Tag: OM strategy

Guest Post: Building A Robust Supply Chain During A Pandemic

Today’s Guest Post comes from Prof. Jonathan Opata, who teaches Operations & Supply Chain Management at George Mason University, Southern New Hampshire University and Northern Virginia Community College

China is critical to the supply chains of many companies because it is the world’s leading manufacturer and its 2nd-largest economy. Government directives on strict quarantine measures have led to economic and supply chain disruptions globally. Companies must ensure risk management in the face of the pandemic. This requires integrated supply chain visibility, better forecasting and intelligent capacity building to meet demand.

Currently, many companies have limited access to employees and logistics, and face the closure of factories because of the ongoing measures to control the spread. This has resulted in a bullwhip effect and high product costs. Here are 6 critical areas for organizations to focus on that you can discuss with your students:

1. Develop Alternative Supply Sources: Developing and looking for new sources of supply is the premier strategy.
2. Create Business Continuity Plans: These plans should pinpoint contingencies in critical areas and include backup plans for transportation, communications, supply, and cash flow. Suppliers and customers need be involved in developing these plans.
3. Create a Comprehensive Emergency Operations Center: This operations center will require integration of company-wide data sources to allow visibility into daily operations.
4. Develop a Collaborative Approach to deal with transportation suppliers to increase visibility of shipments in the supply chain pipeline. This means conducting risk analysis and teaming up with all suppliers to act on supply issues.
5. Redesign to Source from Local Content: Companies need to have production facilities with local sources of supply in each of their major markets, to spread the risk.
6. Align the procurement strategy with Supplier Relationships: Companies should rely on small groups of critical suppliers and maintain a mutually win-win relationship with each. Also, companies need to adjust for higher than normal demand and proactively design robustness into the network to minimize the impact of the bullwhip effect.

These strategies are critical for both short-term recovery and longer-term contingency planning. When companies work together, they can withstand this pandemic and come out more reliable than ever.

OM in the News: Comparing Operations Strategies at Delta and Southwest

If there were ever two airlines that had different OM strategies, it would be Southwest and Delta. When you discuss operations strategy (see Southwest’s activity map in Figure 2.8), note that a major part of Southwest’s approach to achieving low-cost competitive advantage is its standardized fleet of Boeing 737’s. This  allows for pilot training on one aircraft, reduced maintenance, constant updating of its fleet (only 11 years old on average), and close relations with Boeing.

The Wall Street Journal (Nov.16, 2012) provides a totally different–and industry unique–approach by Delta.  Delta, the nation’s 2nd biggest carrier, stunned the industry by becoming the first airline to buy an oil refinery, in a bid to trim its highest operating cost, aviation fuel. It runs a huge maintenance subsidiary that tends to its own planes and does third-party work, while other airlines have scaled down or bailed out of that business. But it also  has focused on an asset most airlines avoid: older planes. Today, Delta’s fleet is both old and complex. It has 10 different models among its 725-aircraft, and the fleet’s average age is over 16.6 years. Its 19 DC-9s, which came from the merger with Northwest, clock in at more than 34 years old!

Most of Delta’s rivals already have fewer aircraft types to simplify their fleets because that reduces the cost of training, maintenance and spare parts. They also are chasing every incremental reduction in fuel costs that new aircraft promise to deliver. Delta, by contrast, is picking up the 88 aging Boeing 717s that Southwest is shedding on planes it inherited in its merger last year with AirTran. Southwest was so anxious to maintain its single plane OM strategy that it took a $137 million charge to retrofit them for Delta. Yet even with the planes’ higher fuel and maintenance costs, Delta figures it is saving at least $1 billion on procuring these and other used planes, compared with buying new ones, making them roughly 10% cheaper to operate per seat than new 737s.

Discussion questions:

1. What are the plusses and minuses of Delta’s OM strategy?

2. Why does Delta prefer to purchase, rather than lease, its planes?