MBA Operations Management Degree

MBA Operations Management

MBA Operations Management students will learn that in business there are always individuals that are responsible for the managerial and supervisory activities. For a business to operate in the most efficient and conducive manner, the mode of operation needs to be advanced and even overseen by someone else. The research described these individuals as managers. The core objective of all the business or organizations is always to maximize profit. For these to take places, all the operations of the firm need to be correctly managed. Each business is managed through various business functions in which each function is responsible for managing a certain aspect of the business and as I had said earlier the core objective of all businesses is to provide the correct and appropriate requirement to the customers by offering goods and services (Stevenson & Hojati, 2007). The president or the CEO of a company is faced with a daily marketing, operational, financial and information tasks. Marketing is a sector responsible for the generation of customer demand, sales and understanding customer’s wants and needs. Finance is responsible for the management of capital investments, the flow of cash and current assets. The information sector, on the other hand, is in charge of the constant stream of information in and out of business. The operating divisions are responsible for the management of the goods and services (Chase, Aquilano & Jacobs, 1998).

Importance of MBA Operations Management

Therefore it is imperative for the manager to equally distribute the available resources in the business so has to ensure all the sectors are covered. Some of the cited sources will agree with my line of thought if I argue out that all the areas of management are to be treated evenly since they depend on each other. However, in this essay, we are going to discuss a lot about operational control answering all the questions in short subtopics. The essay will begin with the introduction to the body and finally to the conclusion.

Describe the Role of Operations Management in the Firm and How This Role Can Lead To Competitive Advantage and Profitability

Operating management by definition refers to act of administering business practices to establish a high level of efficiency in business (Fitzsimmons, Fitzsimmons & Bordoloi, 2008). The method involves the conversion of labor and other factors of production into goods and services that are efficient enough to raise a maximum profit. An MBA Operations Management team has the duty to identify which of the factors of production best suits the company. They also work under a close surveillance and ensures that the cost of production is achieved once the products have been sold. Modern researchers refer to the task of being an operating manager as one of the hardest and the primary duty of an organization. Despite having other sectors, operation management forms the main reason why a business was created. It involves a lot of functions such as planning, coordination of activities, organizing and planning all the resources as they are channeled to goods and services as the end product.

A few scholars also argue that being that operating management has a management function; it, therefore, means that it can also be involved in managing equipment’s, people and technologies that are needed in the production process (Chase, Aquilano & Jacobs, 1998). Operation management includes two very core aspects or rather two terms that need to be wee understood before engaging into being an enterprise manager. The two terms are the supply chain management and the logistics both of which will be covered in the MBA Operations Management module.

MBA Operations Management student will learn that the two terms act as the foundation for the business management and to out compete other competitors; one is expected to understand what exactly is meant by the terms. Take for example following the trends of supply and chain management globally; this will enable the team to strategies accordingly thus meeting the customers demand. While in logistics, it is critical to understand the use of resources in a cost effective way since there has been a trend where the resources are scarce, and the demand of the customers is skyrocketed (Cases & Case, 2004).

Often writers and employers confuse the skill required for efficient operation management and those that are needed in the logistics and supply chain management (Fitzsimmons, Fitzsimmons & Bordoloi, 2008). One of the abilities that would be much appreciated is the consummate organizational skills. The completed organizational skills enhance efficiency and drive the productivity to another level as well. One must be able to understand the operations and coordination of activities in the firm to show effectiveness. However, operational management is a broad spectrum sector in a business and when well managed can lead to a lot of advantages to the firm. The scopes of executive management include decision making. Decision making involves making decisions on what type and kind of goods to be produced and with quick decision-making process the entire production process will be efficient and fast thus creating a lot of profits (Stevenson & Hojati, 2007).

Adding on the objective of the operation system, a complete operational objective must aim at a competitive advantage (Krajewski, Ritzman & Malhotra, 1999). A business or an organization is considered to have a competitive edge when its profitability is greater than the average profitability of the other competing companies of the same set of customers – This will be explained in the MBA Operations Management module. This can be achieved by emphasizing on specific areas of operation with the intent of meeting the client’s request. A good operating management should be able to perform the following; adaptability advantage, reliability advantage, and service delivery advantage. Through these, the company can make significant profits and become more efficient as expected.

Discuss Systems To Take Advantage Of Capital, Location, And Labor Differences So That Profits Are Maximized. MBA Operations Management

MBA Operations Management students will appreciate that the core objective of every organization is to make a profit and to minimize the cost of production. However, in the market as per the general information, we get that some specific companies often perform better than others (Stevenson & Hojati, 2007). This happens due to the difference in various points of concentration, especially during the production process. Companies differ in labor, capital, and their locations and this can lead to an advantage of a particular company against another. This variance in the factors of production is the reason why we have a best-performing company and another one that performs poorly. Therefore, every company has invested in specific systems that will fully exploit the potential of these factors of production thus favoring them. Operation management also plays a very general role of logistics during the system establishment (Chase, Aquilano & Jacobs, 1998).

Research covered in the MBA Operations Management module indicates that many successful companies apply the system of specialization of labor to help to maximize their profits (Cases & Case, 2004). Employees often have strengths and weaknesses, and those that are encouraged to yours their strengths are more loyal and engaged. Remember specialization does not only apply in the case of employees, but it also uses to material resources.

MBA Operations Management
MBA Operations Management

The best thing about specialization is that the workers get to choose what they love to do according to their ability and natural aptitude and this gives them the opportunity to perfect those skills thus saving a lot of production time. This prevents the delays that are created by the continuous shifting of workers from one point to another. Through this specialization, a company can make good use of his laborers thus increasing the profit levels. Labor specialization system works hand in hand with the division of labor in a company (Fitzsimmons, Fitzsimmons & Bordoloi, 2008). This will ensure that the duties are only performed according to the line of interest. Material specialization will mean that a particular material will be developed and adapted for a specific use.

On a regional basis, each region will produce the products that they are best suited. This can be applied to both locational and capital systems – This will become apparent on the MBA Operations Management module. A combination of material specialization and human specialization can lead to a maximized efficiency (Stevenson & Hojati, 2007). Capital systems can also be used to ensure that there is adequate and abundant production in the firm.

Through the use of capital goods, it will enable the producers to produce more efficiently and surplus output. The company’s capital should be invested in short term avenues that can translate excess profits within the shortest time, in this way we will be able to out compete effectively in the market. Priority is also another factor that needs to be considered especially when distributing capital in the business. Activities that have a real history on profit maximization are to be considered the first. On location of the company and its effects to profit maximization is also important as well. Location of the company should be based on specialization and distribution of raw materials (Chase, Aquilano & Jacobs, 1998). The movement of raw materials to the company should be profitable, and the same applies to consumer’s accessibility to the firm. In other words, the location of the company should be close to the market as well as the raw materials thus reducing unnecessary cost.

Outline how planning the operations system takes place and how international considerations are integrated into planning

As discovered in the MBA Operations Management module, planning can be defined as the process of analyzing, researching, anticipating and influencing change in society (Wacker, 1998). Various pieces of literature indicate that before an action is executed, it is important to draw a plan to avoid things falling apart as it was not planned. Therefore it is very healthy to plan for activities in a business environment before their execution. Planning is a role that is left for the managers and the executives to perform in a healthy business climate. Moreover, many other activities are incorporated in planning. A strategic planning of the operation can communicate what the institution is striving to become and it also maps the necessary step that is needed to get to the target. In the past, the operational plans of a company used to take an entire ten years but today companies even plan year by year (Fitzsimmons, Fitzsimmons & Bordoloi, 2008).

MBA Operations Management graduates state that planning is a procedures activity that involves gradual processes for the plans to be approved and exhibited appropriately. First, the vision of the organization needs to be stated and used as guidance during planning (Krajewski, Ritzman & Malhotra, 1999). The vision statement is approximately two to three sentences that spell out the intentions of the company; it shows how far the organization is willing to strive and reach. It is important to understand the organization right before the vision is created. At this point is important to create the image within the international standards that doesn’t violate any business law of operation. The next step in planning is to write the mission statement – This has been covered in the MBA Operations Management module through the year. Mission statement unlike the vision statement, explains what the organization exists and the path it will take to achieve its vision. Business wise, the mission statement is usually shorter than the mission statement.

A similar process is used in the construction of the mission statement. However, in the mission statement is where many people display false information. This is common with the organizations that deal with illegal products. The third process in planning is to perform a gap analysis. Gap analysis involves the comparison between the current operational situation and the vision of the company. This stage requires a lot of innovativeness and future oriented individuals. This is because there is need to compare the current situation and what the business hopes to be (Cases & Case, 2004). This process is much involving as it requires a collection of data and information outside the firm. The gaps that need to be examined include financial differences, customer relation, market share and internal systems.

Formulation of goals is the fourth step in the planning process. The goal can either be short term or long term. In many occasions, they are always referred to as SMART goal (Chase, Aquilano & Jacobs, 1998). The goals need to be implemented right from the managerial level to the employee level. Lastly, monitoring the progress of the plans. The goals should be followed in every quarter of the business year. This is usually done by inquiring from those who are responsible in such areas. The above processes are inclusive of other minor steps that are also of importance in the process of planning. The international laws are always considered when an organization is planning. Ethical consideration at an international level, morals, and other core values are also applicable (Stevenson & Hojati, 2007). During the operational planning, another important thing is the consideration of the international laws that govern all the business activities in the globe.

Describe some of the quantitative tools and techniques of Operations Management and how these are applied to formulate solutions to business problems.

In an organization, managers and the CEO always rely on their experiences in making decisions. However, in some situations, they would like to know what exactly the number saying is (Schmenner & Swink, 1998). In such circumstances, there is need to use quantitative methods especially when it involves an era of big data. The method, therefore, has been used by several operational analyzed to provide evidence that can guide in managerial, distribution, marketing, and personal decisions. The method also helps the executive team to predict what is expected to happen in future. This does not mean that the qualitative methods are point blanks, but they are also preferred in an individual situation. The manager is supposed to convert the inputs that are inclusive of the factors of productions into outputs (Fitzsimmons, Fitzsimmons & Bordoloi, 2008). The quantitative techniques and tool include regression analysis, linear programming, factor analysis, data mining and descriptive data analysis.

Descriptive Data Analysis

This process involves the use of pie charts, maps, graphs, frequency tables, histograms, control charts, run charts and Ishikawa diagrams. They are used to analyze mainly the descriptive data in the production process. Research indicates that this can be achieved by entering the data into software like EXEL, STATA, SPSS and other software used for the analysis (Cases & Case, 2004). This method can be used to identify the problems realized in the business and attended to accordingly.

Regression Analysis

This is a traditional method that is mainly used by economists and the operational analysis; regression involves the use of complex statistical equations that help to predict the future output and maybe find out the cause of the past problem. This can significantly benefit the business. The products of the regression equation are known as the predictors or the dependent variables. Research indicates that economists and businesses have used the regression formula to estimate effects of advertisement expenses in companies (Chase, Aquilano & Jacobs, 1998). Though the utilization of this method, we can determine the correlation between two products in the business.

Linear Programming

All organizations and companies are faced with the problem of scarce resources. This usually calls for a selective allocation of resources, and this often gives the manager a little bit of challenge. Linear programming, a conventional technique of management analysis and operational research (Schmenner & Swink, 1998). This is a mathematical program that helps us determine how to achieve optimum outcomes. It is also indicated that it can help in manufacturing and transport analysis.

Factors Analysis

This method is used to survey data and group statistical data accordingly. It explores all the avenues to find out the correlations and relationships (Krajewski, Ritzman & Malhotra, 1999). For example, the method can be used by market researchers to analyzed data on consumer’s consumption habits. This will then help the organization with the product knowledge as they will be able to determine what quantity they should produce.

Data Mining

Research indicates that this method has grown over the years. It is used to analyze a large amount of data. This has been used by big business like the Amazon to monitor consumer’s behavior.

Discuss business situations for which tools of Operations Management can be applied.

According to recent scholars, operation management involves directing and managing the physical and technical functions of an organization (Cases & Case, 2004). The skills and tools are used in the development, manufacturing, and production processed in the operation sector. The tools are used in the below-explained processes and will be covered off in the MBA Operations Management module:

Project Management

Project management is a common factor in both large and small companies, and it often takes a lot of time to plan. From the accessing the supplies and delegating the employees to all the shipment cost and all the activities involved in the manufacturing of the products. The project management tools can be used in an organization to strategically plan creates a budget, salaries, overhead costs and every detailed information about the business. The spreadsheet can be used to manage all the activities and track areas not covered (Stevenson & Hojati, 2007).

Quality Control and Inspection

Assessment of the products is a significant activity in the manufacturing process. Assessment is important because it will enable the business to track whether it has met its goals or not. Additionally, assessment should form part of the regular management process to ensure the project is completed (Wacker, 1998). Literature shows that it is always healthy to criticize the outcome and even establishes other realistic expectations.

Equipment Maintenance Policy

Depreciation is expected in any business and therefore maintained is expected as well. The equipment should, therefore, be regularly checked to ensure they are still in a position to function effectively. For example in a vehicle company, the cars are expected to be continuously serviced when the time arrives (Chase, Aquilano & Jacobs, 1998). Computers and hardware needed to be checked for virus and cleaned to ensure a stable functionality. The maintenance calendars can be created by the operation tools and equipment.

Product Scheduling

This is also another instance in which the tools can be effectively applied. Manufacturing companies complete their product arrangements to get them from the product establishment to the respective point of sales to the consumers. This can be done using plan long range projects. The process is usually effective especially when the company is dealing with a significant number of customers (Cases & Case, 2004).

Explain how control of operations must respond to changes in the international economy.

Today’s economy is far much different from the economy of the olden days (Krajewski, Ritzman & Malhotra, 1999). The globally economy changes gradually day by day and these calls for a relatively positive response from every organization that is associated with the international trade. In a business environment, it is the duty of the managing director responsible for the operation to ensure that the company adapts to the changing global economy. From the financial perspective, organizations are intentioned at making high profits, and therefore it should vary its price with the world’s market price. Through this method, it will be able to secure a large section of the consumers (Fitzsimmons, Fitzsimmons & Bordoloi, 2008). In other words, the operation must respond effectively to the change in prices of goods and services.

Control of process must also meet the consumer’s demand on an international scale. The quantity and quality of good should meet the customer’s demand. The service team must ensure that they manipulate the consumers into buying their products without going into loss. This can be done by forming business merges and also ensuring that a lot of awareness is created (Stevenson & Hojati, 2007). The company should also be in a position of responding to the technological changes in the international market. Recruiting young and innovative minds to handle the technological shifts in the organization. This can also be advanced through training the worker on how to cope up with the constant changes in the body.

Conclusion

MBA Operations Management students will learn and appreciate that operation management forms the center of many organizations has it is characterized by several functions including planning, staffing, and production. Through the correct exhibition of duties, it can lead to the creation of a lot of profits. Through specialization, excellent location and use of capital goods, an organization can make a lot of benefits depending on the available resources. However, for this to occur appropriate operational tools such as linear programming should be used to predict the future outcomes in the organization. Such tools are always essential in project management and even in quality assessment.

References

Cases, T., & Case, F. (2004). MBA Operations Management.

Chase, R. B., Aquilano, N. J., & Jacobs, F. R. (1998). Production and operations management. Irwin/McGraw-Hill,

Fitzsimmons, J. A., Fitzsimmons, M. J., & Bordoloi, S. (2008). Service management: Operations, strategy, and information technology (p. 4). New York, NY: McGraw-Hill.

Krajewski, L. J., Ritzman, L. P., & Malhotra, M. K. (1999). MBA Operations management. Singapore: Addison-Wesley.

Schmenner, R. W., & Swink, M. L. (1998). On theory in operations management. Journal of operations management17(1), 97-113.

Stevenson, W. J., & Hojati, M. (2007). MBA Operations Management (Vol. 8). Boston: McGraw-Hill/Irwin.

Wacker, J. G. (1998). A definition of theory: research guidelines for different theory-building research methods in operations management. Journal of operations management16(4), 361-385.

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Recommended Reading For MBA Operations Management Students

  • Operations Management for MBAs by Jack R Meredith and Scott M Shafer
  • Handbook of Decision Analysis (Wiley Handbooks in Operations Research and Management Science) by Gregory S. Parnell PhD and Terry Bresnick MBA
  • Operations and Supply Chain Management for MBAs by Jack R. Meredith and Scott M. Shafer
  • Operations Management by Prof Nigel Slack and Prof Alistair Brandon-Jones

I hope you enjoyed reading this post on MBA Operations Management. There are many other titles available in the business management and MBA dissertation collection that should be of interest to MBA students and academic professionals. There are many dissertation titles that relate to other aspects of business such as strategy, leadership, international business, mergers and acquisitions to name a few. It took a lot of effort to write this post and I would be grateful if you could share this post via Facebook and Twitter. Feel free to add your thoughts in the comments section. Thank you.

Sainsburys Operations Management

Sainsbury’s Operations Management

The major role of operations management is to make use of company strategies by ensuring that they are put into action, through various ways (Misra, 2008, p. 895. Sainsbury’s is one of the leading global retailers, competing with regional heavyweights such as Tesco, among others. The company was started in 1869, and right now it has about 1,200 supermarkets and stores around the globe, it has about 161,000 employees, better called colleagues (J-Sainsbury’s, 2014). Sainsbury’s has a team of managers, who are responsible for the implementation of important company strategies on a daily basis. Figure 1 below shows Sainsbury’s financial position in 2014.

Amount £357Million 14.5% 16.7% £12.7 billion 24 million 161,000
Description Underlying half year pre-tax profit Underlying half year basic earnings share The market share Group Sales (Half Year) Weekly customer transactions Employees (Colleagues)

Operational Context

At the helm of the operations board is the Chief Executive (Mike Coupe), then the following heads: John Rodgers (Chief Financial Officer); Helen Buck (Business Development Officer); Rodger Burnley (Retail and Operations Officer); Tim Fallowfield (Company Secretary and Corporate Services Director) and Peter Griffiths (CEO Sainsbury’s Bank), among others (J-Sainsbury’s, 2014). Most of the operations led by various managers in the company are aimed at enhancing the company’s position in the market, and making it more appealing to its clientele in the end. For instance, the retail company works on an ecosystem-related operations management plan, which aims at enhancing the conservation of fisheries (Sainsbury, Punt & Smith, 2000, p. 731). The company uses the Management-Strategy-Evaluation design as a way of focusing on all the important details that enhance effective operations management (Sainsbury, Punt & Smith, 2000, p. 731). Figure 2 below shows the operational data in terms of environmental conservation, even as the company continues to expand.

Description Annual Carbon emission reduction Electricity supply from green power Stores with natural refrigerant Solar Panel installed
Amount -2.4% 13.5% 166 107,396

External Influences

There are many factors affecting the performance of any business, such as Sainsbury’s, and most of them are external. One such factor is the availability of strong competitors such as Tesco. Market entrants also divide the market share, as they come up with brilliant strategies to win their customers. Just as it is for other competitors in the market, it is the aim of every operations manager to ensure that the major objective of each activity is high consumer satisfaction (Parker, 2012, p.45). Economic stability of different nations is yet another factor influencing the decisions of Sainsbury’s, especially in terms of expansion. Economic meltdowns, for instance, affect customers’ purchasing power, and this also applies to political instability. The power of the customers due to the availability of competitors and substitute goods also influence Sainsbury’s prices. This is the case too where the suppliers have an increased power, as a result of supplier collusion, among other factors.

The role and importance of effective operations management

Supporting the Company’s Strategies

That operations management is an essential part of a business is a fact, and this manifests itself in a number of ways. For instance, it is the role of the process of operations management to support strategies that are developed by the board of directors (Pycraft, 2000, p.43). In this approach, it is the work of the operations management to come up with the essential resources that are going to make it possible for company strategies to be realized at the end of every operation (Pycraft, 2000, p.43). It is the work of the operations management to come up with ways that will ensure the most sustainable production processes, which ensure maximum cost-cutting for the company, as much as the strategies would allow.

Operations Management Dissertation
Operations Management Dissertation

Product Positioning

It is the work of the operations management to ensure that the final product stand out in the market, as a better option among many. One thing for instance, is ensuring that the product is made through green processes, and that it is of high value, such as the fish. This positioning of products will come in the form of differentiation, where a company like Sainsbury’s sells the same product as Tesco, but makes it look different to attract more consumers. This will ensure more unique product details, and better prices, making it possible for the retailers to make more profits (HSC, n. d).

Product Differentiation for Varying Consumer Demands

The use of an effective operations management plan ensures that the business focuses on different customer demands (HSC, n. d). For instance, Sainsbury’s is a major retailer that deals in a huge amount of products, which target many different categories of consumers. In order for the company to focus on various consumers as effectively as possible, there is a need to ensure that a blanket strategy is developed, and implemented for the same. Such a strategy is then shared among the many departments of a company such as Sainsbury’s as seen above. Moreover, it is the operations management team that is responsible for the management of production processes up to when products reach the clients. For example, in the fisheries management plan stated above, it is the work of Sainsbury’s to manage fish rearing up to when various finished product are sold to customers (Sainsbury, Punt & Smith, 2000, p. 731). This is an effective way of enhancing product quality; hence, positioning products as of high value in the market.

Interdepartmental Integration

The availability of an operations management plan makes it possible for the business to integrate various departments (HSC, n. d). Just as stated above, the Chief Executive comes up with a strategy, which ensures that the various involved departments know their roles towards the company goals in each project. The manager divides work among the departments and shows them where they need to integrate with other sectors and how they would be able to do it. Without a well-strategized operations management, it would be difficult for the departments to realize how they are supposed to contribute in various roles during the processes involved. This merit makes operations management an important tool of avoiding conflicts and saving time in the process of product development.

Performance Objectives of Sainsbury’s

  • Great food
  • Sourcing with integrity
  • Respect the environment
  • Sound Community Social Responsibility
  • Great workplace for the “colleagues” (J-Sainsbury’s Annual Report, 2014)

4 Vs of Operations Management

  • Volume: Sainsbury’s provides more food for less money
  • Variety: Sainsbury’s provides different types of products in varying tastes
  • Variation: services can be online or on-site, and there are delivery services too.
  • Visibility: product labelling and shelf positioning makes it possible for store shoppers to see what they need. This is the same on the online stores. (Managers Door, 2013).

The operations performance objectives of organisations

Every organization has its own objectives when it comes to operations performance. For many retailers like Sainsbury’s customer service delivery is at the top of everything. For Sainsbury’s, for example, this all begins with the perfect treatment of its staff, using the slogan, “How we manage is how we serve” (Lewis & Trevitt, 2000, p. 6). According to this strategy, a satisfied staff member is usually capable of offering quality services to clients at all times. Therefore, the goal of high quality service delivery for customers becomes realisable. It is also the objective of organisations to ensure that the clients not only get quality services, but also receive quality goods every time they do transactions. For Sainsbury’s, this has been done through effective operations management, for instance through the fisheries management plan, where the production of high quality fish is ensured right from the farm level (Sainsbury, Punt & Smith, 2000, p. 731).

Colleagues who are satisfied always ensure that company goals succeed. Sainsbury’s has always wanted to ensure that its clients come back at all times. In a situation where delivery services are required, happy colleagues will always ensure time is kept (Annual Report, 2011). Through this annual report of 2011, the company found out that it was able to record at least 21 million transactions on a weekly basis, in the food sector, and this was higher than its previous fiscal year (Annual Report, 2011). This was a sign that the operations management’s goal of reduced prices and enhanced product quality worked perfectly, thanks to making Sainsbury’s a “Great Wok Place”.

Businesses also have the goals of enhancing their competitive advantage through growing in other ventures. Sainsbury’s has focused on this by developing non-food sectors to get a larger share of the market (J-Sainsbury’s, 2014). For instance, it developed the banking services as a way of grasping the financial market, to increase its growth. Moreover, other sectors such as the clothing brand, made it possible for the company to multiply its sales, according to the 2011 Annual Report. With these objectives, Sainsbury’s has been able to survive tough competition from many huge and small market entrants, to remain a force in the market, for many years. This is a sign of the important role an effective operations management strategy plays in the development of any business.

References

HSC., (n. d) Part 1: Role of Operations Management.

J-Sainsbury’s. (2014) Board Management

J-Sainsbury’s., (2014) Annual Report and Financial Statements, 2014.

Lewis, R., & Trevitt, R. (2000) Business: Vocational A level. Cheltenham: Stanley Thornes.

Managers Door., (2013) Top 5 – The Four V’s of Operations Management.

Misra, K. B. (2008) Handbook of performability engineering. London: Springer.

Parker, D. W. (2012) Service operations management: The total experience. Cheltenham: Edward Elgar.

Pycraft, M. (2000) Operations management. Cape Town: Pearson Education South Africa.

Sainsbury, K.J., Punt, A.E, & Smith A.D.M., (2000) Design of operational management strategies for achieving fishery ecosystem objectives. Journal of Marine Sciences, 57, 731-741.

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Competitive Priorities

Employing Competitive Priorities in Business: The Case of FedEx

The courier industry is one of the most integral parts in the American economy. It is involved in the transportation of a variety of products like drugs, packages, bulk materials and documents to businesses within USA and outside its borders without which the whole economy would come to a standstill. The same day delivery service is also a vital part of the just in time nature of the economy of the US. This multi billion industry has more than seven thousand businesses in it in direct competition with the big four courier firms, (DHL, UPS, FedEx and USPS) and with each other.

In the recent past, competition between FedEx and UPS, two of the largest courier a company, has intensified as their core business increasingly overlap. UPS traditionally dominated the overnight delivery market while FedEx dominated ground delivery. With each moving to its rival opponent’s domain, the need to create competitive priories is even stronger because this is the only way for the companies to retain their businesses and deliver value to their shareholders. FedEx’ relies on technology to drive its competitive strategies and maintain their business operations. FedEx business model is highly dependent on data between the businesses and its customers. FedEx thus invests more than $1 billion each year to maintain its technology and building a wireless infrastructure to relay timely information on possible problems in the delivery route, enhance efficiency and cut business costs. I will use FedEx as a study case to analyse how a business can gain competitive advantage using competitive priorities.

Company Background

FedEx Corporation, NYSE:FDX is a Memphis based logistics services company which offers courier services, logistics solutions. FedEx is one of the largest logistics companies in   the world delivering small packages to the US and to more than 220 companies in the world. FDX Corporation was founded in 1998 after, FedEx Corporation, which had been incorporated the previous year acquired Caliber systems Inc and its subsidiaries  like RPS,  a small package ground transportation company, Roberts Express which offered expedited shipping, Viking Freight, a less than truck load freight courier  and Caliber Technology, provider of logistics and technology solutions (FedEx, 2012).

After this acquisition, FDX started offering other courier services apart from express shipping. FDX, later rebranded as FedEx Corporation was formed to oversee the operation of all the acquired subsidiaries including Federal express, its air division. It also rebranded the subsidiaries to have the FedEx brand in all divisions with federal express being renamed FedEx Express, RPS renamed FedEx ground, and Roberts Express renamed FedEx Custom critical, Caliber Logistics and technology were combined to make up FedEx Global Logistics.

In 2012, the company’s annual revenue was 40 billion which a 13% increase from the revenues was for the previous year. The earnings per share on the other hand for 2011 grew 20%. In the same year, the company increased its fleet of electric and hybrid electric vehicles by 20% to 408 to curb air pollution (FedEx, 2012).

During the first quarter of 2010, the company spent an estimated %4.9 million in campaigns lobbying against the government’s move to sign the Federal Aviation Administration reauthorisation bill which would make it easier for some of its employees to unionise terming it a bailout on UPS, FedEx’s main competitor in the US market (FedEx, 2012). To survive in these kinds of competitive markets, companies have to adopt strategies to survive. Managers can only take advantage of the changes in the wider environment by using appropriate strategies. Effective strategies allow the firms to use their resources for the best outcomes. The next part of the paper looks at what strategy is.

What is Strategy?

Strategy is an outline of how an organisation intends to achieve its goals. The goals of an organisation are the objectives the owners set for the business while the strategy sets out the route to achieve these objectives. In the early years of the businesses, the strategy taken by the business is fairly simple: to survive and achieve growth targets. However, as the firm increases in size, it must select narrower set of strategies referred to as competitive strategies to survive in the face of strong competitors. According to Porter (1996), competitive strategy is about being different. It refers to choosing a different set of activities to deliver the company’s mix of value to the customers. Markides (1999) argues that the essence of developing a strategy for the organisation is to select one strategic position that a company can claim as its own and pursue it. A strategic position represents a company’s answer to the following three questions: who should the company target as its customer? What products/services should the company offer to the target customers? And, how can the company deliver these products efficiently? These three questions help a company to choose a success strategy that is different from that of its competitors (Henry, 2008).

Another view of strategy is that given by Kay (1993). According to Kay (1993), strategy is a match between the organisation’s internal capabilities and the relationship with stakeholders. Strategy is therefore concerned with the firm’s use of analytical techniques to understand and hence influence its position in the market.

Since the environment within which the company operates is constantly changing and the needs of its customers shifting, a company must ensure that its internal resources and capabilities are more than sufficient to meet these needs since companies do not exist to survive but to grow and prosper in the competitive environment (Henry, 2008).

An effective strategy gives a firm three benefits. The first benefit is a strategy as a source of economic gains. Secondly, it provides the firm with a basis for resource allocation. And thirdly, guides the firm’s decisions regarding management and organisation. One main strategy that companies use is the development of consistent set of objectives which are known as Competitive priorities. These priorities are: Cost, Quality, Time and Flexibility.

Competitive Priorities

The first competitive priority that a company can choose is cost leadership. This is a strategy whereby the cost of a given product in a company is relatively low compared to that of competing products from other companies. This strategy does not jeopardize the quality of products. It rather focuses on high profit margin based on competitive price (Chard, Jacobs and Aquilas, 2004, p.35). In order to ensure effectiveness of cost as a competitive priority, companies operations should be guided by economies of scale. They should also minimise all other operational costs, which include cost of labour and materials. The employees should also be well trained so as to maximise their productivity.

The second priority is quality. Customers always intend to purchase products which they consider being of high quality. For this reason, companies should ensure that they avail high quality goods and services to customers. Care should be taken in pursuing quality as a competitive priority because there are differences in what customers term as high quality. For instance, there are customers who search for products that possess superior features.

There are two dimensions of quality; namely, high performance design and goods and services consistency (Chard, Jacobs and Aquilas, 2004, p.35). High quality design involves the production of goods which address the quality demands of the customers. On the other hand, consistency involves building confidence among clients by ensuring availability of goods and services upon demand.

The third competitive advantage is differentiation as regards to time in delivery speed and reliability. As much as a company pursues production of high quality products, production should not take too long. This is because delays in production and delivery upset customers. Chard, Jacobs and Aquilas (2004) outlined two dimensions of effective delivery. These are rapid delivery and on- time delivery. Rapid delivery involves quick reception of customers’ orders while delivery on- time involves high frequency of on-time delivery of goods and services. In order to utilize time as a competitive priority, companies should make use of technology and employ effective work force.

Therefore, in the process of delivery, companies should ensure that deliveries are “in accordance with the promises made to customers”. This is referred to as dependability (Hayes and Wheelwright, 1984, p. 24).

Employing Competitive Priorities
Employing Competitive Priorities

The fourth priority is flexibility of product mix and adaptation to changing markets. Competition always leads to change of products in the market by different companies. Therefore, as the market changes and customers’ needs and expectations shift, the company should device ways of accommodating these changes. This should be geared towards winning the confident of customers. Chard, Jacobs and Aquilas (2004) categorises flexibility into product and volume flexibility (p. 36). Product flexibility is the ability of the company to offer goods and service that suits the customers’ needs. With this, a product may be dropped out or introduced to the market depending on the market trend. Volume flexibility is the strategy of increasing or decreasing the production of a given product in order to accommodate changes in its demand.

Hayes and Wheelwright (1984) expound aspects of flexibility as the ability to change volume of production, time taken to produce, mix of different products or services produced. Flexibility also involves the ability to innovate and introduce new products and services (p.24).

Flexibility enhances healthy competition as competition is not based on speed of production but customized products. In addition, it helps to reduce competition based on cost. This is so because production of customized products may require extra resources for production. Companies which employ this strategy ensure that its products are varied, and its workers are skilled and competent enough.

Scholars hold divergent views regarding the criteria for utilization of the four competitive priorities. For instance, Hayes and Wheelwright (1984) companies cannot simultaneously succeed when they pursue all the priorities simultaneously. This is because there is the likelihood that such companies have to allow different operators to implement priorities at different times. The resultant lack of coordination leads to inability to achieve objects. The two, therefore, advocate for trade-offs whereby companies pursue one competitive priority to greater levels than the other priorities. On the other hand, there are other scholars who argue that companies can still succeed while pursue the four competitive priorities simultaneously (p. 25). In the next part of the paper, an analysis of FedEx competitive priorities will be done.

FedEx Competitive Priorities

The environment in which FedEx operates is quickly changing due to the financial crisis and globalisation which has resulted into an increase in the number of competitors in the courier business. During the crisis, the quantity of global trade was severely affected which in turn affected the revenues of logistics companies, including FedEx. Although the financial position of the company for last year looked promising, the future is too vague to predict for FedEx. This means that the company must look for ways to strengthen its position in the market. One of the ways that company can do this is by exploiting competitive priorities (Porter, 1998).

The main competitive priority for FedEx is time. In the same day delivery business, delivery on schedule is a vital component in winning customers trust. According to Chase, Jacobs, et al 2006, a company can differentiate itself using time as its competitive priority in two ways: First, is through speed delivery speed and secondary through reliability and ability to deliver the goods when promised. Some of the packages that FedEx is in charge of delivering like medical supplies are extremely time sensitive and hence the businesses is always on the lookout for ways to reduce delays in the supply chain to ensure that packages arrive on time. One of the ways that FedEx achieves this is by controlling every part of the delivery chain. The company owns aircrafts, delivery vans and sorting facilities to ensure reliable on time delivery.

As early as 1980 during the initial years of the company, FedEx had a fully integrated system to monitor the location of vans, track packages and communicate with customers to ensure that all packages were picked and delivered on time. In the last few years, the company has been replacing the old wireless system with Wi-Fi, Bluetooth and cellular networks, GPS which enables customers to track their packages in real time using their WAP enabled phones and PDAs. In addition to this, the company has over the years build a seamless international and domestic network linked by air and ground delivery channels which ensures that customers needs are well met (Berger, 2011).

The second competitive priority for the company is flexibility. According to Chase, Jacobs, et al 2006, flexibility involves the ability to provide a wide range of products or services without delay to meet the needs of the client. The company has always been a leader in adaptation of new technology to better meet the expectations of its clients. For instance, the company was the first to start offering delivery at 10.30 am after identifying a need within the market to have their goods delivered early so that they have enough time during the day to work on them. The company also formed a strategic alliance with U.S. Postal Service to offer its customers more flexibility in drop-off points for their parcels (Porter, 1998).

The third competitive strategy that FedEx pursue is cost leadership. According to Porter (1998), cost leadership is concerned with producing high volumes of standardised products to take advantage of economies of scale. FedEx offers its customers a range of flat rate fees and delivery options to ensure that all customers well satisfied. To reduce costs, FedEx uses technology to gather data and through outsourcing some of its operations such as delivery.

The fourth competitive strategy for FedEx is quality. According to Porter (1998), quality is concerned with excellence in operations, product based quality and value based quality where the organisation offers excellence at an acceptable price. To maintain quality, FedEx trains all its employees the importance of correcting a mistake before it goes further on since the mistake becomes more costly to fix once it is allowed to go on. For instance, sorting goods before shipping helps the company avoid wrong shipping. The company also maintains its quality by offering timely delivery which has earned it more satisfaction among its customers than its rival UPS. Quality at FedEx is also maintained by the use of information technology, such as Wi-Fi and iPhone apps, at every point of its delivery channel which enables the company to gain important information about picking up its customers’ parcels and relying information to the customers about where the package is at every step of delivery. The use of technology helps to communicate with the customers in case of delays to maintain their loyalty.

In conclusion, a company should seek to exploit its competitive priorities to ensure survival in times of competition. Competition is normal in every industry and so is the case in US courier industry in which FedEx operates. In the recent years, intense competition over the US market has increased for FedEx both from its main rival UPS and also smaller courier companies which fill the gaps that larger courier companies like UPS, FedEx and DHL are unable to fill due to their large size. In such competitive markets, a company has to come up with a strategy not only to survive but grow in the face of competition. Formation of a competitive strategy involves matching the internal capabilities of the firm with needs of its stakeholders to tap into the changing needs of the market. One of the best strategies that a firm can use is called competitive priority.

 Competitive priorities that affirm can utilise to gain competitive advantage are cost leadership, flexibility, quality of products and timely delivery. The first competitive priority, cost leadership, is concerned with producing a high volume of standardised products to gain economies of scale. FedEx offers to its customers a wide range of services at acceptable prices due to its large market size which has enabled the company from a distribution network in the US and other countries which allows it to pick and deliver parcels more conveniently and cheaply. It has also reduced its operating cost by use of technology to gather data which is vital in logistics.

The second competitive priority that a firm can utilise is quality. This is concerned with a company attaining excellence in its products and offering these products at a competitive price. One of the ways that FedEx maintains its quality is through the use of IT to ensure that its customer’s packages are delivered on time. Timely delivery is enhanced by its already established efficient delivery channel which allows it to collect and deliver packages as per customer’s demands. The other competitive priority a firm can pursue to gain a competitive advantage is flexibility in the mix of products and in offering new products. FedEx achieves this by observing the changes in demands for customers to offer new services like late night delivery and linking up with online sellers, like Amazon, to provide online shoppers with convenient transport of their shopping. The last competitive priority is timely delivery and reliability which FedEx does by ensuring that customers receive all their packages in time by integrating IT in their delivery system to rely information about possible delays to help take corrective action and help customers track their packages to avoid uncertainty.

Bibliography

Berger, A. (2011). Case Study – FedEx Corporation: Strategic Management. New York: Grin Verlag.

Chard, R., Jacobs, F., & Aquilas, N. J. (2004). Operations Management for Competitive Advantage. New York: McGraw- Hill.

Davis, M. M., Aquilano, N. J., Balakrishnan, J., & Chase, R. B. (2005). Fundamentals of Operations Management. New York: McGraw-Hill Ryerson.

FedEx. (2012). About FedEx. Retrieved May 21, 2012, from http://about.van.fedex.com/

Hayes, R. H., & Wheelwright, S. C. (1984). Restoring Our Competitive Edge: Competing Through Manufacturing. John Wiley: New York. .

Henry, A. (2008). Understanding Strategic Management. New York: Oxford University Press.

Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.

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