The Internet Based And Global Marketplace Commerce Essay

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In todays highly competitive, Internet-based, and global marketplace, it is important for companies to have a clear plan for achieving their goals. The last three decades have seen a steady rise in the perceived importance of operations strategy together with its corresponding literature base, one could argue that it has not yet reached its full potential. This paper reviews the importance of operations strategy within the broader operations management area the role of operations strategy, its relationship with the business strategy, and ways in which the operations function can best support the business strategy.

For years the concept of operations strategy seemed a contradiction in terms. Strategy is broad, long-term, aggregated, and the concern of the most senior management in the business. Operations, on the other hand, are detailed, complex, concerned with day-to-day issues, and carried out by those towards the lower levels of the organizational hierarchy. Yet this is to confuse operations with operational. Operational is indeed the opposite of strategic. But operations are the resources that create services and products, the parts of the business that satisfy customers' needs.

(Slack, 2002)Operations strategy is the development of a long-term plan for using the major resources of the firm for a high degree of compatibility between these resources and the firm's long-term corporate strategy. Operations strategy addresses very broad questions about how these major resources should be configured to achieve the desired corporate objectives. Some of the major long-term issues addressed in operations strategy include how large do we make our facilities, the type of process do we install to make the products or provide services, what will our supply chain look like , the nature of our workforce and how we ensure quality. Coordinated supply chain management has become the new paradigm of modern business operations and competition. Under such circumstances, an organization's operations strategy should be in alignment with the operations strategies of other organizations within its supply chain. The supply chain must also have a consistent supply chain strategy that supports the competitive strategies of the firms within the supply chain. As a result, supply chain management offers new opportunities to conduct operations strategy research. In recent years research interests on both operations strategy and supply chain management have been increasing rapidly, especially by empirical researchers.

In developing an operations strategy, management also needs to take other factors into consideration. These include the level of technology that is or will be available, the required skill levels of the workers, and the degree of vertical integration, in terms of the extent to which outside suppliers are used.

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The role of operations strategy is to provide a plan for the operations function so that it can make the best use of its resources. Operations strategy specifies the policies and plans for using the organization's resources to support its long-term competitive strategy.

(Waters, 2006)Operations managers must work closely with marketing in order to understand the competitive situation in the company's market before they can determine which competitive priorities are important. There are five broad categories of competitive priorities cost, quality, time, flexibility and service.

Cost means offering a product at a low price relative to the prices of competing products. The need for this type of competition emerges from the business strategy. The role of the operations strategy is to develop a plan for the use of resources to support this type of competition. Note that a low-cost strategy can result in a higher profit margin, even at a competitive price. Also, low cost does not imply low quality.

Many companies claim that quality is their top priority, and many customers say that they look for quality in the products they buy. Yet quality has a subjective meaning it depends on who is defining it. For example, to one person quality could mean that the product lasts a long time, such as with a Volvo, a car known for its longevity. To another person quality might mean high performance, such as a BMW. When companies focus on quality as a competitive priority, they are focusing on the dimensions of quality that are considered important by their customers.

Time or speed is one of the most important competitive priorities today. Companies in all industries are competing to deliver high-quality products in as short a time as possible. Making time a competitive priority means competing based on all time-related issues, such as rapid delivery and on-time delivery. Rapid delivery refers to how quickly an order is received; on-time delivery refers to the number of times deliveries are made on time.

As a company's environment changes rapidly, including customer needs and expectations, the ability to readily accommodate these changes can be a winning strategy. This is flexibility. There are two dimensions of flexibility. One is the ability to offer a wide variety of goods or services and customize them to the unique needs of clients. This is called product flexibility. A flexible system can quickly add new products that may be important to customers or easily drop a product that is not doing well. Another aspect of flexibility is the ability to rapidly increase or decrease the amount produced in order to accommodate changes in the demand. This is called volume flexibility.

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To obtain an advantage in such a competitive environment, firms are now providing value added service. This is true for firms that provide goods and services. The reason is simple. The market power is in the services, because the value is in the results

(Slack, 2009) In order to develop an operation strategy from competitive priorities you need to focus on the trade off, factory focus on order qualifiers and order winners.. The notion of factory focus and trade-offs was central to the concept of operations strategy during the late 1960s and early 1970s. The underlying logic was that a factory could not excel simultaneously on all four competitive priorities. Consequently, management had to decide which priorities were critical to the firm's success, and then concentrate or focus the resources of the firm on those particular characteristics. For example, if a company wanted to focus on speed of delivery, then it could not be very flexible in terms of its ability to offer a wide range of products. As an example, McDonald's provides very fast service but offers a very limited menu of highly standardized products. Similarly, a low-cost priority was not seen to be compatible with either speed of delivery or flexibility. High quality also was viewed as a trade-off to low cost.

Order-qualifiers can be defined as the minimum elements or characteristics that a firm or its products must have to even be considered as a potential supplier or source 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.

(Samson, 1991)Many types of methodologies and models of analysis can be used in operation strategy analysis. Analysis need not necessarily be mathematical game theoretic or especially complex but there must be a link between operations and long term cost or demand. There are a large number of economics models that are well suited to study operations strategy. To cite a few examples like "competitive economic theory" can be used to analyze the relationship between operations technology and firm performance. Any change in the production possibility set can be analyzed in terms of changes in cost and revenue. Option theory can be used to analyze the value of real production options as hedges against uncertainty. Relevant applications are the value of foreign plants as currency hedges and the value of excess production capacity to facilitate quick introduction of new products when faced with demand uncertainty.

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Agency theory models can be used to analyze the cost and benefits of different ways of organizing operations. Applications include firm performance if operations are organized as a cost center and the effect of new technologies on the control of operations.

Modern finance theory can be used to study the relationship between operations decisions and firm risk. This theory provides models for firm valuation and risk adjustment. Applications are the analysis of how new manufacturing technologies affect the way a firm will finance itself and how different inventory holding policies affect firm risk.

Game theory studies completion between a few firms. Many firms operate in oligopolistic markets and operations decisions are often crucial competitive choices. Applications included how capacity and technology decisions between firms interact.

Operations strategy decisions can be divided into two major categories structural elements consisting of facility location, capacity, vertical integration, and choice of process all are considered to be long term or strategic in nature and infrastructural elements consisting of the workforce in terms of size and skills, quality issues, procurement, the new-product development process, planning and control, and organizational structure all of which are often viewed as tactical because they can be changed in a relatively short time.

(Slack 2009) Core capabilities are the means by which competitive priorities are achieved. Consequently, core capabilities must align directly with competitive priorities. Operations strategy decisions can be divided into two major categories: structural elements consisting of facility location, capacity, vertical integration, and choice of process all are considered to be long term or strategic in nature and infrastructural elements consisting of the workforce in terms of size and skills, quality issues, procurement, the new-product development process, planning and control, and organizational structure all of which are often viewed as tactical because they can be changed in a relatively short time. In developing an operations strategy, management also needs to take other factors into consideration. These include the level of technology that is or will be available, the required skill levels of the workers, and the degree of vertical integration, in terms of the extent to which outside suppliers are used.

How often have we heard the expression "customers want their money's worth"? Unfortunately, from a manager's point of view, it's not that easy. Customers want more than their money's worth, and the more they receive for their money, the more value they see in the goods and services they are purchasing.

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In determining the value of a product, is a good or a service, customers take into consideration all of the benefits derived from the product and compare it with all of the costs of that product. If, in the opinion of the customer, the benefits exceed the costs, then customers perceive value in the product. The more the benefits exceed the costs, the more value the product provides. Adding customer value during the transformation process can take many forms and translate into different things to different customers.

Some criteria for evaluating an operation strategy are consistency internal and external between the operations strategy and the overall business strategy, between the operations strategy and the other functional strategies within the business. Among the decision categories that make up the operations strategy, between the operations strategy and the business environment resources available, competitive behavior, governmental restraints, etc. Other criteria is contribution to competitive advantage making trade-offs explicit, enabling operations to set priorities that enhance the competitive advantage, directing attention to opportunities that complement the business strategy, promoting clarity regarding the operations strategy throughout the business unit so its potential can be fully realized and providing the operations capabilities that will be required by the business in the future.

(Black, 2007) The case of Zara is that this clothing retailer has become synonymous with fast fashion runway styles that are affordably priced. Zara can deliver trendy clothing from the drawing board to store shelves in as little as two weeks, while for most retailers it takes four to 12 months. The company's operational strategy makes this happen, down to the last stitch.

The driving force behind this strategy is founder and chairman of the board, Amancio Ortega Gaona, whose strategic vision has always been to deliver value-based fashion. Since starting his first garment factory in the 1960s, Mr. Gaona has focused on controlling the textile production process to cut costs while improving speed and flexibility. This operational strategy helped Zara get off the ground over 30 years ago and continues to propel it to new heights today.

(Greenwood, 2006) The key to Zara's success is its tightly integrated process, from product development to retail. The product development to retail company has its own design teams located in the company's headquarters in La Coruna, in northwest Spain, right next to production. Designers simultaneously update designs for the current season while developing designs for the next season. Constant input from the stores via customized handheld computers that convey point of purchase information keeps designers up to date on which products are hits and which are failures. The teams use this feedback to determine which pieces to produce more of, and which to modify or eliminate from the lineup.

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Unlike its competitors, Zara doesn't manufacture most of its clothing in China. Under its production in proximity concept, the company produces half of its garments the high fashion pieces in Spain, in its own factories and by suppliers whose operations are tightly integrated with Zara's. The other half of Zara's garments come from outside suppliers, most of whom are located in Spain and Portugal. This setup makes it easier to communicate information quickly between the designers and the manufacturers.

The store in a sense is the center of Zara's entire operation this is where contact with customers takes place. Each item is carried in small quantities on the principle that scarcity breeds desirability. When customers find something they like, they tend to buy it on the spot, since it might not be there when they return. Zara has a much higher inventory turnover rate than most of its competitors. Eighty-five percent of Zara's garments are sold at full price, compared with the industry average of 60% to 70%.

Zara's high-speed operational strategy shows no signs of slowing down anytime soon. Net sales in the first half of 2006 were up 24% over the same period in 2005. Between January and June of 2006, Zara opened 66 new stores, reaching a total of 918 worldwide. This success is hard to ignore. Even high-end companies like Gucci and Louis Vuitton are retooling their supply chains to follow Zara's operational model.

Zara has been able to achieve excellent financial status due to its core competencies that provide the chain with a competitive advantage over traditional retailers in the industry.

Fashion retailers and apparel manufacturers are always seeking to lower costs by outsourcing production to developing countries where the lowest labor rates are found. In contrast, Zara is a chain that has developed a successful diverse method of doing business in the fashion industry. Zara by working through the whole value chain is very vertically integrated and highly capital intensive.

(Hines, 2007) Vertical integration, a distinctive feature of Zara's business model, has allowed the company to successfully develop a strong merchandising strategy. This strategy has led Zara to create a climate of scarcity and opportunity as well as a fast-fashion system. Zara manufactures 60% of its own products. By owning its in-house production, Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce. Also, 85% of this production is done through the season, which allows the chain to constantly provide its costumer with much updated products.

Their vertical integration has more advantages than drawbacks but it is important to recognize its limitations. Vertical integration often leads to the inability to acquire economies of scale

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which means they cannot gain the advantages of producing large quantities of goods for a discounted rate. Zara's speedy and recurrent introduction of new products incurs increased costs as well. They have higher research and development costs. They also have elevated costs due to the constant changeover of production techniques to create their different apparel lines. That also means that employees must be trained in order to use the new manufacturing techniques, which again leads to increased costs. Traditional retailers do not experience higher costs in all of these areas.

Zara's unique quick response system, composed of human resources as well as information technology, allows Zara to respond to the demand of its consumer better than the competition. Zara, who focuses on the ultimate consumer, places more emphasis on using backward vertical integration to be a very quick fashion follower than to achieve manufacturing efficiencies. It is extremely important for Zara to speed the information flow of consumer desires to their apparel designers. For that reason, Zara has human resource teams in the retail and manufacturing environment that work exclusively toward this goal.

(Greenwood, 2006) Zara also has an advantage over its competitors due to its low advertising costs. Zara's advertising investment is 0-.3% as compared to traditional retailers who expends 3 - 4%. Zara's cuts in advertising investments reduce total expenses, which make the international expansion more economical. This also signifies that Zara relies mainly on its stores to project their image. For that reason, Zara has a department, which exclusively works in acquiring global prime real estate locations. In addition, this department is responsible for the frequent refurbishing of store layouts, as well as the creation of a common window display for Zara's global stores. The display positions Zara in the industry with a prestigious and elegant image.

By targeting a broad market Zara has an international advantage over its competitors. Zara's target market is very broad because they do not define their target by segmenting ages and lifestyles as traditional retailers do. Zara's target market is a young, educated one that likes fashion and is sensitive to fashion. Today, people around the world through various communication devices have more access to information about fashion. Therefore, fashion has become more globally standardized and Zara uses this to their advantage by offering the latest in apparel. For that reason, 80- 85% of the products that Zara offers globally are relative standardized fashionable products. This is due to the fact that Zara's marketing teams believe that a product that sells well in a fashion capital such as New York will most likely sell well in another such as Milan, Sao Paulo or Madrid since fashion has become more globally accessible.

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Zara's winning formula can only exist through management savvy understanding of how information systems can enable winning strategies. It is technology that helps Zara indentify an manufacture the clothes customer want get those products to market quickly and eliminate costs related to advertising, inventory missteps and markdowns. Today, many companies are looking to Zara as the new industry standard for how to run a retail business, which shows that Zara's business model is becoming the wave of the future.

The case of McDonald's Corporation competes in a challenging market segment by providing need satisfying products to customers. It employs an effective competitive strategy to make it stand out against competitors such as other fast food restaurants. From the statement of McDonald's operations strategy, it is clear that both consistent and high-performance quality is considered order winners, while speed, cost, and innovation are considered order qualifiers.

McDonald's competes on several bases mainly to "make their customers happy" by providing speedy, affordable, and nutritious foods. Through extensive market research and survey, the organization discovered that its customers desire speed as one of the restaurants' top priorities. To achieve efficient service times, the company utilizes proven, standardized training processes for its employees and new drive-thru layouts to reduce service times. Along with speed, McDonald's also competes by offering prices at a low cost.

(Allen, 2007) To offer high quality products at low cost requires efficient processes throughout the entire McDonald's organization. One strategy that the company has employed for many years is the value meal. The value meal allows customers to buy a sandwich, fries, and beverage at a discount when purchased together. McDonald's began offering a value menu, consisting of many individual items costing only 1 euro each.

McDonald's share cost between their suppliers and the corporation is much lower than other fast food restaurants. This is due to the fact that they have specifications and specialist who assists the suppliers in planting or producing the raw materials before it is shipped to the restaurants.

McDonald's also publishes specific guidelines for their suppliers to abide. This ensures that suppliers meet the guidelines for all their needs. This also reduces the risk of a supplier messing up and having to resend the raw materials which will cost more to do so. By giving attention to the suppliers ahead of time, McDonalds will reduce the share costs between them.

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(Slack, 2002) Recognizing the importance of the supply chain in maintaining quality is one of McDonalds strengths. McDonald's aims to create long-term relationships with a limited number of supplier partners. Suppliers are usually keen to ensure that they can meet McDonald's required standards. Continued orders mean that suppliers can be confident of survival and growth. McDonald's ensures that they stress their standards based on quality, value and cleanliness.

Mc Donald's vertical integration is the partnership arrangement and the long term relationship with suppliers to promote innovation and quality improvement. In summary, McDonald's strives to reach its goal of "making customers happy" through their normal competitive bases of speed, price, and nutrition, and they also ensure customer satisfaction through continual improvement of their operations.

The concept of operations strategy plays an important role in determining the overall long-term success of an organization. Developing an operations strategy means looking to new ways to add value for the customer in the goods and services that the firm produces and delivers. For Zara time is the main factor to be considered above and beyond production cost, the offer to the customers desires in the shortest time possible.

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