southwest airlines takes off with better supply chain management
TRANSCRIPT
BUS 602
Management Information
System
Nadia Nahar
BSSE 0327
Dr. Md. Mahabubul Alam
Joardar 2
Background Study on ‘SOUTHWEST
Airlines’
Identify the Problems they Faced
Effects on Service
IT Solution
Result
Case Study Questions
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Herb
Kelleher
Rollin King
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Commenced customer service with 3 Boeing 737 aircraft serving 3 cities – Dallas, Houston, and San Antonio
Now operates more than 500 Boeing 737 aircraft in 68 cities
Operate more than 3300 flights a day
45,861 employees engaged
The United States’ most successful low-fare, high frequency, point-to-point carrier
Known as a “discount airline” since 19735
Mission Statement
• The current mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
Vision Statement
• To provide the most affordable, reliable, and comfortable air transportation in the world.
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Humor
Altruism
Luv
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Work Culture
Competitive Environment
Leadership
Trust
Open Sharing of Information
Creativity Spirit
Secret of
Success
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1. Rivalry is strong
Delta, United, Virgin, JetBlue
Price competition – lowest fares and best deals
Buyer demand is growing slowly – less travelling
Buyer cost to switch brands are low – since the prices
of airfares are relatively close among competitors,
buyers are considering other factors when deciding
which airline to fly with. Some of these factors include
baggage fees, meals, entertainment, flight schedules,
and customer service
Product differentiation is based on customer service
and experience – every airline basically provides the
same service, transportation. The thing that will set
one airline apart is the experience the customer has.
The competition has different objectives regarding air
travel – Southwest’s main objective is providing the
lowest cost with the best customer service.
5. Potential New Entrants is weak
Currently no new entrants
Entry barriers are high
o Other cost advantages held by industry members – Southwest is known for the low-cost provider. United and Delta have the most locations nationally
and internationally.
o Restrictive government policies – must gain approval from the Department of Transportation and Federal Aviation Administration (U.S.)
Industry outlook is risky and uncertain
4. Substitutes are strong
Good substitutes are readily available – cars, buses, trains
Substitutes are attractively priced – depending on where you are travelling, driving or taking a train may be cheaper
Buyer have low costs in switching to substitutes – depends on where one is travelling. It could be more economical to drive
2. Supplier Power is strong
Fuel Suppliers
Supplier products are critical to
industry members – FUEL,
Boeing aircrafts
Industry members incur high
costs in switching their
purchases to alternative
suppliers – it is expensive to
invest in solar power, or other
fuel supplies
No good substitutes
3. Buyer Power is strong
Easy access to information
(Internet)
Buyer costs of switching to
competing products is low –
customers choose the lowest
priced airline
Buyers are well informed about
the quality, prices, and costs of
sellers – online travel agencies
keep consumers well informed
about prices and airline
customer service quality
Buyers are price sensitive
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Innovations
1st airline to offer a profit-sharing plan to employees beginning in 1979, employees now own about 10% of company stock
1st major airline to offer “ticketless” travel system-wide
1st major airline to enter information superhighway by creating its own web page
1st airline to offer online booking
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Southwest Delta JetBlue
Key Success Factor/Strength MeasureImportance
WeightStrength
RatingWeighted
ScoreStrength Rating
Weighted Score
Strength Rating
Weighted Score
Customer Service 0.25 10 2.50 9 2.25 8 2.00
Brand/Reputation 0.10 7 0.70 10 1.00 6 0.60
Price/Value 0.10 9 0.90 7 0.70 7 0.70
Employee Satisfaction 0.05 9 0.45 8 0.40 6 0.30
Cost Reduction Strategies 0.15 7 1.05 6 0.90 5 0.75
Aircraft Maintenance/Safety 0.15 7 1.05 9 1.35 7 1.05
Time Efficiency 0.05 5 0.25 5 0.25 5 0.25
Marketing 0.05 6 0.30 8 0.40 5 0.25
Environmental Initiatives 0.10 7 0.70 7 0.70 7 0.70
Sum of importance weights 1.00
Overall weighted competitive strength rating 7.90 7.95 6.60
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Distribution• On Southwest
website
Retail• Via Web• At airport
Supply Chain Management• Fuel costs• Inventory
management• Merchandise
Service• Customer
assistance
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• Employee satisfaction
• Customer service
• Low fares
• Stable profitability
• Scheduled service
• Leadership
• No international flight (will initiate in 2014)
• Carry small amount of freight and cargo.
• Inconvenience to business customers
SWOT
• Government regulations and restrictions
• Fluctuation in gas and oil prices
• Operate At International Level
• Focus On Popular Destinations
Strengths Weakness
ThreatsOpportunity
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The airline’s success has led to continued
expansion
Legacy information systems have been unable to
keep up with the increasingly large amount of data
being generated
Lack of information visibility
Information about what replacement parts were
available at a given time was difficult or impossible
to acquire
affected response times for everything from
mechanical problems to part fulfillment
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Getting passengers from one location to another
with minimal delay is critically important
Repairing aircraft quickly is required
Aircraft groundings would have a strong impact on
the airline’s bottom line
Richard Zimmerman, Southwest’s manager of inventory
management, stated that “there’s a significant cost when we
have to ground aircraft because we ran out of a part. The long-
term, cost-effective way to solve that problem was to increase
productivity and to ensure that our maintenance crews were
supported with the right spare parts, through the right software
application.”
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Supply chain management software and services company
Purchased by JDA in January 2010
Global market leader of supply chain management software and services, with more than 3,200 customers
Zimmerman said “i2 and one of its competitors emerged invirtually a dead heat as far as what they could provide.However, we ultimately selected i2 because it better understoodour culture and would be able to work within the confines of ourcorporate culture. Southwest was very comfortable with thepeople from i2”
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Commitment to innovation
invested in excess of $1 billion in research and
development
broad solution footprint delivering some of the industry’s
leading supply chain management technology
more than 160 patents related to planning, scheduling
optimization, demand fulfillment, collaboration, e-
commerce and data management and reporting in its
solution portfolio
allowed JDA to combine i2’s patented technology,
industry knowledge and proven best practices —
along with its other acquired brands24
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i2 Demand Planner
i2 Service Parts
Planner
i2 Service Budget
Optimizer
i2 Demand Planner uniquely enables companies to:
Forecast all product options and components
Support constraint-based demand planning
Improve forecast accuracy
Increase velocity with industry-specific templates
Personalized data view
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i2 Service Parts Planner uniquely enables companies
to:
Increased forecast accuracy, even for slow-moving
or specialty parts
Lower inventory investments
Higher service levels, both in sales and returns
Better capacity and asset utilization across
locations
“the right parts are in the right location at the right
time”27
i2 Service Budget Optimizer uniquely enables
companies to:
Provides historical data to generate forecasts of
future usage.
Gets the most from your budget
Makes all of your budget work for you
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Southwest can recognize demand shortages before they become problems
Southwest’s managers now have a clear and unobstructed view of all of the data up and down the company’s supply chain
Planners can quantify the cost to the company of operating at different levels of service
Zimmerman added that i2 “will help us lowerinventory costs and keep our cost per air seat miledown to the lowest in the industry. Also, the solutionswill help us ensure that the maintenance team canquickly repair the aircraft so that our customersexperience minimal delays.”
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increased availability of parts
increased speed and intelligence of decision
making
reduced parts inventory by 15 percent
saving the company over $30 million
increased service levels from 92 percent prior to
the implementation to over 95 percent afterwards
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Why is parts inventory management so important at Southwest Airlines? What business processes are affected by the airline’s ability or inability to have required parts on hand?
Parts of inventory management practically determines whether or not Southwest Airlines keeps its reputation as a successful company.
Why part inventory management is so important-
will notify employees when an airplane needs to be serviced before problems occur.
give details as to what exact parts are needed in order to an airplane to be fully serviced.
without parts inventory management, it could be too late before the company knows what parts need to be replaced on an airplane.
provides the company with an quick and efficient way to keep track of parts, when they are needed for airplane repairs. 42
Why is parts inventory management so important at Southwest Airlines?
Why is parts inventory management so important at Southwest Airlines? What business processes are affected by the airline’s ability or inability to have required parts on hand?
Business processes affected by the airline’s ability or inability to have required parts on hand:
The manufacturing parts, because it is relied on the inventory management for producing the necessary parts.
The sales, because it depends on the airline’s ability to keep their airplanes maintained and safe.
The financial aspect, because the organization need to know how much money it should allocate to the spending on the needed parts in the present time and the future. 43
Why management, organization, and technology factors were responsible for Southwest’s problems with inventory management?
Management factor was responsible because managers were not heedful about the lack of information visibility
Organization factor was responsible because the structure and process, procedure of Southwest was not efficient enough and caused for major misunderstanding because the information needed to get the correct inventory was not available.
Technology factor was responsible because Information system was unable to keep up with the increasingly large amount of the date generated in the organization 44
How did implementing the i2 software change the
way Southwest ran its business?
forecast for all of the part location combinations in its system
provides better visibility into demand for each part
differentiate among individual parts based on criticality and
other dimensions such as demand volume, demand
variability, and dollar usage
have a better flow, accessibility, and better data management.
maintain customer relationships
help to keep ticket cost down
supplies will be readily available in case a mishap occurs.
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Describe two decisions that were improved by
implementing the i2 system.
Implementing the i2 system increased availability of
parts, increased speed and intelligence of decision
making.
Manufacturing decisions
Financial decisions
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