Ten (10) strategic decisions in operations management: A case of Harley Davidson and Ikea

Author: Iloka Benneth Chiemelie
Published: 26th April 2017

CASE 1

THE TEN STRATEGIC DECISIONS IN OPERATIONS MANAGEMENT

Design of goods and services – this basically defines most of the requirement in undertaking each of the OM decisions. It involves designing the products and services to be offered. For instance, product designs normally determine the lowest volume of costs and higher grade of quality as well as other features of sustainability and human resources required [Pauline, 2016; Anil, 2009; Brooks, 2014].

Managing quality – this define the expected quality from the consumers view point as well as established policies and procedures that he company intends to adopt towards attaining such quality levels [Pauline, 2016; Anil, 2009; Brooks, 2014].

Process and capacity design – this defines how the goods or services is produced (i.e. the processes utilized in production) and the specific technology, quality, human resource, and capital investments that the management will undertake in order to determine majority of the company’s basic cost structure [Pauline, 2016; Anil, 2009; Brooks, 2014].

Location strategy - this relates to decisions as to how near the company and its products should be t the consumers, suppliers and talents while putting into consideration costs, infrastructure, logistics and government [Pauline, 2016; Anil, 2009; Brooks, 2014].

Layout strategy – this relates to the process of integrating capacity needs, personnel levels, inventory requirement, and technology in order to ensure that material, people and information efficiently flow through the company [Pauline, 2016; Anil, 2009; Brooks, 2014].

Human resource and job design – this relates to decisions on how to recruit, motivate and retain the staffs with necessary skills and talents. People represent an important and expensive aspect of the total system design [Pauline, 2016; Anil, 2009; Brooks, 2014].

Supply-chain management – this relates to decisions on how to integrate supply chain into the company’s strategy. It includes decisions on what will be purchased, whom it will be purchased from and the conditions for such purchase [Pauline, 2016; Anil, 2009; Brooks, 2014].

Inventory management – this relates to decisions about inventory ordering and holding and how to optimize the process in order to ensure consumers’ satisfaction, enhanced supplier capabilities and effective production schedule [Pauline, 2016; Anil, 2009; Brooks, 2014].

Scheduling – this relates to decisions on how to determine and implement both intermediate- and short-term schedules that can be utilized effectively and efficiently by both the personnel and facilities in the course of meeting consumers’ demands [Pauline, 2016; Anil, 2009; Brooks, 2014].

Maintenance – it relates to decisions about the capacity of the company’s facilities, production demands, and personnel that are necessary in other to maintain a reliable and stable production process [Pauline, 2016; Anil, 2009; Brooks, 2014].

HOW HARLEY DAVIDSON ADDRESSES EACH OF THESE 10 STRATEGIC DECISIONS

Design of products and services - Harley-Davidson motorcycles recognized for their unique and handcrafted designs. The company’s objective in this strategic decision as it relates to OM is to support its brand image in line with available resources. In this brand image, the emphasis is on Harley-Davidson motorcycles’ quality and high end chopper design.

Quality management – the objective in this area is to maintain OM practices towards the course of maximizing quality of output and matching the company’s brand image with the expectation of consumers. Harley-Davidson motorcycles has strict requirement that all suppliers must abide with in order to ensure that its products are of the high possible quality.

Process and capacity design – for this OM strategic decision, Harley-Davidson motorcycles’ decisions involve high quality and new technologies. The company’s main objective in this area is on how to maintain optimum production process. At Harley-Davidson motorcycles, the production managers automate the processes in order to enhance production efficiency. Additionally, the company’s production facilities always take into account the demands and costs features across the global markets.

Location strategy –majority of the company’s authorized dealers are located within the city centers as indicated in the case. Most of these dealers also take part when it comes to deciding on the location of the dealership. As such, Harley-Davidson’s OM takes care of this strategic decision by partially decentralizing its decision-making for location of dealership. Additionally, the company locates its warehouse based on the location of authorized dealers in order to allow for optimum transportation efficiency for its products.

Layout design and strategy – in this OM strategic decision, the focus of the company is n how optimal efficiency can be attained as it relates to the movement of people, information and materials. For facilities that are owned by the company, such as its production building, Harley-Davidson’s OM approach for such decision areas involve traditional model adjusted in order to match with the purpose of the facility. Additionally, the company implements a standardized set of layout design for its authorized dealers.

Job design and human resources - Harley-Davidson adopts a number of training programs and approaches based on participation in order to empower its employees. For the purpose of maximizing career opportunities and optimal utilization of its talents, the company adopts a number of succession-planning policies in which the leaders share information about the performance of employees. This results to production of high quality motorcycles and related products form the company.

Supply chain management – the company adopts a supplier diversity policy with the objective of addressing strategic decisions as it related to OM. The focus of this decision area is on how the company can ensure growth through optimized supply chain. Harley-Davidson’s policy is geared towards ensuring optimum productivity and capacity of its supply chain based on the availability of varied range of suppliers.

Inventory management - Harley-Davidson handles this strategic decision by automating its inventory monitoring in the facilities that are owned by the company. Additionally, it has an online system that is used for ordering and requesting new products involving the authorized dealers.

Scheduling - Harley-Davidson operates a streamlined schedule for its corporate activities. The company addresses the concerns raised in this OM strategic decision by automating its supply chain schedule and orders from authorized dealers. Harley-Davidson also adopts traditional OM approaches for the purpose of scheduling its employees to different activities across the company.

Maintenance – the company’s production processes are standardized with measures of redundancy. For instance, the company coordinates the production activities across its facilities with the purpose of minimizing stock-outs by providing necessary support for orders made during peak demands. The case also noted that Harley-Davidson has maintenance teams for the purpose of building and maintaining equipment.

CASE 2

HOW IKEA HAS DIFFERENTIATED ITSELF FROM COMPETITORS AND CREATED A NICHE MARKET

The approached adopted by IKEA towards differentiating itself and creating a niche market can be visualized from its vision; which clearly states that it intends to provide consumers with quality designed, functional home furnishing at a low prices that numerous consumers within the market will be able to afford. Its varied activities (including supply chain operations and inventory) function to together in order to support these proposed value.

IKEA is able to differentiate its products through offering quality products at an affordable price that competitors find difficult to match. In order to offer such low price, IKEA designs unique products that require low cost of manufacturing while following strict requirement for the products’ functionalities, efficient distribution, quality and impact on the environment. Additionally, the company maintains a high volume of suppliers with fused competition in order to acquire their raw materials at best quality and lowest price. IKEA combines its stores with warehouse and its products features a do-it-yourself functionality (that allows the consumers to purchase the products in carton and assemble them at their homes by themselves) – reducing space for warehousing and accommodating more products during shipping. At the store, consumers pick the products by themselves (reducing costs of hiring staffs for such functionality). IKEA also has an overnight refill function that ensure all required products are made available (based on demand from the warehouse once the store is closed) prior to the next sales day, in order to eliminate the chances of the stores going out of stock. All these functions mean that the consumers can have quality products, whenever they want it and at an affordable price – enhancing the company’s competitiveness and creating a nice market for itself.

HOW IKEA HAS BEEN ABLE TO LOWER THE COST OF ITS PRODUCTS

The company has been able to lower the cost of its products by adopting a number of varied activities and decisions as discussed below:

Cost saving in furniture design – IKEA products are designed to be unique and incur low manufacturing costs with following strict standards for functionality, efficiency in distribution, quality and ecofriendly business processes. By so doing, the company is able to quality products at a significantly lower price than that of competitors.

Sustainable relationship with suppliers – IKEA’s main success lies on its communications and relationship management its raw material suppliers and manufacturers in order to attain good prices for the products procured. Based on the case, it was noted that IKEA purchases from over 1,800 supplier sin more than 50 countries. The company negotiates prices with suppliers, check on quality of materials to the supplied and maintain close monitoring of the social and working conditions of the suppliers. While the company normally fuse competition between these suppliers in order to achieve the best price and material, it was noted that it believes more on attaining long-term relationship with these suppliers by signing long-term contracts with them and lowering the prices of raw materials in the process.

Dot-it-yourself assembly lowers packing costs – majority of IKEA’s furniture are designed and sold in pieces for the consumers to assemble themselves. The pieces are normally contained within a convenient and efficient, flat packages for low-cost transport as they require less room in the truck, enhancing the volume of products that can be shipped in the process.

Combining retail and warehouse processes – the case highlighted that all IKEA stores have a warehouse within the premises. Consumers can browse for items they want on the main showroom floor. Once the see the product they desire, they can obtain it from the floor pallet located with racking that are as high an average person can reach, from there they can make purchases for the furniture and take them home. Other products are stores in reverse racks that are above the mentioned position.

Cost-per-touch inventory tactic – this is an inventory management tactic that involves the consumers selecting and retrieving the packages themselves. Based on rule of thumb, it was discovered by IKEA that the more hands that touch the product, the most costs associated with it, thus this approach helps the company minimize costs.

IKEA’’S SUPPLY CHAIN MANAGEMENT STRATEGIES

The company adopts a number of strategies in the course of delivering efficient and effective business process and they are as discussed below.

In-store logistics – as noted in the case, IKEA relies on something that is considered rare and unique as it relates to its logistical management or reordering products. The company employs the service of an in-store logistics personnel to handle inventory management within its stores. The logistics personnel are charged with the responsibility of monitoring and recording deliveries, cross-checking the delivery notices carefully, sorting and separating the goods, and ensuring that they are delivered to the correct sales area of designated locations for overstock. In generally, they ensure an efficient flow of goods within IKEA stores and it is important to maintaining high sales as well as enhancing the loyalty of its consumers.

Maximum/minimum setting as proprietary system – IKEA developed an inventory replenishment process that is presently adopted by in-store logistics manager (known as maximum/minimum settings) for responding to store-level inventory reorder points and reorder products. The minimum setting is the minimum amount of products that are available prior to reordering, while maximum setting is the maximum amount of a given product that can be order at a time. Once the product reaches minimum setting, the number of products required to attain maximum setting is order to replenish the stock.

High-Flow & Low-Flow Warehouse Facilities – the store operations at IKEA is supported by a high-flow facilities (featuring 20% of SKUs representing 80% of the total volume) and low-flow warehouses that are more of conventionally based. In its high-flow warehouses, IKEA adopts automatic storage and retrieval system for the purpose of driving down its associated costs-per touch. Products that are stock in low-flow are those that are not in high demand, the operation is manual considering that workers don’t need to shift and move inventory as such much.

REFERENCES

Anil, K., S and Surech, S. (2009). Operations management. New Age International Published: New Delhi, India.

Brooks, S. (2014). 10 strategic operations management decisions. Available at: https://shumateblog.wordpress.com/2014/10/05/284/ [Accessed on: 16-september-2016].

Pauline, M (2016). Harley-Davidson’s Operations Management: 10 Decisions, Productivity. Available at: http://panmore.com/harley-davidson-operations-management-10-decisions-areas-productivity [Accessed on: 16-september-2016].