Operational Exellence - Identifying qualifying and order winning factors

Examining Dell, McDonalds, Zare and EasyJet


Term Paper (Advanced seminar), 2009

36 Pages, Grade: Sehr gut


Excerpt

Table of contents

I. INTRODUCTION
1. Portray of easyJet
2. Portray of Zara
3. Portray of McDonald’s
4. Portray of Dell

II. MARKET REQUIREMENTS AND COMPETITIVE FACTORS
1. easyJet
2. Zara
3. McDonald’s
4. Dell

III. ANALYSIS
1. Supply Chain
2. Capacity Planning and Control
3. Human Resources
4. Innovation
5. Quality

IV. EVALUATION
1. easyJet
2. Zara
3. McDonald’s
4. Dell
5. Success Factors

V. References

1. Table of figures

2. Literature.

I. INTRODUCTION

Following the concept of value disciplines (Treacy, 1993), companies can reach leadership positions in their industries by focusing on one of the three following areas:

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Figure 1: Value Disciplines (own creation based on Treacy, 1993)

Focusing on companies which are well known for their success based on operational excellence, goal of this paper is to compare and contrast the operation strategies of two manufacturing and two service firms:

- easyJet (service)
- Dell (manufacturer)
- Zara (manufacturer)
- McDonald’s (service)

1. Portray of easyJet

easyJet is one of the most profitable airlines in Europe, offering a limited, standardised mass service (Jones, 2007) following the ‘no-frills’ (low-cost carrier) concept based on the Southwest Airlines-model (Fojt, 2006). Their business activities comprise the transportation of passengers (customer processing) from one airport to another using resources as aircrafts and fuel (material processing) (Jones, 2007). The operations processes are determined by a relatively high volume and low variety output, since the service range compared to network carrier such as British Airways is reduced to the absolutely basic services (Jones, 2007; Fojt, 2006).

2. Portray of Zara

Zara is Europe’s leading apparel retailer (Capell et al., 2006) maintaining 1,520 shops in 72 countries worldwide (Annual Report Zara, 2008). Offering high quality and up-to-date products (material processing) at mid-market prices (Walters, 2006), Zara is famous for its high volume and high variety business model, realised by (high volume) batch production with high-speed to market (Jones, 2007). As a crucial factor, customers are a constant in all activities since their feedback (information processing) is the essential determinant on how products are designed (Annual Report Zara, 2008).

3. Portray of McDonald’s

McDonald’s Corporation is the world’s largest (fast) food service retailing chain with revenue of more than $ 23,500 million (FY 2008). Preparing and serving a wide range of food, i.e. Hamburgers, McDonald’s is operating 31,900 restaurants in more than 100 countries, whereof 25,400 in franchise (Datamonitor McDonald’s, 2009). Serving 58 million customers a day, McDonald’s is a high volume, low variety (despite local menu peculiarities) mass service and production operator, processing primary materials and customers in a highly standardized manner (Slack et al., 2009).

4. Portray of Dell

Dell is one of the leading provider and manufacturer of IT Systems worldwide with a broad range of products as desktop computers, server etc. (material processing) as well as consulting and support services (information processing) (Datamonitor Dell, 2009). The operations processes are determined by a high volume output and high variety since Dell competes as well on price as on differentiation. Traditionally this leads to a difficult to handle trade-off, what Dell does with a mass customization by using few components to produce a wide variety of products (Jones, 2007; Barnes 2008).

II. MARKET REQUIREMENTS AND COMPETITIVE FACTORS

In order to enhance competitiveness, a company needs to understand the market requirements to determine the priority of their performance objectives, which can be mostly allocated to one of the following objectives (imaginable is further: sustainability):

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Figure 2: Performance objectives (own creation based on Jones, 2007, p. 178)

The relative importance of those factors can be determined by identifying the qualifying- and order-winning factors. Qualifying factors are defined as those aspects where “operation’s performance has to be above a particular level just to be considered by the customer” while winning factors are “regarded by customers as key reasons for purchasing the product or service” (Jones, 2007 p. 179).

1. easyJet.

The main market requirement, airlines have to fulfil to be recognised as a valuable provider (order qualifier), is the compliance with general safety standards as well as the accessibility to destinations and scheduled flights. Meeting the safety standards as a functionality aspect of quality (Jones, 2007) is ensured by easyJet through putting safety at priority number one, striving to exceed the regulatory requirements (easyJet, 2009). The reliable delivery (dependability) is ensured by scheduling a multitude of flights to destinations all over Europe (easyJet, 2009).

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Figure 3: Safety no. 1 at easyJet (easyJet Investor Day, 2008)

The decision of a customer which low-cost carrier will be his favourite provider however depends on the price (Doganis, 2006). As a consequence, the key performance objective for easyJet can be identified as cost which is the operation’s focus (Jones, 2007).

This is supported by the self evaluation of easyJet, where cost is the major “purchase driver” followed by convenience and care (easyJet investor day, 2009).

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Figure 4: Purchase Drivers at Dell (easyJet investor day, 2009)

2. Zara

Zara is positioned in the mid-price segment, why the price (cost) should be an order qualifier as customers’ expects affordable but up-to-date fashion. Likewise, they expect a quality which meets the price/product-quality relationship even if they accept a lower life-span, why quality is a qualifier as well. What really is in customers focus is the speed-to-market with which products are aligned with current fashion trends and offered in the shops. Strongly related to this is the high flexibility, with which Zara can change products to demand and react to local trends (Slack et al., 2009). Dutta (Dutta, 2003) describes accordingly lead time (speed-to-market), scarcity and variety as key success factors Zara.

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Figure 5: Key success factors at Zara (Dutta, 2003)

3. McDonald’s

Considering the principle of McDonald’s “QSC & V” policy, low prices might be an important factor to be recognized in the fast food market, but cost does not influence operations same as speed and quality which are McDonald’s order winner determining the sales. Wherever possible, costs are decreased to keep prices low, but never at the expense of quality (McDonald’s Canada a), 2009).

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Figure 6: McDonald's "QSC & V" (own creation based on McDonald's Canada a), 2009)

Even if an increase might not bring additional sales, dependability of the worldwide “sameness” in terms of consistent taste, quality and overall experience should be an important buying criteria and hence again order qualifier (Rohleder, 2006).

4. Dell

Distinguish Order Winners and Order Qualifiers is not obvious at Dell, since they are very competitive in most of the typical performance objectives, which are additionally strongly interdependent (i.e. speed of manufacturing and thereby fast delivery, decreases inventories and cost). Even Dell’s own named “keys to success” reflect almost all typical performance objectives:

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Figure 7: Keys to Dell's Success (Dell Analyst, 2008)

However, it seems that in this highly competitive market of comparable products the flexibility in terms of customers influence on the product and the price (cost) are the most important factors for Dell’s success, supported by the deep understanding and satisfaction of customer’s needs (quality) ( Krames, 2003). Whereas the speed to offer innovative products and delivery in a competitive timely manner compared to prefabricated products are important qualifiers, as well as the dependability to deliver exactly what is ordered and expected (quality).

III. ANALYSIS

1. Supply Chain

The supply chain includes the network of suppliers, customers and other operations (co-operators and/or competitors). In regard to the management of those supply chains operations managers have to deal with questions like capacity and inventory management or the extend of vertical integration or outsourcing (Slack et al, 2009).

easyJet. The supply chain of easyJet is known for disintermediation (Jones, 2007) by selling 95% of their tickets via web direct to the customers and saving the commissions for intermediaries like travel agents (easyJet, 2009). Further easyJet integrates their customers wherever possible and let them carry out many activities themselves (print of ticket etc.) to reduce transaction cost even if more efforts have to be taken for the process design at the “web front-office” (Jones, 2007). Another key principle of easyJet’s supply chain is “single sourcing” since easyJet purchase all aircrafts from one single supplier: Airbus (fuel efficient = cost saving). This follows the principle of fleet commonality and enables easyJet to save cost for maintenance (no training on various aircraft types) and allows them to negotiate lower prices when buying a large quantity of aircrafts ("buy in bulk") (Doganis, 2006). The supply chain is further characterised by “outsourcing”, since core functions are outsourced to third party service providers whenever cost for i.e. labour or maintenance can be reduced (easyJet Investor Day, 2008).

Zara. At Zara’s supply chain customers’ are placed on the beginning and the end, by using them as informational basis of their design activities. Since speed to market is the identified order winner, Zara speeds up by focusing on responding to existing fashion trends instead of creating them (Tiplady, 2006). Those trends are identified by scouts visiting cat walks or nightclubs and by the store managers of the 90% owned stores (Sull, 2008), monitoring the selling behaviour and providing instant inputs via handheld devices to the headquarter (Slack et al., 2009). The fast process of those information is supported by modern IT and a vertical integrated operation system (Jones, 2007), owing more than 50% of the production and maintain exclusive partnerships with local Spanish and Portuguese garment manufacturers (Kroeger, 2008). This owned and tightly controlled, centralized manufacturing leads to the flexibility to produce small batches in the shortest lead time of 15 days (market average is several weeks) (Dutta, 2003). Zara hence benefits from low inventory (saving cost for warehouse and capital) and reduced risk of failures (immediate stop if test runs in flagship stores are unsuccessful). Further through scarcity and fast changes shops are visited above average and marketing cost and expensive price reductions for remainder stocks can be saved (Kroeger, 2008). These savings enable the more expensive production of almost 80% in Europe, which is because of the fast transportation opportunities (Europe within 24 hours) an essential factor of the speed-to market (Tagliablue, 2003).

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Figure 8: Zara's operation model in figures (Kroeger, 2008; Capell et. al, 2006)

McDonald’s. Since consistency is an important guideline of McDonald’s, the supply chain has to ensure that consistent quality can be bought (raw materials) and processed. This is realised by long lasting, trustful relationships with a few but efficient and wherever possible local suppliers which has to guarantee availability and compliance with McDonald’s quality standards (EFFP, 2009) . To ensure a sufficient transport of goods and information, specialized distributors like Alpha Group (i.e. Trucks with different temperature zones (Beckmann, 2003)) are responsible for the purchasing, storing and transporting goods to the restaurants (99,8% after two days) (Beckmann, 2009; Ritchie, 2007). Therefore distribution centres’ are used, placed by using location techniques as “centre-of-gravity-method” to determine efficient places i.e. to maximise backhaul opportunities (Beckmann, 2009; Ritchie, 2007) and minimize transportation costs (Jones, 2007). Also by this reason, McDonald’s installs cost saving “food towns” where food-processing plants are combined, together with distributors (i.e. shared freezing facilities) even if all operate independently (Ritchie, 2007). At the end of the supply chain are mostly entrepreneurial and on own financial risk acting but motivated franchisees, benefiting from the McDonald’s purchasing power (economies of scale), marketing actions and proven procedures and facilities (i.e. kitchen equipment) and hence reduced risk when starting business (The Times a), 2009). Giving the franchisees full training and as the suppliers direct support in different fields, McDonald’s ensures its own success by living the founders principle of the “three legged stool”, meaning that all parts must be successful to grant overall success (McDonald’s Canada b), 2009).

Dell. To successfully maintain a mass customization and simultaneously be the price leader Dell created the “virtual integration”: eliminating informational boundaries to the entire supply chain by cutting out the middleman and integrate customer and supplier by the use of (web) technology and extensive share of information (Magretta, 1998).

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Figure 9: Borderless information flow at Dell (own creation)

Receiving 90% of the order–information by cost efficient machine-to-machine communication, suppliers are enabled to supply materials just-in-time to start the built-to-order production immediately after order (Krames, 2003). Located at maximum 15 minutes away from the factory and keeping inventory on hand to deliver within 90 minutes, suppliers enables Dell to produce 80% ready for transport 36 hours after order with almost no inventory at Dell. To ensure this system and avoid delivery-failures Dell cooperates with resilient bigger suppliers as Intel or a changing network of smaller suppliers where Dell uses its negotiation power to decrease prices (Christopher, 2005).

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Excerpt out of 36 pages

Details

Title
Operational Exellence - Identifying qualifying and order winning factors
Subtitle
Examining Dell, McDonalds, Zare and EasyJet
College
The University of Surrey  (School of Management)
Grade
Sehr gut
Author
Year
2009
Pages
36
Catalog Number
V179418
ISBN (eBook)
9783656017707
ISBN (Book)
9783656017882
File size
4400 KB
Language
English
Tags
value disciplines, Treacy, operational excellence, dell, mcdonals, zara, qualifying factors, order-winning factors, speed to market, supply chain, Capacity Planning, kapazitätsplanung, innovation, Easyjet
Quote paper
Nils Peters (Author), 2009, Operational Exellence - Identifying qualifying and order winning factors, Munich, GRIN Verlag, https://www.grin.com/document/179418

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