Store Location Using the Factor Weighting Method

Save-A-Lot is a good example of a company using a cost leadership strategy to meet unique needs in the  marketplace. This video from Good Morning America provides a nice overview of their strategy from the consumer's side of the check-out counter.



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Save-A-Lot operationalizes their cost leadership strategy using a limited-assortment approach to grocery retailing. Their stores are smaller than conventional grocery stores, and carry a reduced number of SKUs (as you saw in the GMA video). The site requirements you built into your factor weighting grids all play a key role in ensuring each Save-A-Lot location is sustainable over the long term. See Julie, Kristen, Andrew and Eddie's posts for good examples of grids with well considered factor weightings.

Ryan brings up another important point in his grid and question to Eddie: the role of median family income. Save-A-Lot's operationalization of its cost leadership strategy allows it to locate in neighborhoods with median household incomes below $45,000 (approximately). These neighborhoods are often neglected by conventional supermarkets, resulting in Save-A-Lot meeting a real social need. This story from WCPO in Cincinnati illustrates just such a circumstance (note the importance of foot traffic for this location).

This video shed new light on Save-A-lot's site requirements, helping us to understand the role/importance of each factor. A special shout-out to Lauren and Micah who not only created their factor weighting grids, but researched location data to come up with some potential store sites (though they didn't identify this location).  :-)   Nice work!

As we discussed in class, the factor weighting grid can be used for any number of management decisions. You now have a tool you can put to use in a variety of OM settings and circumstances; anytime you have multiple variables against which you need to exercise managerial discretion and judgement in making your decision.

Fashion Supply Chain Case

H&M business concept | Source: about.hm.com

Thanks for your thoughtful comparisons of the H&M and Zara supply chains this week . Many of you made the point that these two supply chains have similarities, but also some important differences. See Kristen, Andrew, Mario, Michael, and Micah's posts for excellent comparisons of the two supply chains using the SCOR model. 

A central concept in supply chain design is effectiveness. How do we determine and design the most effective supply chain for our business? The answer to this question goes back to our company's overall strategy. Do we want an efficient supply chain, a responsive supply chain, or some combination of both? (See Collier & Evans, 2015, chapter 9, for a full discussion of the differences between these choices.)

H&M identifies their core business concept is "fashion and quality at the best price". Fashion certainly implies some level of supply chain responsiveness, but H&M spends significant time and energy outlining the efficiency aspects of their supply chain design as well. H&M ensures best price by designing in-house, purchasing in large volumes, efficient logistics, and overall cost consciousness (H&M, 2015). Zara, as Mario points out in his post, has a different focus. Zara clearly comes down on the responsiveness side of the design discussion with their focus on fast fashion. Your posts this week and earlier in the month detail how Zara delivers on their fast fashion commitment.

Sustainability is an important third measure of supply chain effectiveness. Andrew and Jacob point out H&M's efforts in this area. Resource efficient transportation is an important part of the H&M sustainability mix, as are reverse logistics: taking back used clothing for fabric re-purposing or fiber recycling. Note that the most resource efficient transportation methods are also the slowest. This is not necessarily a problem for supply chains that are strictly designed for efficiency, but can be problematic for supply chains designed to be responsive. It will also be a challenge for supply chain design that seeks to balance both efficiency and responsiveness. 

So, which supply chain design is most effective? The answer is the supply chain that best supports the company's strategy and facilitates delivery of the their customer benefit package. Be sure to consider these issues of efficient, responsiveness, sustainability and alignment with company strategy as you conduct the supply chain analysis in your case studies.

Enjoy the weekend. Stay warm. We'll continue our supply chain discussion in class on Monday. See you then!

References

Collier, D.A. & Evans, J.R. (2015). OM5. Boston: Cengage Learning.

H&M (2015). About H&M: Our business concept. Retrieved from http://about.hm.com/en/About/facts-about-hm/about-hm/business-concept.html. 

Zara Case

Zara, Rittenhouse Square, Philadelphia, PA / Photo by Tsedey Bogale on Google Maps

The Zara case provides us with an interesting example of value chain integration that runs contrary to many of their competitors. Rather than outsource all manufacturing and sell through others retailers, Zara's value chain includes a significant vertical integration component.

Many of you identified Zara's stores as an example of forward integration. But Zara's most unusual approach is their backward integration highlighted by Eddie and Michael. As Kristen and Jacob note, Zara makes 40% of their own fabric and 60% of their own merchandise. Key to their vertical integration are the lean and just-in-time practices identified by Julie, Kristen and Andrew. We'll talk more about "lean thinking" in the weeks to come. The key thing for us to understand at this point is that lean manufacturing and just-in-dime processes significantly reduce waste of all types in the value chain. This helps deliver savings to the organization. Think back to our Interface discussion in class... Interface financed their product and equipment innovations through savings garnered through lean practices. For Zara, lean and JIT help address Tim's question regarding the risk of being on the cutting edge of fashion: what do you do with leftover inventory when customer taste changes? Zara has a lower unsold item rate than the industry average, and they get closer to full price on the clothes they sell than most other fashion retailers. (See the Berfield and Biagorri (2013) Bloomberg Business article.)

Some of your most interesting questions and discussion centered on the value this vertical integration creates for Zara customers, and whether this model can be duplicated by competitors. Julie helps us with this discussion by first clearly linking the value created in the value chain with our value equation (see Collier, 2015, p. 26) and the customer benefit package (CBP) discussed in chapter 1. It is this relationship between affordable price (driven by Zara's lean/JIT value chain) and leading-edge fashion that creates value for Zara customers. Julie, Katie, Kristen, Lauren, Andrew, Kyle, Mario, Michael, and Ryan all ask or discuss this question: can Zara's model be duplicated? Perhaps, but not easily. In a future case we'll see the steps that H&M has taken to speed new fashions to their stores, but they do so without attempting the vertical integration we witness in the Zara model.

So what is it that makes this model so difficult to duplicate? More to come as our study of OM progresses this semester.

Reference

Collier, D.A. & Evans, J.R. (2015). OM5, Boston: Cengage Learning.

Sustainable OM

Hi all. Thanks for the excellent discussion on Spencer, White & Vroblesky (2009), chapter six. The authors challenge us by boiling down all of our reading to date into this one controlling idea: sustainability is all about the quality of relationships between God and human beings. This controlling idea echoes Nicholas Wolterstorff's characterization of shalom. This Hebrew word is often translated as peace in English Bibles. Wolterstorff (1983) argues that the peace of shalom is not simply an absence of violence, but is also the enjoyment of one's relationships with God, fellow human beings, oneself, and also the environment. This is the full meaning of shalom. We see all of these elements in Spencer's eight principles for sustainable living and your Blackboard posts.

The theme in many of your questions and response to one another revolved around application. What does "sacrifice" look like? (Katie and Mario.) How do we change the our perspective of industry so that we can approach caring for creation as a joy rather than a regulatory burden or hurdle to overcome? (Ryan, Michael, Tim & Mario.) How do we build justice for the vulnerable and the marginalized into the fabric of our businesses? (Katie, Julie, Andrew, Micah & Justus.) Whose job is it to ensure healthy relationships inside our companies (Tim & Kyle), and can a desire for improved relationships be intrinsic for business owners, managers and leaders? (Andrews, Kyle & Katie.)

As you might guess, there is no one way to answer these questions. The response/solution that each business provides will be different. The important thing is that you are all thinking about how to operationalize these concepts that stand in contrast to the common ways of conducting American business. We'll be discussing these questions throughout the semester in our study of operations management.

The owners of Broetje Orchards have asked many of the same questions, answering them in the design of their business strategy and their daily operations. Click on the image/link above to see how First Fruits applies Spencer's controlling idea, incorporating all four aspects of relationship identified by Wolterstorff. In the coming weeks we'll examine similar cases initiated by business owners operating from a non-faith based perspective.

So until Monday, may you enjoy all of your relationships!

References

Spencer, N., White, R. & Vroblesky, V. (2009). Christianity, climate change and sustainable living. Peabody, MA: Hendrickson.

Wolterstorff, N. (1983). Until justice and peace embrace: The Kuyper lectures for 1981 delivered at the Free University of Amsterdam. Grand Rapids, MI: Eerdmans.

Inventory Management

Hi all,

Today''s online class had the twin goals of (a) introducing ourselves to inventory management concepts, and (b) getting you to begin thinking about case study part 3.

Your case studies provided great examples of inventory concepts applied to manufacturing, distribution/retail, and service organizations. While the core issues and inventory types are different, all businesses have inventory to manage. See Dan & Ethans's post for good discussions of inventory in manufacturing (both small and large plants). Korey and Quin provide us with windows into distribution and retail inventory management challenges, while Karson and James help us consider inventory management in service organizations. And by the way, excellent follow-up questions to Andrew & Korey's posts!

The videos below support/reinforce our reading and the application you've already made in your posts. See the 3 Types of Inventory video for a helpful review of raw material, WIP and finished goods.

The Modernizing Inventory Management video is a nice mini-case study of inventory management in a small retail business. The clip is 5-years old, so you'll notice shots of some old computers, but the principles are the same. See how many concepts from chapter 12 you can identify at Cole Hardware.

See you on Monday!

Capacity Measurements

Hi all.

Our formulas for process and "shop" capacity in Collier (2013) chapter 10 are important ones. The proper application of these formulas can help to answer important questions about the ability of our process to meet demand.

Today's case applied two of our capacity formulas to a service environment, specifically a orthopedic surgery medical practice. In the video below I walk through the application of the formulas to the specifics of the David Christopher case. Take a few minutes to compare the discussion below to your own analysis and post.

Note: you'll definitely need to expand the view to full screen... sorry for the tiny numbers!

So now, how are these tools applied at your case study company? If they are not used, how could they be applied to improve the firm's operations management?

See you in class on Monday!

Process Design

Hi all,

So kudos to those of you who resourceful and brave enough to find and post a process video! Yes, that would be Quin and Malcolm!

Quin provides us with an opportunity to discuss service process design, particularly service encounter customer contact requirement, and process design in the context of the service positioning matrix (Collier & Evans, 2013, p. 140-143).

In fact, instead of me doing this analysis for you, let's do it together on Monday morning. So for Monday, watch Quin's brief video, read his post, and think about these questions referring to Collier chapters 6 & 7...

• What is the service encounter customer contact requirement for library copier services?
• What degree of customer discretion, freedom and decision-making power is needed?
• How repeatable should the service encounter process be?
• Where does this process fit on the service positioning matrix, and what are the cost and service quality perception implications?

A special shout-out to Shaina for excellent follow-up questions, and Karson for the process flowcharting expertise demonstrated in her post!

See you all on Monday.