Case Study: Flextronics The first point to note is that the market for electroni
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Question
Case Study: Flextronics
The first point to note is that the market for electronic manufacturing services is extremely competitive. Volumes are high but margins are wafer thin. Therefore, any company that is to compete in this market must be sufficiently flexible to take on whatever its brand name customers require it to do, as well as giving fast responsive service and (above all) low-costs. If Flextronics’ operations can do all these things then it will satisfy its customers and win more business. Unfortunately, product flexibility, fast response, and low-costs are often seen as being conflicting objectives.
There are clear trade-offs between all three ‘Flextronics’ operations strategy which is essentially about how to (at least partially) overcome these trade-offs.
Flextronics has chosen to tackle this through its location strategy. Its industrial parks are set up in relatively low cost locations that are as close as possible to its customers’ sites.
Very often though, the problem with locating in low-cost areas is that, because communications are poor, the delivery of products to customers, and the delivery of supplies from suppliers, may not be as responsive as they should ideally be. This is where the industrial parks strategy comes in. By developing these sites and the associated infrastructure, suppliers can locate alongside the Flextronics plants.
This allows the company to keep its costs down while still being relatively responsive. Being able to develop industrial parks is a skill more commonly associated with construction companies and real estate developers than electronics manufacturers. Yet, because of its strategy, these are competencies that must have been developed by Flextronics. So, to make its strategy work, Flextronics must be skilled at most of the following:
• Identifying suitable sites for industrial parks.
• Quickly and efficiently acquiring the land.
• Quickly building facilities to a high standard.
• Starting up production without too many ‘learning curve’ inefficiencies.
• Persuading suppliers to locate in the park.
• Helping suppliers to ramp-up their own operations efficiently and effectively.
• Integrating the activities of their own and their suppliers’ processes to respond effectively to customers’ orders.
Questions
1. How does Flextronics’ operations strategy help the company to satisfy its customers?
2. What specific operations competencies must Flextronics have in order to make a success of its strategy?
Case Study: Amazon.com
This example on the way Jeff Bezos (the founder of Amazon.com) now sees his vast company is a great example of how the underlying competencies of an organization can come to define what it is. Admittedly, one of the major drivers of Amazon seeing itself as a technology provider has been the seasonality of its demand. Had Amazon not had to cope with this, it might never have been prompted to develop its other services.
Nevertheless, it now does see itself as having acquired unique and difficult to replicate competencies that can be leveraged in other markets. Furthermore, these competencies have been developed within its operations function. Only by investing in and developing its information technology, fulfilment processes, and skills over a long period of time could it have done that. Now, it can take those competencies into other markets. This is an ideal example of strategy being formed ‘inside-out’.
Questions
1. Why does this example say something about the idea of core competence?
Case Study: Aldi
Aldi do two sets of complementary things to keep their costs down; they minimize input costs and they reduce process complexity. Minimizing input costs includes specializing in ‘private label’, that is Aldi branded products. This means that they can specify the composition (for example, recipe) of products to keep costs under control. Nor do they have to support the brand marketing that is necessary with branded products. They are also a large organization who can order products in very large quantities thereby keeping prices down. Nor do they use complex and costly fittings in their stores.
Using ‘open carton’ displays and deliberately not supplying grocery bags both eliminate costs that their supermarkets incur. The system is also simple. An ordering and stock management system that only has to cope with 700 items is much easier to design and operate than one which has to cope with 30,000 items. Supply chain, stock movement, quality management and other systems are therefore simpler and cheaper. By using simple customer management devices such as the returnable deposit only when a cart is brought back to the store, the job of collecting and returning trolleys is eliminated.
Questions
1. What are the main ways in which Aldi operations try to minimize their costs?
Case Study: Lower Hurst Farm
It is first important to understand what is meant by ‘quality’ in this case. Of course, it means the same as for any other product, namely that it consistently meets its specification. But also there are other issues with this organization. First, there is a matter of trust. The people who buy this meat are doing so, at least partly, because it is organic. Therefore, they must trust the operation to maintain everything that is associated with organic farming. This includes both the way the animals are reared and cared for and the stewardship of the countryside. The operation, therefore, must do everything it can to demonstrate that it is doing this and build the trust of its customers. Second, there is a significant ‘quality of service’ issue.
Catherine points out that customers like to have personal communication with her when they are ordering their meat. Quality of service therefore means not only the courtesy and responsiveness that we would expect from any service, but also the feeling that the customers are ‘part of the system’.
Achieving these different aspects of quality means devoting considerable attention to how the farm manages its processes. In effect, there are three processes here, rearing the cattle, butchering the cattle and packing the meat and order taking and dispatch to customers.
Rearing the cattle under organic conditions is clearly a rigorous and demand process. The inputs to the process (the land, cattle, feed, absence of artificial fertilizers and drugs, etc.) must all be checked for quality and the day-to-day care of the cattle must conform to organic farming rules. The butchering must be done so as not to cause too much distress to the animals and the freezing process is designed (with specialist help) to maintain the quality of the meat.
Finally, the ordering process must be conducted, not just with courtesy, but with a level of friendliness appropriate to customers’ expectations. Similarly, transportation of the products must be fast and dependable (Catherine always calls customers to make sure that they have received their order and that it is in good condition).
Questions
1. What does Lower Hurst Farm have to get right to keep the quality of its products and services so high?
Explanation / Answer
1. How does Flextronics’ operations strategy help the company to satisfy its customers?
Flextronics allows large scale consumer electronics manufacturers to outsource manufacturing, assembly, logistics and production. Their key operational strategy was to integrate multiple units within manufacturing including their own suppliers and vendors within their manufacturing facilities. These Manufacturing facilities were mostly based out of South American and South East Asian countries in order to reduce costs. However, the core manufacturing units were located within close proximity to their client's global consumer markets such as Europe and he Americas.
2. What specific operations competencies must Flextronics have in order to make a success of its strategy?
Flextronics should have the following operational competencies in order to make a success of its strategy
1) A strong legal and compliance standards within all of its manufacturing units and for all of it vendors
2) Supply Chain Risk Management or Business resiliency ensures the seamless manufacturing of a product without interruption. It plans for back up units to fill the gap in supply of one unit of manufacturing is down. It involves developing contingency plans for the manufacturing process in the issue of an natural calamity, human inefficiencies like workers strikes, technical issues like manufacturing units breaking down etc
If there is a break down in the supplier's outflow our output of supplies for some reason and the supplier does not have a backup in order to meet the supply chain requirement for a given project, this is a huge operational risk and can potentially threaten the operation and bring it to a stand still.
3) Workforce management system allow Seamless production with full staffing
This part of Operational Planning allows the operations team to track staffing and workforce tasks on a real time basis and allows them to be re skilled to or assigned to high priority tasks based on their skill levels and competency whenever they're needed to. The system shows site central the skill levels and production line the he or she could be re skilled to. GPS as a operations software which was compiled based on years of feedback ensured that the service levels for customer service lines for retail banking stayed at optimum levels year round.
4) Reducing Procurement Costs using Economies of scale or Experience Curve Strategy
Experience Curve Strategy is based on a theory developed originally by the Boston Consulting group. They made a co relations between the amount of time that a firm or a company had been in business for and the drop in manufacturing pr production costs. The longer a firm's tenure or experience in a specific market or business. the lower their costs over than given period of time.
The reason why this works :
Vendor Relations
Firms that have a longer experience curve or firms that have been in business for a longer period of time have better relationships with their supply chain vendors and have better volumes due to their tenure of operational history. This allows them to bargain for lower price with the vendors that they work with.
5) Implementing Technology behind their operational planning
Operational Planning can be carried out using modern resource planing softwares and technology
MRP (Material Requirements Planning ) and BOR (Bill of resources) are ERP or enterprise resource planning softwares. They're a system of organisation, controlling. modelling a project or a business's operational execution by viewing both its macro as well as micro elements. While MRP or Material Requirements Planning is a way to optimise inventory costs by using the data from forecasting manufacturing requirements from the operational planning and forecasting process. It makes way for proper allocation of resources, funds and the supply chain to support the manufacturing process of an operation. SAP, ORACLE are the two largest ERP and MRP software service providers in the world.