Production & Operations Management - Upload
Production & Operations Management - Upload
Production & Operations Management - Upload
TABLE OF CONTENTS
PAGES
SCOPE 2
INTRODUCTION 3-5
Dell Inc
Discussion re: Operations Strategies for Dell Inc and Toyota Motors Corporation
Walmart Stores
Discussion re: Operations Strategies for Walmart Stores and The Ritz-Carlton Hotel Company
CONCLUSION 28
APPENDICES 29 - 31
REFERENCES 32 - 35
1
SCOPE
This paper provides the reader with an outline of the operations strategy of two manufacturing
companies, Dell Inc and Toyota Motors Corporation and two service companies, Walmart Stores and
The Ritz-Carlton Hotel Company. The paper also provides a comparison and contrast of the
operations strategies followed by the four companies in relation to process design, supply chain,
capacity, human resources, innovation and quality, in order to create a competitive advantage.
2
INTRODUCTION
In order for a company to achieve competitive advantage in its particular industry, the company
must first have an understanding of the needs and the competitive drivers in that market. This will
allow the company to develop a strategy that focuses on gaining a competitive advantage over its
competitors. “Competitive advantage is the significant advantages that an organisation has over its
competitors.” (Lynch, 2006) Strategy can be defined as “the direction and scope of an organisation
over the long term, which achieves advantage in a changing environment through its configuration of
resources and competences with the aim of fulfilling stakeholder expectations.” (Johnson, Scholes
and Whittington, 2008) There are five key components of a strategy as shown in Figure 1.
Figure 1 - Five Key Components of a Strategy (Robinson Lecture Notes, Operations Strategy 2010)
With the corporate and business strategies defined and through evaluation of the capabilities and
Operatio
constraints of the operations resources, the company will seek to develop and implement an
operations strategy that supports the company in gaining competitive advantage. Slack and Lewis
(2006) describes operations strategy as “the total pattern of decisions which shape the long-term
potentia
capabilities of any type of operation and their contribution to overall strategy, through the
reconciliation of market requirements with operations resources.” There are four perspectives on
capabilit
operations strategy as shown below in Figure 2.
3
Figure 2 - The Four Perspectives on Operations Strategy (Robinson Lecture Notes, Operations
Strategy 2010)
In defining the operations strategy, operations managers must pay attention to the performance
objectives identified at the business strategy level in order to efficiently deliver the company’s
products or services to the market and maximise profitability. There are five key performance
objectives as shown in Figure 3 below, which a company can focus on in order to achieve a
competitive advantage.
It is critical that companies examine the market to determine the needs and minimum expectations
of customers; also referred to as order qualifying factors. As discussed by Slacks, Chambers and
Johnston (2007) “order qualifiers are those aspects of competitiveness where the operation’s
performance has to be above a particular level to be considered by the customer.” Slacks, Chambers
4
and Johnston (2007) also describe order winners as “the competitive factors that directly and
The performance objectives identified by the company, can be achieved through efficient
management of the various elements of the value chain as outlined in Figure 4 below. “A value chain
describes the categories of activities within and around an organisation, which together create a
product or service.” (Johnson, Scholes and Whittington, 2008) Porter (1985) identified two basic
types of competitive advantage; cost advantage and differentiation advantage. “Cost advantage
exists when the company is able to deliver the same benefits as competitors but at a lower cost,
while differentiation advantage exists when the company delivers benefits that exceed those of
competing products.”
Figure 4 - Value Chain Diagram - (Johnson, Scholes and Whittington, Exploring Corporate Strategy,
2008, pg 110)
5
THE OPERATIONS STRATEGIES RE: MANUFACTURING COMPANIES
Dell Inc
Ranked #33 on the Fortune 500 list in 2009, Dell Inc (Dell) is a leading technology company that
designs, develops, manufactures, markets and offers support for a wide range of products. Dell’s
corporate philosophy is outlined in a set of values referred to as the “Soul of Dell”. (www.dell.com)
Current CEO, Mr. Michael Dell founded the company in 1984 with an initial capital investment of
US$1,000; 25 years later, Dell is recording revenues of US$61, 101M and employs approximately
Dell executes a differentiation strategy, which incorporates cost, flexibility, speed and quality as the
Quality
100
80
60
40
Cost Speed
20
0
Flexibility Dependability
Dell Apple
6
Toyota Motor Corporation
Ranked #3 as Fortunes World Most Admired Company, Toyota Motor Corporation (Toyota) is one
of the leading auto manufacturers in the world producing brands such as Toyota, Lexus, Hino and
Daihatsu for circa 170 countries The company’s operation includes design, manufacture, assembly
and sales and marketing of cars, minivans, buses, trucks and related parts and accessories. (Toyota
Motors Corporation, Datamonitor 2009) Due the current economic climate, Toyota experienced a
Toyota’s operations strategy, which is recognized internationally, is centered around the Toyota
Production System (TPS), which incorporates a unique production control method referred to as
“kanban system” as illustrated in Appendix 1. TPS is based on two concepts as outlined in Table 1
below and incorporates a great deal of research and development to ensure that innovative, cost-
TPS Concept
Jidoka
Toyota’s operations strategy encompasses flexibility, cost, speed and quality as its operations
7
Figure 6 - Polar Diagram Toyota and Mercedes Benz
Quality
100
80
60
40
Cost Speed
20
0
Flexibility Dependability
8
Evaluation of Order Qualifiers and Order Winners re: Manufacturing Companies
In the technology industry, customers are always searching for the latest features and technology
solutions, at the best price and quality. Brand also plays a critical part in the industry and has
allowed some companies to achieve huge profits above their competitors. Dell is considered one of
the leading computer brands in the world, outpacing the industry’s computer systems growth and
capturing a global market share of circa 15% in 2008. (Global Technology Hardware & Equipment
Industry Profile, Datamonitor 2009) Table 2 below highlights the order qualifiers for the industry
along with the order winners achieved by Dell. Through effective implementation of operational
Similar to the technology industry, the primary competitive factors in the automobile industry are
innovation, price and quality. Safety is a critical factor for the industry and is normally attributed to
quality and brand. As at March 2008, Toyota’s market share in the industry stood at 9.4% (Global
Automobiles & Components, Datamonitor 2009) and the company was ranked 8th by Interbrand’s
"Best Global Brands.” (www.interbrand.com) Table 2 below outlines the order qualifiers for the
industry and the order winners achieved by Toyota, which has allowed the company to create a
competitive advantage.
9
Table 2 - Order Qualifiers and Order Winners re: Dell and Toyota
Company
10
Dell
Evaluation of Order Winners and use of the Value Chain re: Manufacturing Companies
evidenced by Dell and Toyota. Tables 3 below highlight the various elements of the operations
Process Design
Process Design
11
Supply Chain
Supply Chain
Capacity
12
Value Chain Acti
Capacity
Human Resources
Human Resources
Innovation
13
Value Chain Activities Dell Toyota
Innovation Customer-driven Dedicated design and
research and
development
14
Quality
Quality
15
Discussion re: Operations Strategies for Dell Inc and Toyota Motors Corporation
Having analysed the operations strategies for Dell and Toyota, one can clearly see the synergies
in the operations strategies executed by manufacturing companies; however, each may company
follow a different strategy to achieve competitive advantage. For example, Dell’s differentiation
strategy incorporates elements of cost focus; while Toyota’s cost leadership strategy encompasses a
great deal of market segmentation. Dell and Toyota have built their operations strategies with a
great deal of flexibility, which allows for continuous enhancements in relation to elements of the value
systems. Toyota works directly with dealers and sales centers while Dell employs a direct to
customer model; however, both companies employ similar processes, such as Just-in-Time
manufacturing, outsourcing of components manufacturing and “customer pull” approach, which has
allowed them to maximise production capability and market innovative, cost-competitive, quality
products to customers.
Dell’s approach is to maintain close proximity to suppliers, ensuring speedy delivery of orders, which
contributes to the order winner of product delivery and price. Dell also engages in single-source
arrangements where the company sees advantages such as improved performance, quality or price;
this is not the case for Toyota. Toyota ensures that no supplier can account for more than five
percent of major component purchases. Despite these varying practices, both companies work with
16
a global supply network that allows them to achieve competitive pricing, maintain an innovative-edge
and quality standards. Dell and Toyota’s integrated technology systems allow suppliers to see real
time orders and track inventory levels and has resulted in enhanced productivity for both companies.
It is of importance to note that the heavy reliance on suppliers, presents a business risk to both
companies e.g. supplier dependency and increased potential for defective products, as evidenced in
Toyota’s recent product recall. Similar to Toyota, Dell’s quality and brand could be significantly
As described by Torrington, Hall, Taylor, (2005) “motivation is the desire to achieve beyond
expectations, being driven by internal rather than external factors, and to be involved in a continuous
striving for improvement.” Both companies clearly understand the importance of managing people
for competitive advantage. Dell and Toyota have cultivated a continuous improvement culture that
encompasses teamwork, individual creativity, training and development and performance based
rewards. Due to dedicated training centers, Dell and Toyota can tailor training based on company
needs, resulting in the employees’ ability to easily relate to the training and apply transferable skills to
their jobs. The companies’ human resources approach has resulted in high employee satisfaction
levels and ongoing employee contribution to innovative ideas and quality improvement.
Both Dell and Toyota have achieved order winners of innovation; however, Dell’s innovation is
operations consists of many dedicated design and research centers worldwide. Both companies hire
highly skilled workers and the best talents globally who contribute to the companies’ strategy of
marketing innovative products. For fiscal 2009, Dell’s R & D expenses were US$665M (Dell Annual
Report, 2009) whereas Toyota’s R & D expense stood at US$8.07B (www2.toyota.co.jp). Despite
the difference in investment, Dell remains a leader in the technology industry. Dell is listed among
Fortune 500 “America’s Most Admired Companies” and has obtained 48 design awards in 2008.
Dell selects suppliers based on competitive pricing; since customer safety is of the upmost
importance to Toyota, the company cannot sacrifice quality for cost. Toyota has even empowered its
employees to halt production at any stage in the TPS process to ensure high quality standards.
17
Nevertheless, both companies employ stringent quality standards from design to manufacturing
ensuring that the end product meets specific quality standards. Interestingly, Toyota’s recent product
recall suggests that there are gaps in the company’s quality assurance practices that will need to be
quickly evaluated to avoid further impact on the company’s order winners of quality and brand.
Walmart Stores
Walmart Stores (Walmart) was founded in 1962 by Sam Walton and is today considered the
world’s largest retailer employing over two million associates (employees) and serving over 200
million customers per week. (www.walmartstores.com) In 2009, Walmart was ranked number two by
Fortune 500 and included on the Most Admired Companies list. Walmart’s discount chain includes
circa 8,424 retail units in 15 different countries under three business segments; Walmart Us, Sam’s
Walmart’s operations strategy is focused on cost leadership and is achieved through effective
management of its supply chain, which is critical to the company’s service delivery. Due to Walmart’s
size, global sourcing and procurement capabilities, the company is able to negotiate the best prices
Walmart has established that cost only will not allow the company to maintain a competitive
advantage; therefore the company has incorporated speed to market, flexibility and quality into its
performance objectives as shown in Figure 7 below, in comparison to its main competitor - Target.
18
Quality
100
80
60
40
Cost Speed
20
0
Flexibility Dependability
Walmart Target
The Ritz-Carlton Hotel Company (Ritz-Carlton), established in 1983, is a luxury brand hotel and
resort chain with 70 hotels worldwide in 24 countries. Ritz-Carlton’s strategy is embedded in a set of
standards referred to as “Gold Standards” as seen in Appendix 3 and are considered the foundation
of the company.
driven information management system, empowered employees and continuous learning of guests in
In order to achieve its order winners, Ritz-Carlton’s performance objectives incorporate quality,
flexibility, dependability and speed as shown in Figure 8 below. Even though Ritz-Carlton and
Marriot Hotels & Resorts are part of the same group, (Marriot International) one can clearly see the
19
Quality
100
80
60
40
Cost Speed
20
0
Flexibility Dependability
Price is a critical competitive factor in the retail industry since customers prefer to conduct
business with retailers that are easily accessible, carry a wide product variety and offer the best
value for money. Table 4 below, outlines the order winners achieved by Walmart through an
aggressive cost leadership strategy, which has allowed the company to create a considerable
The hospitality industry has been impacted by the current global economic conditions. Increasingly,
customers are searching for attractive packages at the best price; ultimately “value for money”.
Companies with flexible operations have adjusted their strategy and marketing efforts to introduce
value-added packages to the market, while brand image has allowed other companies to continue to
outperform their competitors. Ritz-Carlton’s primary order winners of quality and superior service has
allowed the company to maintain a strong brand image in the hotel industry, contributing significantly
to the company’s competitive advantage. Table 4 below outlines the order qualifiers for the
20
Tables 4 - Order Qualifiers and Order Winners re: Walmart & Ritz-Carlton
21
Company
Walmart
Order Winners and use of the Value Chain re: Service Companies
22
Walmart’s focus on cost leadership has resulted in a heavy investment in its supply chain
engagement, empowerment and training. Despite the varying focus, both companies have
successfully achieved a competitive advantage in their industry. Tables 5 shown below, highlights
various elements of the operations strategy of both companies in relation to the value chain.
23
Process Design
Process Design
24
25
Supply Chain
Supply Chain
26
Value Chain Acti
Supply Chain
27
Capacity
Capacity
28
Human Resources
Human Resources
29
Innovation
Innovation
30
Quality
Quality
31
Discussion re: Operations Strategies for Walmart Stores and The Ritz-Carlton Hotel Company
Walmart’s process design can be classified as mass service while Ritz-Carlton follows a mass
customisation approach, ensuring that all guests experience a “wow” factor. Interestingly, Walmart
customers experience a similar wow factor from the final price and product variety offered. Both
however, Walmart associates are more behind the scenes ensuring continuous replenishment of
products while Ritz-Carlton’s process incorporates a high level of customer and employee
Walmart’s mission of saving people money drives its cost leadership strategy resulting in cost being
prioritised over product quality. Even though Walmart has outsourced its merchandise
manufacturing, the company maintains dedicated merchandising centers, a dedicated logistics and
distribution department, advanced technologies and a privately owned transportation fleet, which all
work together to ensure that the best priced products of acceptable quality are made available to
customers. Unlike Walmart, Ritz-Carlton outsources its supply chain management where suppliers
are selected based on quality standards, in order to concentrate on its core competencies. ”Core
competencies are the skills that enable a business to deliver fundamental customer benefits.”
(www.tutor2u.net)
Walmart’s investment in advanced technology and its logistics and transportation infrastructure has
resulted in effective forecasting techniques, tracking of inventory levels and reduced operating costs;
creating operational efficiencies that allow products to be offered at low prices. Ritz-Carlton’s
interest to Ritz-Carlton to introduce special promotions or rate adjustments during seasonal periods
to maximize its capacity potential. Ironically, both companies track customer preferences to ensure
that customer needs and expectations are met. Through analysis via a sophisticated technology
system, Walmart can determine preferred products for specific locations and manage procurement
through to delivery to meet demand. For Ritz-Carlton, this analysis allows the company to record
and anticipate customer needs, contributing to the company’s order winner of innovation.
32
Both companies aim to provide a positive work environment for their employees that encompass
employee training, development programmes and teamwork. Walmart’s training is centered primarily
around supply chain management, which allows associates to gain an understanding of the
customer service. Ritz-Carlton on the other hand, prides itself on quality and superior service and
invests heavily in employee development and training via its dedicated leadership training center to
ensure that high quality standards are maintained. Whilst Walmart’s generally hires university
students and a more mature workforce; Ritz-Carlton employs a targeted recruitment process,
ensuring that potential employees are a “good fit”. Walmart’s strategy allows the company to pay low
yet competitive wages while reducing operating cost. Even though the company has a history of
promoting and offers various development programs i.e. Career Preference Center, Walmart
constantly undergoes bad publicity for its labor practices and benefits offered to associates. Ritz-
employee satisfaction surveys to ensure a highly motivated workforce. Ritz-Carlton was named the
number one company by Training magazine in its “Training Top 125” 2007 survey.
Ritz-Carlton’s innovation is attributed to the hotel’s mystique approach involved in exceeding guests’
expectations, resulting in increased customer satisfaction, loyalty and brand image. Interestingly,
even though Walmart employs a Quality Monitoring Programme to ensure that products meet certain
quality standards, quality does not appear to be a competitive factor for Walmart customers, who are
primarily concerned with price. Ritz-Carlton’s commitment to quality and superior service is driven at
the executive leadership level and incorporates dedicated quality leaders, quality certification
standards for each role and supplier certification standards; all aimed at supporting the company’s
Evaluation of the operations strategies for Walmart and Ritz-Carlton, confirm that service companies
can adopt different operations strategies depending on the nature of the business, the performance
33
Comparison of Operations Strategies re: Manufacturing vs. Service Companies
Evaluation of the operations strategies for Dell and Toyota confirm that manufacturing companies
focus on similar performance objectives, such as cost, quality, speed and flexibility; resulting in heavy
focus of the companies’ process design and supply chain management. To the contrary, service
companies focus on different performance objectives, which are driven by the type of strategy
executed. Walmart’s operations present an interesting paradigm for service companies since the
Walmart’s cost leadership strategy, the company focuses heavily on its supply chain management
and less on final service delivery. Ritz-Carlton on the other hand follows a differentiation strategy
that requires heavy investment in service quality standards and employee motivation. Similarly, Dell
and Toyota invests heavily in employee motivation strategies in order to create greater efficiencies in
their operations strategies and drive innovation as well as continuous improvements to quality
standards.
For both manufacturing and service companies, capacity planning is of the upmost importance and
incorporates various forecasting techniques. For Dell, Toyota and Walmart, this involves working
closely with suppliers and the use of advanced technology to manage inventory levels. Whereas
Ritz-Carlton’s capacity management is based on the ability to maintain guests rooms and the level of
collaboration between the various departments in order to exceed guests’ demands. Innovation is
high on the agenda for the four companies and is achieved through support from employees and
suppliers, advanced technology and or incorporating customer feedback, as is seen with Dell. Even
though Walmart did not achieve innovation as an order winner, the company’s innovative approach
contributes to its order winner of price e.g. Walmart’s introduction of hybrid tractors and tractors
powered by liquid natural gas and brown grease to create a more fuel efficient fleet.
(www.walmartstores.com) Finally, the four companies have also defined and prioritised quality at
different levels based on their respective operations strategy. Dell and Walmart’s focus on quality is
considerably lower than the quality focus employed by Toyota and Ritz-Carlton.
34
CONCLUSION
Evaluations of the four companies confirm that there are many benefits to developing a flexible
operations strategy that allows for ongoing enhancements to enhance operational efficiencies. This
allows for the introduction of new innovative products that can be marketed at competitive prices,
without compromising product quality. Once this can be achieved through effective coordination of
the various elements of the value chain, companies will create order winners that allow them to gain
a competitive advantage in their particular industry. After careful evaluation, it is recommended that
both manufacturing and service companies should place greater emphasis on quality, if they are to
35
APPENDICES
LISTEN 36
Appendix 3 - Summary of Ritz-Carlton Gold Standards
The Credo
37
The Credo
The Motto
38
Appendix 4 - Ritz-Carlton’s Employee and Customer Engagement Measure (Robinson, Gallup
39
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