Category Archives: Operations Strategy

The Customer’s Activity Cycle (CAC)

To provide a framework for properly aligning the goods and services that a firm offers Sandra Vanderbilt introduced the concept of the customer’s activity cycle (CAC) As seen in Exhibit 2.6, there are three major components of the CAC (a) the prepurchase activities  (b) the purchase activities and (c) the post purchase activities. 13

The prepurchase activities focus on being responsive to customer inquiries and the ability to demonstrate technical expertise. The purchase activities center around the actual sale and delivery of the product and collecting payment. The postpurchase activities include after-sales support services and product warranties.

The better a firm can identify and understand each of the elements that take place within these three components. the greater the competitive advantage it has in the marketplace  In other words  the larger the portion of the customer’s activity cycle that a company is involved with  the stronger its position in the marketplace  As part of the CAC concept Vanderbilt suggests that firms should shift their emphasis from selling only products to their customers that is  goods  to assisting their customers in solving their problems that is services .

For example. Hendrix Voeders is no longer in the business of providing only livestock feed to pig farmers in Holland. Today it also provides a wide range of services to these farmers including consulting on pig breeding nutrition management delivery to the slaughterhouse. and distribution of pork products to retail outlets. As another illustration SKF in Sweden no longer produces only ball bearings for its after-market or replacement business. It also provides advice to its customers on spare parts management  training and in installation and suggests good preventive maintenance practices that will extend the life of the bearings.

These two companies exemplify an emerging trend among world-class businesses in that they demonstrate how manufacturing companies today are turning to service in order to obtain a competitive advantage in the marketplace. Where once manufacturing was considered to be totally separate from service . this is no longer the ca e. Both are essential and must be properly integrated and in alignment for a firm to succeed in today  highly competitive markets  especially at the international level.

Integration of Manufacturing and Services

Many firms are now looking to integrated and user-friendly service as a mean of obtaining a competitive advantage in the marketplace. In so doing they are recognizing the need to align and integrate the products that are being offered. This is true for both manufacturing and service operations.

For example. Ritz-Carlton. a hotel chain that focus e on the top 5 percent of the hotel market. has operators answering its 800 reservation number instead of having a more efficient menu-driven system. Although the menu-driven y tern i more cost efficient. management at the Ritz knows that its high-income customer- will not  waste their time it such a system. Similarly Cryogenics in Mansfield accuse a leading producer of vacuum pump that are critical item in the manufacture of computer chip. now has a  Gets program Guaranteed Up-lime Service When a pump fail  it impacts the

production of a computer chip fabrication facility that typically costs more than.a billion dollars. A call to the 800 number therefore puts the customer in contact with an engineer who diagnoses the problem and ships out the required parts within 24 hour  This high level of service allows the computer fabrication plant to resume operations as quickly as possible thereby minimizing downtime. By integrating goods and services into a total package companies are better able to
address the overall needs of their customers .

Focusing on Core Capabilities

In order to successfully implement an operations strategy be it within a manufacturing firm or within a service, certain core capabilities must be identified. These core capabilities  allow the firm to establish its competitive priorities in the  market place. Core capabilities can thus be defined as that skill or set of skills that the operations management function has developed that allows the firm to differentiate itself from its competitors. Similar core capabilities need to be identified in the other functional areas too  and each of these functional capabilities should be aligned to meet the overall goals of the firm. For example in the opening vignette to this chapter Dell Computer has developed a core capability for producing these new products both quickly and in a wide variety to meet the specific needs of individual customers. In order to focus on these core capabilities firms. both in manufacturing and services have begun to divest themselves of those activities that are not considered to be critical to their success. In manufacturing more ‘and more components and sub assemblies that were previously built in-house are now being subcontracted or.outsourced to suppliers. As a result the material cost in most manufacturing companies as a percentage of total manufacturing costs  has substantially increased in recent years. On the other hand. the labor co t. as a percentage has been drastically reduced  often to less than 5 percent of total costs.In order to successfully implement an operations strategy be it within a manufacturing firm or within a service certain core capabilities must be identified. These core capabilities  allow the firm to establish its competitive priorities in the marketplace. Core capabilities can thus be defined as that skill or set of skills that the operations management function has
developed that  allows the firm to differentiate itself from its competitors. Similar core capabilities need to be identified in the other functional areas too and each of these functional capabilities should be aligned to meet the overall goals of the firm. For example in the opening vignette to this chapter Dell Computer has developed a core capability for producing these new products both quickly and in a wide variety to meet the specific needs of individual customers. In order to focus on these core capabilities  firms both in manufacturing and services  have begun to divest themselves of those activities that are not considered to be critical to their success. In manufacturing more ‘and more components and sub assemblies that were
previously built in-house are now being subcontracted or.outsourced to suppliers. As a result the material cost in most manufacturing companies  as a percentage of total manufacturing costs has substantially increased in recent years. On the other hand. the labor co t. as a percentage has been drastically reduced often to less than 5 percent of total
costs. This focus on core capabilities also has impacted services. More and more service operations are now subcontracting out ancillary support services that were previously provided in-house. Again this strategy has allowed these services to concentrate on improving their core capabilities. For example many colleges and universities now subcontract their food service operations to firms such as Sodded and their bookstore operations to retailers such as Barnes and Noble. As another example  Service Master has built a very successful business providing housekeeping services to hospitals and office buildings
at substantial savings to these businesses. In many instances the companies that have subcontracted these support services have discovered that the subcontractors can perform them better and at a lower cost than when they were done internally. This focus on core capabilities further supports the concept of a value chain. Here each company focues on its core capabilities thereby allowing it to maximize its value contribution to the end product that is provided to the customer. (A word of caution however  Casually subcontracting a function that is not viewed as a core competency may result in losing knowledgeable people who know how the broader system operates and who can deal with unexpected emergencies that might shut down a core activity

Operations Management in practice

JAPAN'S PERSONALIZED BIKE PRODUCTION

Does your bike fit you to a Would y0u like one that does? If you are willing to pay 20 to 30 percent more than you would pay for a mass-produced bike, you can get a Panasonic bike manufactured to exactly match your size weight  and color preference You can even get your bike within three weeks of your order (only two weeks if you visit Japan) This is accomplished via a process called the Panasonic Individual Customer System (PICS) which skillfully employs computers robots and a small factory workforce to make  models at the National Bicycle Industrial Company factory in Shikoku Japan The National Bicycle Industrial Company(NBIC) a subsidiary of electronics giant Mitsubishi  began making the bikes under the Panasonic brand in 1987 With the introduction of its personalized order system (OPS) for theJapanese market (PICS was developed for overseas sales) the firm gained international attention as a classic example of mass customization pronounce products to order in lot sizes of one The factory itself has 21 employees and a compute-raided design (CAD) system and is capable of producing  any of 8 million variations on 18 models of racing road  and mountain bikes in 199 color patterns for virtually any size person The PIC system works in the following way A customer visits a local Panasonic bicycle store and is measured or characteristics that a firm or its products mu t have in order to even be considered as a potential supplier or source. In Europe. for example the vast majority of companies today require that their vendor be ISO-9000 certified. (This certification ensures that a firm has documented all of its processes.) Thus ISO-9000 certification is an order-qualifier in Europe. In contrast most companies in the United States at this time are not ISO-9000 certified (those firms that are certified in the United States have done so primarily to do busies in Europe  As a consequence ISO-9000-certified companies in the United States use their certification as an order-winner  that is ISO-9000 certification distinguishes them as being better than their competition  Basically when very few firms offer a specific characteristic. such as high quality. customization or outstanding service. that characteristic can be defined as an order-winner. However over time. as more and more firms begin to offer that same enhancement the order  winner becomes an order-qualifier. In other words. it becomes the minimum acceptable level for all competitors. As a result the customer uses some other new enhancement or characteristic to make the final purchase. The shift of a product characteristic from being an order winner to an order-qualifier is show n in Exhibit 2.5. We have arbitrarily selected 50 percent to reprint the point at which an order-winner becomes an order-qualifier. as that is when the majority of firms provide a particular enhancement. or characteristics that a firm or its products mu t have in order to even be considered as a potential supplier or source. In Europe. for example the vast majority of companies today require that their vendor be ISO-9000 certified. (This certification ensures that a firm has documented all of its processes.) Thus ISO-9000 certification is an order-qualifier in Europe. In contrast most companies in the United States at this time are not ISO-9000 certified (those firms that are certified in the United States have done so primarily to do busines in Europe). As a consequence ISO-9000-certified companies in the United States use their certification as an order-winner that is ISO-9000 certification distinguishes them as being better than their competition). Basically when very few firms offer a specific characteristic. such as high quality. customization or outstanding service. that characteristic can be defined as an order-winner. However  over time. as more and more firms begin to offer that same enhancement the order winner becomes an order-qualifier. In other words. it becomes the minimum acceptable level for all competitors. As a result the customer uses some other new enhancement or characteristic to make the final purchase. The shift of a product characteristic from being an order winner to an order-qualifier is show n in Exhibit 2.5. We have arbitrarily selected 50 percent to reprint the point at which an order-winner becomes an order-qualifier. as that is when the majority of firms provide a particular enhancement. model in 90 minutes. One might ask why a customer must wait two to three weeks given that it takes less than three hours to make a custom model. According to the general manager of sales We could have made the time shorter but we want people to feel excited about   fairing for something special. To provide a more personal touch to mass customization  the factory is given the responsibility to communicate directly with the customer. Immediately after the factory receives the customers order  a personalized computer-generated drawing of the bicycle is mailed with a note thanking the customer for choosing the bike. This is followed up with a second personal note  three months late inquiring about the customer's satisfaction with the bicycle. Finally a bicycle birthday card" is sent to commemorate the first anniversary of the bicycle. NBIG is how contemplating extending the Panasonic system td all of its bicycle production while Mitsubishi is considering applying the concept to industrial machinery Source urech Kotha The National Bicycle Industrial Company: Implementing a Strategy of Mass-Customization  case study from the International University of Japan 1993; and Susan Offbeat Japan'§ New Personalized Production Fortune October

Order-Qualifiers and Order-Winners

Terry Hill of the London Business School has developed the strategic concept of order qualifiers and order-winner  Order-qualifiers can be defined as the minimum elements .