POM DIARY-Session 2

Date: September 23, 2013 Group No: 1, Section A Group Members: Ashish Misra Kavita Mary Thomas N Sushma Prashanti M Shonit Mittal Vivek Narayanan 13013 13027 13036 13041 13048 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. 2. 3. 4. 5. Suzuki helped in identifying suppliers in Japan Technology transfer from Suzuki Quality management support from Suzuki Long term buying contract with suppliers 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:

Delivery Competit ive priority Quality Cost

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
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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-Marts 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 WalMart uses, since the Companys 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-Marts 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 companys 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

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