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POM DIARY-Session 2

Date: September 23, 2013

Group No: 1, Section A

Group Members:

Ashish Misra 13013

Kavita Mary Thomas 13027

N Sushma 13036

Prashanti M 13041

Shonit Mittal 13048

Vivek Narayanan 13061

Class started with the following quote by Michael Dell

“Our business is about technology, yes. But it's also about operations and customer

relationships.”

Topics Covered in Class

Operations strategy and competitiveness is an embodiment of:

O: objectives

S: strategies

A: actions

C: control

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Competitive strategies of a company:

1. Differentiation

2. Cost

3. Innovation

4. Growth

5. Alliance

6. Others

Competitive forces of a company:

1. Suppliers

2. Customers

3. Competitors

4. New entrants

5. Substitutes

Mission/Vision/strategy

Mission: Mission defines the fundamental purpose of an organization or an enterprise, succinctly

describing why it exists.

Vision: where the organization wants to be in future.

Strategy: How are they going to get there; an action plan. It also shows how the the mission is

achieved.

Competitive strategies Of Maruti Suzuki:

1. Vendor development:

1. Suzuki helped in identifying suppliers in Japan

2. Technology transfer from Suzuki

3. Quality management support from Suzuki

4. Long term buying contract with suppliers

5. “Best practice” awareness among suppliers

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2. Capacity expansion:

1. Asks vendors to speed up capacity expansion plans.

2. Maruti is pressing its vendors to speed up their investment plans.

3. Helps vendors identify fund raising problems

3. Joint venture:

Maruti set up joint vendor companies with Indian partners for certain critical components

requiring high investments.

4. Components Indigenization:

Localization of auto components

5. Japanese practices:

1. Quality, cleanliness and orderliness in the company.

2. Quality circles among shop floor workers by forming voluntary groups and helping

organization in solving problems

Operations strategy:

Strategy Process

Customer needs

corporate strategy

Operations Strategy

Decisions on process and

infrasturcture

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Competitive priorities:

This also includes

Time

Flexibility

Service

Order Qualifier

A threshold minimum characteristic that is necessary for the customer to even consider

purchasing it. (Appearance, color, size...)

Ex: A brand name of a car can be “order qualifier”

Order winner

The characteristics that makes the customer choose the product over other. (Price, service,

reliability)

Ex: Warranty, Roadside Assistance

Competitive dimensions:

Cost

Product quality and reliability

Delivery speed

Delivery reliability

Copying with changes in demand

Delivery

Quality

Competitive

priority

Cost

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Dealing With Trade Offs (compromise or balance)

Ex: If we reduce cost but reducing product quality inspections, we might reduce product quality

Cost

Flexibility Delivery

Quality

Strategies for Competitive Advantage

Differentiation

Quick response

Cost leadership

Strategy through Capacity

Organizational Strategy

Capacities that are difficult to replicate and provide abilities to master new technologies

Ex: IBM

System Strategy

Capacities that are broad-based involving the entire operating system and provide

advantage of short lead and customize on demand.

Process Strategy

Capacity Planning

Capacity is the ability to hold accommodate store or receive. Capacity must also be related to

dimension of time

Design capacity: maximum obtainable output

Effective capacity: maximum capacity given a product mix, scheduling difficulties and other

doses of reality

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Efficiency = Actual Output/Effective Capacity

Utilization = Actual Output/ design Capacity

Learning from class

1. How a company defines its mission, vision and strategies.

2. A good understanding about Operations Strategy and Competitiveness.

3. An overview about Capacity Expansion.

About Class-Feedback-Groups opinion and suggestion

Feedback: Concepts where well conveyed by instructor with relevant examples.

Value addition from the group

Example: Walmart Business Strategy

Business Strategy

- The Business strategies WalMart uses and how they differentiate their services/products

There are 3 generic business strategies and they consist of the Focus strategy, the

Differentiation strategy, and Overall Cost leadership. The Focus strategy is usually defined as

focusing on offering products and services to a particular market segment or buyer group, within

a segment of a product line, and/ or to a specific geographic market. The Differentiation strategy

is defined as offering a product or service that is perceived as unique in the marketplace.

Wal-Mart‘s business strategy is Overall Cost Leadership, offering their customers great quality

service and products at a lower price than their competition. Overall Cost Leadership is defined

as offering the same or better quality product or service at a price that is less than what any of the

competition is able to do. In achieving this goal it relies on a Supply Chain Management, that

ensures products are available to the customers when they it. The items offered are broken down

into products and services, products would be privately labeled brands such as, “George, Metro

7, Mainstays and other licensed brands from Disney and Mary-Kate and Ashley”. Services

would be that they offer home goods, beauty supplies and seasonal items.

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- The estimated power each of the 5 forces has (suppliers include their employees and suppliers

of technology). How Wal-Mart reduces the buyer and supplier power and how Wal-Mart creates

switching costs and entry barriers.

The five forces are buyer power, supplier power, threat of substitute products and services, threat

of new entrants, and rivalry among existing competitors. Wal-mart follows the five forces

business strategy.

Buyer Power is affected by how big your customers are and how much revenue they constitute as

well as other things. For instance Wal-Mart has a lot of power with suppliers because it buys so

much of their inventory and is thus a large percent of those companies’ revenues. It is no surprise

then that these companies have lived and died with Wal-Mart's orders and would do anything to

protect their business with them. Buyer power has about 55% of the five forces model that Wal-

Mart uses, since the Company’s sole purpose is to ensure that its customers are, “Saving Money,

Living Better”. Buyer power would also include their employees, in treating them with the

respect, giving them support and having an open door policy, you create happy employees which

transfers to happy customers.

Supplier power as there is a high amount of choices to be taken in and they do bring in a lot a

supplies. As for a threat of a substitute product, it is high because there are alternative products

for sale that can replace another item. As for a threat of a new entrant, Walmart seems to be the

Leader in low cost sales so it will not be easy for a new business to come in and challenge

Walmarts' ways. Supplier Power estimated percentage would be about 35, while, this percentage

appears to be low, in the grand scheme of things is allows Wal-Mart to ensure that their suppliers

come from a diverse group that achieves and maintains their high standards of delivering great

quality services and products.

Threats of Substitute products and threats of new entrants average around 3%, simply because

with Wal-Mart focusing on ensuring that their customers are happy and that their suppliers are

delivering quality products at a low cost, they would ensure that they remain ahead of their

competitors and in doing so, it would make it difficult for new entrants and the competition to

match their prices.

In order to reduce buyer and supplier power, they would have to put a greater emphasis on the

threat of substitute products. They would have to look at what are the better and cheaper

alternatives on the market and tap into that resource.

Threats of new entry to create entry barriers, they would have to increase market research on

what customers are actually purchasing and ensure that they are able to deliver, and become the

only person offering that product at a price the customers and afford. Switching costs are easy,

once customers realize they are no longer getting value for their money, they would go seek

products elsewhere.

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Rivalry is how competitive an industry is. For instance, if there are lots of companies selling

essentially the same products there will always end up being a price war which will severely hurt

the company' profits. Wal-mart has such low prices which has created a problem for years and

fierce competition has made it tough for competitors to make a profit.

-The major business initiatives are used in Wal-Mart and what software is used:

For Walmart, the major business initiative being used is Supply Chain Management. A supply

chain management system is an IT system that supports activities by automating the tracking of

inventory and information among business processes and across companies. Wal-Mart is to

ensure that all their suppliers are using Electronic Product Codes and for those who do not have

the capability they work with them to find packages that are within their price range. This allows

for a successful ensuring that customers get what they order in a timely manner. It allows for

logistics, fulfillment, production, revenue and profit, cost and price efficiency, another initiative

is the, Go Green Concept, according to Wal-Mart’s press release as of February 2nd 2009, “two

new types of heavy-duty commercial hybrid trucks and two different alternatively fueled heavy

duty trucks”, has become, “part of the company’s efforts to build on its progress in developing a

more sustainable trucking fleet”. As an Overall Cost Leadership company, their strategy is that

of a bottom-line company. A bottom-line strategy optimizes manufacturing processes, decrease

transportation costs, and reduces cost of human capital, and minimizes errors in a process.

-IT organization and the philosophical approach Wal-Mart uses:

They rely on IT enabled tight supply chain management systems to squeeze every penny possible

out of the procurement, distribution, and warehousing of its products. They use business

intelligence systems to predict what customers will want and when they will want it. Wal-Mart is

currently using ERP, which incorporates, Customer Relationship Management system; they are

also in the process of implementing SAP to strengthen their business skills. Philosophical

Approach could be the Matrix, where there is collaboration across the board to ensure customers’

needs are satisfied. They have in-out flows, which is from computers to suppliers.

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Example Numerical Problems with Solutions

Problem 1: The Crystal Sparkle Co. produces glass tumblers. The plant is designed to produce

400 tumblers per hour, and there is one eight-hour shift per working day. However, the plant

does not operate for the full eight hours: the employees take two 15-minute breaks in each shift,

one in the first four hours and one in the second four hours, the first thirty minutes of the shift are

spent raising the kilns to the required temperature for firing glass. The plant usually produces

about 10,000 tumblers per five-day workweek. Answer the following questions by adjusting the

data to one eight-hour shift.

What is the design capacity in tumblers?

What is the effective capacity in tumblers? As a percent?

What is the actual output in tumblers?

What is the efficiency?

What is the utilization?

Solution

a. Design capacity = 8 hrs x 400 tumblers = 3,200 tumblers per 8-hour shift.

b. Effective capacity = Design capacity – Non-productive activities.

Design capacity 8.0 hrs.

Less: Breaks .5 hrs.

Heat-up .5 hrs.

Net productive time 7.0 hrs.

Effective capacity = 7 hrs. * 400 tumblers = 2,800 tumblers.

Effective capacity percent = (100)*(2800)/3200 = 87.5%.

c. Actual output = 10,000/5 = 2,000 tumblers per 8-hour shift. (This is a mean output. In reality

there will be variation; some shifts will exceed 2,000 tumblers and some will fall short.)

d. Efficiency = Actual output/Effective capacity = (100)*(2000)/2800 = 71.43%.

e. Utilization = Actual output/Design capacity = (100)*(2000)/3200 = 62.50%.

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Problem 2: The design capacity for engine repair in our company is 80 trucks/day. The effective

capacity is 40 engines/day and the actual output is 36 engines/day. Calculate the utilization and

efficiency of the operation. If the efficiency for next month is expected to be 82%, what is the

expected output?

Solution

Utilization = Actual Output/Design Capacity

= 36/80 = 45%

Efficiency = Actual Output/Effective Capacity

=36/40 = 90%

Expected Output = Effective Capacity * Efficiency

= 40 * 0.82 = 32.8 engines/day