have resources shipped to our
business or is it more effective to

perform the work at an offsite location? These questions are
addressed by all businesses as an
ongoing process due to the business maturity cycle. Business is
fluid and ever changing and if
steps are not taken to stay in front of the business cycle curve
your competition may overtake
you. Outsourcing can be a valuable tool or a complete disaster
but business evolves to maximize
the opportunities.
China Southern Airlines already has the benefit of labor
cost advantage over some Asian
airlines. In light of the labor cost advantage China Southern
Airlines would be more driven to
analyze geographic advantages and contract to have servicing
performed on location. It would be
more cost effective to have a service performed by a company
or airline based in Narita as
opposed to locating your own people in foreign locations. It
would be difficult to determine
which carrier has the upper hand on outsourcing because each
has different factors that go into
determining core competency. Each outsourcing decision is a
unique and complicated as this
airline. The edge would go to the most financially stable airline

because execution of core
competency is directly reflected on the individual corporation’s
financial bottom line.
Financial Markets
To be successful in the global economic environment,
corporations must engage in
strategic and financial planning for growing revenues,
controlling expenses and increasing
market share. This section reviews the financial information
extracted from the Annual Reports
ojeyinka11
Fiscal Year ending December 31, 2012 of China Southern
Airline’s current review and proposed
future financial information. China Southern Airlines is an
international corporation who has
posted financial success in its operations. China Southern
Airlines posted operating revenues that
are equivalent to $2.57 million USD (Annual Report, China
Southern, 2012, p.17). Overall
operating expenses totaled an equivalent of $2.48 Million USD
resulting in a net operating profit

of $131.9 Thousand USD in fiscal year 2012. This is a small
profit but this airline is moving in
the wrong direction compared to a net operating profit of $707.8
Thousand USD in fiscal year
2011 (Annual Report, China Southern, 2012, p.17). Operating
expenses continued to represent
96 percent of the total operating revenue earned by corporation.
Fuel expense, landing, and
navigation fee increases were responsible for eroding the
operating revenue of the corporation
(Annual Report, China Southern, 2012, pp.19-20). Recognizing
that the fuel expense was beyond
the control of the corporation top decision makers concluded to
move the company in a new
direction and increase their footprint internationally.
Taking a customer service approach to increase revenues
the company-launched activities
designed to build their international footprint rather than reduce
costs. New routes launched
brought China Southern to London and created new hubs of
operations in Guangzhou effectively
connecting Europe and Southeast Asia. The campaign titled
“Year of International Brand
Service” designed to increase awareness of the company to

passengers (Annual Report, China
Southern, 2012, p.14). This plan, incorporated in 2012 is
primarily responsible for the additional
outlays in expenses directly related to the reduced profits posted
in 2012. The plan is initially
successful as passenger traffic increased and customers reported
highly satisfying experiences
received from flying (Annual Report, China Southern, 2012,
p.14). Banking on good experiences
combined with competitive pricing is a formula that China
Southern Airlines hopes will increase
ojeyinka12
their global footprint and earmark them as a company of the
future. (Annual Report, China
Southern, 2012, p.14).
Macroeconomics
Macroeconomics is the global effect a corporation
inflicts on the economy of other
nations. China Southern Airlines is severely impacted by the
price of oil but still managed to
outgrow other airlines and return China air traffic to double

digit percentages (Seeking Alpha,
2012). Economic projections indicate that one of China’s most
important travel centers will have
sustained growth-benefiting China Southern as the major carrier
at the hub center (Seeking
Alpha, 2012).The primary area that affects all airlines in the
international arena is the stability of
the financial markets. The changing financial markets cause
currency fluctuations that effects
corporation costs when operating in foreign lands. This can
cause revenues and expenses to rise
and fall increasing the difficulty a corporation faces when
compensating for foreign currency.
SECTION III
Strengths, Weaknesses, Opportunities, and Threats Analysis
(SWOT)
SWOT is a tool used by business and financial
analysis to identify the strengths,
weaknesses, opportunities, and threats that may encounter any
business. The analysis, when
completed, assists the corporation in determining what avenues
the business should follow to
achieve their desired accomplishments. The threats portion of
the analysis provides valuable

information to the corporation on the potential obstacles
looming on the horizon. When properly
completed the SWOT analysis provides the basis for a
comprehensive strategy plan that the
company can implement in their business model and utilized as
a future strategy for success.
(SWOT Analysis, n.d.).
Strengths
ojeyinka13
China Southern Airlines is the largest air transport network
in China with access to cover 150
cities and over 600 domestic routes. China Southern Airlines is
located in Guangdong for easy
access to rapid industrial growth of Pearl River Delta. China
Southern Airlines is culturally,
politically, linguistically, and historically synchronized with
Chinese Airport system enabling
them to merge into the system and experience tremendous
growth (Shaw, S., pp. 18- 24). China
Southern Airlines has a global network through recent alliance
with SKY Team (Shaw, S., pp.

18-24). China Southern Airlines has a history of State Owned
Entity and residual access and
political access with the Civil Aviation Administration of
China.
Weaknesses
China Southern Airlines financial position is weak due to
low market capitalization, low
liquidity, and high debt/equity ratio. Additionally, China
Southern Airlines experienced several
safety problems, including fatal crashes in 1992 and 1997 that
reduced consumer confidence in
the company. China Southern Airlines incorporated a small
cargo business segment with limited
operating experience. The lack of operating experience resulted
in this business segment posting
lower than expected revenues. “China Southern Airlines is a
new and relatively un-integrated
member of the SKY Team Alliance” (Wells, A.T., Wensveen,
J.G., 2004, pp. 375-387). China
Southern Airlines has incorporated strategic plans to undergo a
continuous business
reorganization to manage and operate more efficiently and deal
with the cultural changes

resulting from Chinese air transportation deregulation, recent
acquisitions, and alliances.
Opportunities
China Southern Airlines created opportunity when it
utilized the first-to-market advantage
designed to build customer loyalty and “lock-in” air cargo
customers via contract and real-time
technology before competitors commence expanded services in
Chinese domestic market.
ojeyinka14
Similar language based enabled China Southern Airlines to
utilize their cultural and linguistically
background to implement Chinese information technology
processes for air cargo transportation
that reduces cost for independent shippers/forwarders in China
through real time shipment
communication and a unique opportunity for China Southern
Airlines. “China Southern Airlines
established communication centers accurately predicting
package/cargo volume reducing wasted
cargo space on domestic routes”(Taipe,2004,pp. 1-12).
Opportunities exists for China Southern

Airlines to improve China/Europe routes through enhancement
of SKY Team code sharing and
linear programmed routes through Europe designed to reduce
emptiness on westbound flights
resulting in optimal connections through European hubs.
Threats
The worldwide economic crises severely affected the airline
industry. The credit crunch and
the volatility in the oil price, then the financial crisis, all had
direct consequences for the airline
industry. The airline industry is highly cyclical, and the level of
demand for air travel is
correlated to the strength of the global economies. China
Southern Airlines inadequate grants for
hub slot space and access to international hubs reduces their
ability to compete internationally
especially when combined with the absence of further follow-
through alliances. China Southern
Airlines threat increased as competition from substitutes
increased and Chinese surface transport
infrastructure developed (Hart, J., 2004, pp. 42-63).
Conclusion

This paper is based on international business models, petroleum
industry impact, management
practices during troubled times, outsourcing trends, financial
markets, macroeconomics, and
SWOT analysis. China Southern Airlines realized that there are
some give and take with the
partnerships as some business will overlap, but as of yet the
alliances have been more
ojeyinka15
beneficially. This airline company plans to continue the
established relationships and grow in the
international markets. China Southern Airlines is a member of
the SKY Team anti-trust alliance.
Research by the airlines involved in these alliances have proven
that it cuts costs and enables
them to lower ticket prices by at least 25 percent than airlines
working outside international
partnerships (Brueckner,2000). China Southern Airlines must
constantly research and implement
new plans of action to maintain their strength as leaders in the
industry domestically and
internationally. As mentioned in the “managing in troubled

times section,” airlines must be
prepared for any future difficulty. So much of the industry is
beyond their control. Focusing on
operations and continued development will be what allows
China Southern Airlines to move
forward in the future.
ojeyinka16

References
Annual report. (2012, December). Guangzhou, China: China
Southern Airlines.
China Southern Airlines Maintains Altitude. (2012, June 4).
Retrieved from Seeking Alpha
website: http://seekingalpha.com/article/636781-china-southern-
airlines-maintains-
altitude
http://gulfnews.com/news/world/usa/china-southern-airlines-
sold-7-tickets-to-flight-1.1301453
Neelam, H., Dawn of discounters, Aviation Week & Space
Technology, p.p. 17-24.
New steps to save fuel for china southern. (2006, April 07).
Peng, Mike, W. (2004).Global business. (3rd ed.).Mason, OH:
South Western Centage
Quick facts. (n.d.). Retrieved from China Southern Airlines
website: Retrieved
from:http://www.chinahighlights.com/china-airline/southern-
airline.htm
SWOT analysis. (n.d.) Retrieved from Investopedia website:
http://www.investopedia.com/terms/s/swot.asp
Shaw, S. (2004), Airline marketing and management, 5th
edition, Ashgate Publishing Limited,

pp. 18-24
Taipei, (2004), Southern airlines soars on debut, pp. 1-12
http://seekingalpha.com/article/636781-china-southern-airlines-
maintains-altitude
http://seekingalpha.com/article/636781-china-southern-airlines-
maintains-altitude
http://gulfnews.com/news/world/usa/china-southern-airlines-
sold-7-tickets-to-flight-1.1301453
http://www.investopedia.com/terms/s/swot.asp
ojeyinka17
Wang, J. (2012, August 27). China southern air tumbles after
profit: Hong Kong mover.
Retrieved from http://www.bloomberg.new/news/2012-08-
27/china-southern-profit-slumps-84-
on-slower-travel-fuel-prices-html

http://www.bloomberg.new/news/2012-08-27/china-southern-
profit-slumps-84-on-slower-travel-fuel-prices-html
http://www.bloomberg.new/news/2012-08-27/china-southern-
profit-slumps-84-on-slower-travel-fuel-prices-html
ojeyinka18

Introduction
Organizational structure builds the base of any organization.
The structures define the
primary goal of the existence of the organizations and based on
the structure in which the
organization is operation, the synchronization if mission, vision
and aim are worked on. The
formal structure primarily includes various defined positions of
each of the member in the
company. Setting a dimension of the differentiation can act as a
criterion on the base of which
the employees and management of the organization would be
formally divided into different
positions and departments, as viewed by the division of the
labor; or into the ranks, notably at the
various managerial levels; or into the subunits, like the
organization’s local branches, regional
branches, headquarters divisions, or the sections within these
branches as well as divisions
(Rivkin, 2000).
Analysis
The structural component can be defined either as a distinct
official status or the subunit

in the firm. Differentiation in an organization primarily refers
towards the number of structural
components that needs to be formally distinguished in the terms
of any of the defined criterion.
The diversity in organization brings innovative ideas along with
assisting organizations to
continually strive for improvement; if the prevalent positions in
the company never undergo a
change up by the newer people then the firm would become
highly stagnant and would
eventually fail (Steven McShane, 2009). Organizations around
the globe can improve change
efforts made by them using some practical, effective graphic
metaphors as well as an
organizational transition model for insuring employees
understanding, and commitment towards
the whole process of change. This means that the companies
should guarantee their smooth sail
through during their change voyage.
Differentiation is not only attributed to large organizations
however it could be for any
organization that has a structure requiring diversity towards

continued functioning of various
divisions. The span of control primarily refers to the number of
employees and the subordinates
that the manager or the supervisor of the organization could
effectively handle (Michael A. Hitt,
2008).
The manager of a small firm also needs to be concerned about
the organizational
structure because to grow more it needs the structure within the
organization to define its
organizational culture which in turn will define the goals and
mission of the organization.
Structure is always linked to organizational culture which in
terms is linked with the goals and
effectiveness of an organization. To achieve the organizational
objectives; a manager should
implement proper structure. Many organizations are not able to
grow big just because of their
negligence towards the structure.
The centralized organizations are primary those wherein the
most of decision making
authority is in control of the few people that are at the top of
the hierarchy. Centralized

organizations usually carry a top-down structure of the
management, wherein the top-level
managers have a strong control over the entire direction of the
firm through their decisions as
well as supervision. Conversely, an organization with the
decentralized structure allows the
greater decision-making as well as the authority at lower
organizational levels (Randall S.
Schuler, 2007). In decentralized structure, the power is
distributed among appropriate levels of
the organization and each division has the authority and control
to come up with their decisions
and strategies.
Highly decentralized organizations might have the divisions that
would be operating
nearly independently of the other divisions in the organization.
The standards are the set of
various guidelines defining on how the organization needs to
behave. For example, the
employees need to show utmost respect to their employers
regardless of the organizational
hierarchy they operate in (Steven McShane, 2009). The queries
asked of the division’s managers

needs be clear as well as to the point as their time is precious,
valuable and limited. In the
horizontal differentiated firms the type of the hierarchy that in
the place is similar however
certain protocols within the hierarchy may have been altered.
For instance consider an organizational situation wherein there
may be three different
managers and then a senior manager and the employees of the
company need to follow the
organization’s chain of command. These rules might be
amended in a way that the firm’s
employees need to go through only two of these three managers
or could by-passes them
altogether in the order towards get to the senior manager
(Randall S. Schuler, 2007). There might
be some internal confusion at initial stages however these
employees might find the whole
process efficient and faster.
A functional organizational structure primarily is the one
wherein the employees are
grouped usually on the base of their work experiences, core
expertise or because they had used
the same resources. Employing functional structure in the

organization also has various
disadvantages as in this structure the requirement of the firm
towards its growing product lines is
highly strained because the skills as well as abilities of the
employees gets narrowed down to the
assigned functions (Randall S. Schuler, 2007). This however
could be solved through various
training programs as well as hiring the employees that carry
varied skill sets and are good with
multitasking. Secondly, the communication problems within the
organization could highly
increase because of the interaction within the various
departments is reduced.
The organizations employing functional structure needs to
create an open line of the
communication within various divisions and the departments.
Thirdly, the measurement
problems in the functional structure are usually to erupt as it
becomes highly difficult towards
analyzing which person has been more efficient compared to the
low performed in the team. For
determining the productivity the number of products as well as
services with the lower amount of

the problems would be an efficient indicator of the good
productivity. Also, assigning
individuals goals to the employees within the team that match
up to the key performance
indicators of the team would be a good idea to overcome this
problem. Lastly, the strategic
problems in the organization are not given a highly significant
focus in the functional structure as
the top executives and management of the organization is
majorly busy in looking the solutions
of the coordination problems. The top management of the
organization needs to delegate various
tasks that are highly important but are not in the authorization
and power of the management
towards handling the in a timely manner. This could be daily
operational strategies required to
maintain the ground staff of the organization.
When all these solutions are implemented the firm the
productivity, the profitability as
well as the market share of the firm could be greatly increased.
Self-Managed work teams also
form a part of a prevalent organizational structure prevalent in
the current scenario. Self-

managed work teams are the teams formed in the organization
consisting of around 12 to 15
employees that are then assigned the responsibilities those were
formerly being handled by their
supervisors (Steven McShane, 2009). The responsibilities
included the plan and design of work
schedules, operating decision making capacity and to handle the
problems related to work. These
teams within the organization are completely by themselves,
that reduces the supervisor’s role in
the organization.
Quantitative research method of undertaking research is
generally derived from
experimental and statistical methods in natural science. Under
this method, the main focus is to
measure how much is required for how many people. The main
tools of this method are large
scale surveys which are analyzed by using statistical methods.
The hypothesis are identified and
combined into questionnaires by this method. Quantitative
methods are used in large scale
research projects teams composed of a number of skilled
research designers and analysts assisted

by teams.
Quantitative research has already proved to be an effective tool
of exploring, analyzing,
and researching various management concepts and phenomena.
The definitions of quantitative
research vary: more often than not, quantitative research is
defined as the means of researching
and analyzing quantitative relationships between variables
(Nykiel 2008). Quantitative research
presents business researchers with a unique opportunity to
gather and analyze the data that can
be tracked over time (Nykiel 2008). Quantitative research is
associated with numerous
advantages and, simultaneously, reveals serious methodological
limitations. The latter, however,
do not prevent the researchers from using this form of business
research to achieve reliable and
measurable research results.
Quantitative research is believed to have two most important
advantages. First,
quantitative research is the most effective way for researchers
to produce statistically reliable
results (Nykiel, 2008). In other words, quantitative

methodology is the only way for business and
management researchers to determine whether one idea and/ or
concept is better than its
alternative(s). Second, the results produced in the process of
applying quantitative research
methodology in practice in practice, researchers in management
are capable of producing the
results that are readily projectable to the population (Nykiel,
2008).
Conclusion
An organization, whether big or small, is defined as a group of
people working together
to achieve common goals. The top management establishes the
organizational goals. These goals
are then redefined to obtain measurable performance targets.
Such measurable parameters help
the management monitor employees and ensure that they are on
the right track. The management
also develops strategies that will help the organization meet
these goals. The implementation of
these strategies requires a formal structure of authority and
responsibilities (Therese F. Yaeger,

2009). A well designed organization structure facilitates
coordination among the activities of
employees and enables an organization to accomplish its goals
and objectives.
References
Michael A. Hitt, R. D. (2008). Strategic management: concept
and cases. South-Western Pub.
Randall S. Schuler, S. E. (2007). Strategic Human Resourse
Management. Victoria: Blackwell
Publishing.
Rivkin, J. W. (2000). Estimating the performance effects of
business groups in emerging

markets. Strategic Management Journal , 45-74.
Schlesinger, K. &. (1979). Organizational Change Model.
Journal of Organizational Change
Management .
Steven McShane, M. V. (2009). Organizational Behavior. In M.
V. Steven McShane,
Organizational Behavior (pp. 210-215). McGraw Hill.
Therese F. Yaeger, P. F. (2009). Strategic Organizational
development. US: Information Age
Publishing.
Nykiel, RA 2008, Handbook of marketing research
methodologies, Routledge.
Camillus, J. (1986) Strategic Planning and Management
Control, Lanham MD: Lexington
Books.
Roosevelt, F. and Belkin.D. (1994) Why market socialism?:
voices from Dissent. New York:
M.E.Sharpe.
Nadler, D.A. & Tushman, M.L. (1980) A Model for Diagnosing
Organizational

CHINA SOUTHERN AIRLINES COMPANY
1
ABSTRACT
This paper focuses on financial control procedures for a system
approach to program
management. How cost elements in China Southern airlines,
research and development logistic
and support services are explored. The full analysis includes
reviewing the competitive strategy,
business models, and fuel impacts, management procedures,
current and potential outsourcing,
current financial markets, and macroeconomic. Additionally, an
analysis of the strengths,
weaknesses, opportunities and threats (SWOT) of China
Southern Airlines, an Asian based
airlines.

2
SECTION 1
Introduction
Defined, managerial accounting is the process of identifying,
measuring, analyzing,
interpreting, and communicating information in pursuit of an
organization’s goals (Hilton,
Ronald W, 2014).Airline travel internationally provides the
transportation of passengers and
cargo to destinations throughout the world far and near.

International airlines encounter
additional issues dealing with economic impact of foreign
currency exchange rates and the rules
and regulations found when operating in global climate.
International companies influence the
economies of several countries around the world and can be
beneficial and detrimental to the
economic base of individual countries in addition to their
country of origin. China Southern
Airlines is based in China representing the Asian Theater.
SECTION II
Competitive Strategies
To understand what it takes for any airline in the market to
succeed in this dynamic and ever
changing economy, we must look through the vision and success
of our selected airlines
competitive strategies applied in the success of each company.
The competitive market dynamics
and improved problem solving skills help managers succeed in
decision- making. By using the
latest technology, we will look at the analyze factors related to
the market dynamic between

other airliner in China and China Southern Airlines.
3
The China Southern Airlines are ranked as the largest
number one airliner in China. To
embark in such a successful accomplishment, China Southern
Airlines is measured by the terms
of fleet size, number of passengers, number of routes,
destinations served, and the number of
flight hours flown. Those five qualities within any airliner is a
huge competitive advantage.
These skill sets are also served as competitive strategy within
itself. Being the number one airline
in the largest country in the world has an advantage of
expansion around the world.
A few other competitive strategies China Southern Airline
use was of the “premium
economy class”. Introduced in 2010, this option provides
passengers the opportunity to purchase
the maximum value in the new economy class by enlarging the
seat by forty percent than the

standard economy class seat. This new option became a huge
success because it only raised the
ticket price by ten percent and allowed the enlarged seats to be
filled to the planes maximum
seating capacity.
Business Models
Throughout history civilizations have build up their
societies near centers of transportation. It
only makes sense that the worlds’ airlines companies would
create hubs and market their
businesses to areas that are convenient and popular destinations.
China Southern Airlines is more
focused on their international expansion and maintaining their
current presence within the
country. This strategy involves creating strategy partners with
airlines in other countries. When
choosing airline companies, the hub locations have to be
considered before confirming a
business relationship.
China Southern Airline, acknowledge that in order for their
brands to succeed their locations
must be where many businesses and people are located.
Regardless of the entirety of their

business plan, airlines put forth an immense amount of research
into the location of their hubs
4
and the location of their partners’ hubs. Airlines must be
flexible and have the capability to
change the number and type of aircrafts they send to various
locations. China Southern Airline
states in their financial statement, “Our network is supported by
a fleet of aircraft that is varied in
terms of size and capabilities, giving us flexibility to adjust
aircraft to the network” (Annual
Report, China Southern Airline, 2012, p.30).
This is very wise to plan and expect changes. The airline
industry obviously has to prepare
for such things as seemingly minor changes can cost a lot of
money. China Southern Airlines
value customer service and brand image. They want repeat
customers and to be a preferred
airline offering superior service to their competitors. In
reference to the 2013 China Southern
Airline Financial Analysis, they stated that striving for

customer satisfaction, a positive brand
image and higher revenue quality are important goals and part
of their goals for the future.
All airlines must understand the importance of maintaining
the very best impression and
experience for their customers. “In a time of economic
uncertainty, airline brands need to
connect with both leisure and business travelers. In difficult
economic times, people are looking
hard for value in everything they purchase. Tan Wangeng, CEO,
Brand and Advertising, China
Southern Airlines, says that part of China Southern’s objective
is to make sure that the travel
experience with China Southern is perceived as an “improving
value”. That is a challenging, of
course, because with rising fuel costs, the airline has to cut
some of their services and routes,
which puts an extraordinary burden on their people to continue
to provide the best possible
service.”(Lee, Yellow Paper Series) China Southern Airlines
understand this value and are
creating similar goals toward their success.
As with any business entity, the customer is the most
important part of the business plan and

maintaining or improving their business is the end goal. China
Southern Airlines has decided to
5
invest in developing hubs. They have researched areas of travel
that they feel could be very
profitable in the future. Other airline companies have not
included this specifically within their
future plans. China Southern Airlines mention the importance of
being flexible, adapting to
major markets and mentioned it specifically within their
business strategy. Although China
Southern Airlines is seemingly prepping for all aspects of
business, they have recently had close
calls when it comes to their financial security.
“In betting the carrier’s future on premium fliers,
Etihad Airways PJCS such Qatar
Airways Ltd. and Singapore Airlines Ltd. that upgraded their
jets earlier. Asia-based China
Southern Airlines posted five annual losses in six years as labor
spending topped fuel, a reversal

of the situation in the newly efficient U.S. industry”(Lee,2014).
Additionally, China Southern
Airlines plan to trim the labor force and focus primarily on
service, but this will not be the only
aspect of the business he will need to focus on in order to
maintain strength within the industry.
To be competitive in the business world, China
Southern Airlines must aware of its
competition. Its strategy involves maintaining their current
roles as one of the strongest airlines
on its continent. China Southern Airlines is aware that changed
in economic conditions, or some
type of incident can dramatically impact their place at the top.
The business plan that China
Southern Airlines Company created has been developed in
preparation for almost any situation.
Impact of Fuel Expenses
Fuel is the largest single operating expenses to airlines,
surpassing even labor costs. Airlines
attribute 27.6 percent of all operating expenses to fuel (A4a
quarterly cost, 2014). The reliance
on fossil fuels and the resulting costs incurred by the airlines
makes the control of these

6
operating costs a top priority for all commercial airlines both
foreign and domestic. The price per
barrel of oil can fluctuate wildly for many obvious reasons; geo
political crisis, currency
exchange rates, economic sanctions, military conflict, and
geographic considerations are just a
few.
Jet fuel is a byproduct of refined crude oil and although
the price per barrel of crude does
have an impact on jet fuel prices, refinement adds extra costs to
the finished product. One can
draw the conclusion that many facets are involved in the final
price of the delivered product that
airlines use to fuel their aircraft. The difference in cost incurred
to produce jet fuel from crude oil
is referred to as the crack spread. The crack spread differential
is determined by converting the
product (jet fuel, gasoline, diesel, kerosene etc.) prices in
dollars per barrel cost and then

subtracting the dollar cost per barrel of crude (“China Southern
Airline’s unconventional
fuel,”2012). This differential factor is influenced by many
factors including refinery capacity,
supply and demand, transportation costs, government
environmental standards, and crude supply
costs.
China Southern Airlines is subject to wild swings in
price of both raw crude and refined
fuel with having its own myriad of influences affecting bottom
line cost to the airlines. It
employed several different tactics to minimize the cost of these
fuel price swings. China
Southern Airlines employed various major strategies to combat
this pricing structure. Fuel
hedging is a strategy that employs buying contracts in advance
for fuel based on the airlines
inclination whether the prices will increase or decrease in the
future. These contracts purchased
and sold through commodities brokers amount to gambling on
fuel futures based on a best guess

7
analysis. For example, you buy a contract for a range of $110-
$130 a barrel and oil prices go to
$160 a barrel, in this instance your hedge pays off and you save
$30 a barrel.
In contrast, if this same contract is in force and crude
drops to $70 a barrel, you have a lost
on your hedge and you are paying $110 a barrel for $70 per
barrel oil. Hedges are very expensive
because the cost for the contracted oil is up front and is very
capital consumptive. China
Southern Airlines is more apt to employ hedges due to access to
capital for upfront cost. It makes
large capital expenditures to update its fleet equipment to newer
more fuel-efficient aircraft that
utilize lighter materials and efficient engines hoping that fuel
savings will help offset the
enormous cost of this strategy. This strategy is effective in the
short range, but as costs of the
new aircraft increases and the price of fuel inflates over time,
the calculations used to make this
decision changes.
This model would not be feasible as a standalone solution

but when incorporated into a
broader fuel strategy could achieve the desired cost saving
results. Fuel surcharges added to
ticket prices as a tool to offset the increased cost of fuel to the
airlines bottom line is a strategy
not accepted well by the flying public and alienates many
travelers from an airlines revenue base.
Airlines have not enjoyed the luxury of passing increasing costs
onto customers as most business
model does. The overcapacity in the industry in recent years has
eroded pricing power and tilted
the advantage to the demand side of the equation. Pricing power
has improved due to
consolidation of the industry of late, especially in the domestic
markets, but lags in the foreign
carrier markets.
China Southern Airlines has implemented a unique plan to
combat rising fuel expenses and
met its share of criticism for the strategy it has chosen to
employ. China Southern Airlines
realized that crude oil prices were out of its control in large but
identified a plan it could institute

8
to control the crack spread of refining the crude. In September
2012, China Southern Airlines set
up wholly owned subsidiary Monroe Energy and purchased the
idled Trainer oil refinery in
Pennsylvania (“China Southern’s unconventional fuel,”2012).
China Southern Airlines acquired
the refinery for $150 Million and invested another $100 Million
to maximize the production of
jet fuel from the plant. The Yuan has fallen against the dollar by
0.95 percent. The weakened
currency has affected the prices China Southern has to pay for
fuel and services purchased at
airports outside of China (Wang, 2012). With the weakened
exchange rate, China Southern pays
increased amounts of Yuan compared to previous years resulting
in a substantial loss in profit
due to no other factor than the rate of exchange. The advantage
of the strong Yuan against the
dollar is not expected to return in the near future (Wang, 2012).
Fuel surcharges are not accepted
well and are extremely unpopular in China due to the intense
competition and over capacity.

Additionally, China Southern has employed a strategy to use
capital expenditures to purchase
newer, efficient aircraft. The corporation currently operates five
Airbus A380’s and is
anticipating the arrival of the nation’s first 787 later this year
(Wang, 2014). China Southern
utilizes a million dollar System Operation Control (SOC)
system to fill its planes with fuel. The
SOC determines the precise amount of fuel needed for a flight
with minimal surplus fuel. This
practice optimizes fuel burn and ensures fuel is not utilized to
haul the extra weight of unneeded
fuel load (“New step to”2006).
Managing in Trouble Times
To maintain the success of the Asia’s airliner China
Southern Airlines, trust test of success is
how they manage to stay ahead in trouble times. China Southern
Airlines has had troubled times
in the past but recent news headlines of China Southern Airlines
reported that they sold two
tickets to holders of stolen Austrian and Italian passports. These
stolen passport passengers were

9
on board the Malaysia Airlines flight MH370 that went missing.
Of the recent turn of events with
this missing aircraft, investigators are still wondering how this
was not caught earlier. Troubled
times will soon again loom from this devastating possible crash
(“Disappearance of Plane
Remains,”2014).
To manage in these troubled times China Southern Airlines
is looking through these ticket
sales and the process of how they scan passports. “With a fleet
of 512 modern aircraft and
serving 193 cities in 35 countries and regions worldwide, China
Southern Airlines has
manifested its leadership in aviation” (CS-Air,2014). In order to
keep the company’s reputation
positive they work hard to ensure aviation safety is a priority.
In 2013, they have recorded the
top safety record of flying over 11.4 million flying hours in
only 230 months with zero defects.
The record in itself honored them with the Diamond Flight
Safety Award received by the Civil

Aviation Administration of China (CS-Air, 2014).
Outsourcing Trends
Outsourcing is a term used to describe a practice used
by businesses to export a function
to an outside company for hire when it has been determined that
cost savings can be obtained.
This strategy is utilized by businesses all across the spectrum to
include airlines. The first step
taken by a business is to analyze their products and establish a
core value or competency to the
company. In other words what does my business do well and
where do we profit? After the core
competency is established, the second step is the identification
of areas that were not as efficient
or profitable. Areas of weakness are examined and a
determination is made if it makes good
business sense to contract with an outside firm. One decision
factor includes labor intensity; can
labor be utilized more efficiently elsewhere? The second
decision factor is the availability of

10
resources. Is it cost effective to have resources shipped to our
business or is it more effective to
perform the work at an offsite location? These questions are
addressed by all businesses as an
ongoing process due to the business maturity cycle. Business is
fluid and ever changing and if
steps are not taken to stay in front of the business cycle curve
your competition may overtake
you. Outsourcing can be a valuable tool or a complete disaster
but business evolves to maximize
the opportunities.
China Southern Airlines already has the benefit of labor
cost advantage over some Asian
airlines. In light of the labor cost advantage China Southern
Airlines would be more driven to
analyze geographic advantages and contract to have servicing
performed on location. It would be
more cost effective to have a service performed by a company
or airline based in Narita as
opposed to locating your own people in foreign locations. It
would be difficult to determine
which carrier has the upper hand on outsourcing because each

has different factors that go into
determining core competency. Each outsourcing decision is a
unique and complicated as this
airline. The edge would go to the most financially stable airline
because execution of core
competency is directly reflected on the individual corporation’s
financial bottom line.
Financial Markets
To be successful in the global economic environment,
corporations must engage in
strategic and financial planning for growing revenues,
controlling expenses and increasing
market share. This section reviews the financial information
extracted from the Annual Reports
Fiscal Year ending December 31, 2012 of China Southern
Airline’s current review and proposed
future financial information. China Southern Airlines is an
international corporation who has
posted financial success in its operations. China Southern
Airlines posted operating revenues that
are equivalent to $2.57 million USD (Annual Report, China
Southern, 2012, p.17). Overall

11
operating expenses totaled an equivalent of $2.48 Million USD
resulting in a net operating profit
of $131.9 Thousand USD in fiscal year 2012. This is a small
profit but this airline is moving in
the wrong direction compared to a net operating profit of $707.8
Thousand USD in fiscal year
2011 (Annual Report, China Southern, 2012, p.17). Operating
expenses continued to represent
96 percent of the total operating revenue earned by corporation.
Fuel expense, landing, and
navigation fee increases were responsible for eroding the
operating revenue of the corporation
(Annual Report, China Southern, 2012, pp.19-20). Recognizing
that the fuel expense was beyond
the control of the corporation top decision makers concluded to
move the company in a new
direction and increase their footprint internationally.
Taking a customer service approach to increase revenues
the company-launched activities
designed to build their international footprint rather than reduce
costs. New routes launched

brought China Southern to London and created new hubs of
operations in Guangzhou effectively
connecting Europe and Southeast Asia. The campaign titled
“Year of International Brand
Service” designed to increase awareness of the company to
passengers (Annual Report, China
Southern, 2012, p.14). This plan, incorporated in 2012 is
primarily responsible for the additional
outlays in expenses directly related to the reduced profits posted
in 2012. The plan is initially
successful as passenger traffic increased and customers reported
highly satisfying experiences
received from flying (Annual Report, China Southern, 2012,
p.14). Banking on good experiences
combined with competitive pricing is a formula that China
Southern Airlines hopes will increase
their global footprint and earmark them as a company of the
future. (Annual Report, China
Southern, 2012, p.14).
Macroeconomics
12

Macroeconomics is the global effect a corporation
inflicts on the economy of other
nations. China Southern Airlines is severely impacted by the
price of oil but still managed to
outgrow other airlines and return China air traffic to double
digit percentages (Seeking Alpha,
2012). Economic projections indicate that one of China’s most
important travel centers will have
sustained growth-benefiting China Southern as the major carrier
at the hub center (Seeking
Alpha, 2012).The primary area that affects all airlines in the
international arena is the stability of
the financial markets. The changing financial markets cause
currency fluctuations that effects
corporation costs when operating in foreign lands. This can
cause revenues and expenses to rise
and fall increasing the difficulty a corporation faces when
compensating for foreign currency.
SECTION III
Strenghts, Weaknesses, Opportunities, and Threats Analysis
(SWOT)
SWOT is a tool used by business and financial
analysis to identify the strengths,

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