1 THE DEVELOPMENT OF AN OPERATIONS STRATEGY FOR … · The South African (SA) market provides many...

THE DEVELOPMENT OF AN OPERATIONS STRATEGY FOR EISSMANN

SOUTH AFRICA THAT ADDRESSES MARKET REQUIREMENTS AND THE

NEEDS OF ITS CUSTOMERS

SCOTT RICHARDS

This paper is presented in partial fulfilment of the requirements for the Masters

Degree in Business Administration to the Faculty of Management at the Port

Elizabeth Technikon

PROMOTER: Dr J.J. Pieterse

DATE: December 2002

03 December 2002

TO WHOM IT MAY CONCERN

RE: CONFIDENTIALITY CLAUSE

This work is of strategic importance.

It would be appreciated if the contents of this research paper remain

confidential and not be circulated for a period of five years.

Yours sincerely,

S.T. RICHARDS

DECLARATION

I, the undersigned, hereby declare that the work contained in this thesis is my

original work and has not been previously submitted in full or partial fulfilment of

the requirements for any equivalent or higher qualification at any other

educational institution. All sources used or referred to have been documented

and recognised.

___________________ __________________

S.T. RICHARDS DATE

ACKNOWLEDGEMENTS

The successful completion of this research would not have been possible

without the support, guidance and encouragement of certain individuals. I wish

to sincerely thank the following people for their assistance:

• Christiane Garbade for her support, understanding, encouragement and

motivation;

• Mr W. Braun and Mr K. Naude of Eissmann South Africa for their

assistance, and for granting me permission to conduct this research on

their organisation;

• My promoter, Dr J. Pieterse, for his expert guidance, advice and

encouragement;

The Port Elizabeth Technikon for its financial support.

ACKNOWLEDGEMENTS

The successful completion of this research would not have been possible

without the support, guidance and encouragement of certain individuals. I wish

to sincerely thank the following people for their assistance:

• Christiane Garbade for her support, understanding, encouragement and

motivation;

• Mr W. Braun and Mr K. Naude of Eissmann South Africa for their

assistance, and for granting me permission to conduct this research on

their organisation;

• My promoter, Dr J. Pieterse, for his expert guidance, advice and

encouragement;

The Port Elizabeth Technikon for its financial support.

ABSTRACT

With global competition becoming a key concept in the majority of companies

worldwide, it is necessary for organisations to develop operations strategies that

enable them to meet their customers‘ needs.

Organisations will never be capable of reaching future goals without their

customers. For this reason it is imperative for organisations to identify what

competitive factors are required by the market, and which performance

objectives are needed in order to increase the competitiveness of the

organisation.

In this research, Chapters 1 and 2 were used to identify the main and

subproblems of the research, to delimit the research and to provide literature

background to operations strategies and related operations topics.

The empirical study in Chapter 3 was used to gather information pertaining to

the specific requirements of ESA’s customers, and the operations

performanceof ESA.

Chapter 4 was used to analyse the data gathered from the empirical study.

From this analysis it was possible for the researcher to identify the specific

requirements of ESA’s customers and the operations performance of ESA.

Chapter 5 was used to provide recommendations to bridge the performance

gap between the customer requirements and the operations performance of

By effectively implementing all of the recommendations suggested in this

research, ESA will be able to improve its operation performance and meet the

specific requirements of its market and its customers.

CONTENTS

TABLE OF CONTENTS i

LIST OF FIGURES vii

LIST OF ANNEXURES viii

TABLE OF CONTENTS

CHAPTER ONE

INTRODUCTION, PROBLEM STATEMENT AND DEFINITION OF

KEY CONCEPTS

1.1 INTRODUCTION 1

1.2 MAIN PROBLEM 2

1.3 SUBPROBLEMS 4

1.4 DELIMITATION OF THE RESEARCH 4

1.4.1 Geographical Demarcation 4

1.4.2 Customers to be surveyed 5

1.4.3 Products to be surveyed 5

1.4.4 Operations Competencies 5

1.5 DEFINITION OF KEY CONCEPTS 6

1.5.1 Operations Strategy 6

1.5.2 Business Strategy 6

1.5.3 Performance Objectives 6

1.5.3.1 Quality objective 7

1.5.3.2 Speed objective 7

1.5.3.3 Dependability objective 7

1.5.3.4 Flexibility objective 7

1.5.3.5 Cost objective 8

1.5.4 Benchmarking 8

1.5.5 Critical Success Factors 9

1.5.6 Order-winning Factors 9

1.5.7 Qualifying Factors 10

1.5.8 Platts-Gregory Procedure 10

1.6 IMPORTANCE OF THE RESEARCH 11

1.7 LITERATURE REVIEW 11

1.7.1 Customer influence on performance objectives 12

1.7.2 Competitor influence on performance objectives 13

1.7.3 Product life-cycle influence on performance objectives 13

1.7.4 Formulating operations strategies 15

1.8 KEY ASSUMPTIONS 16

1.9 RESEARCH DESIGN 17

1.9.1 Market requirements 17

1.9.2 Achieved performance 18

1.9.3 Gap reduction 18

1.10 SUMMARY 19

CHAPTER TWO

THE CONCEPT OF AN OPERATIONS STRATEGY

2.1 INTRODUCTION 20

2.2 REASONS WHY AN OPERATIONS STRATEGY IS REQUIRED 20

2.3 FACTORS INFLUENCING THE CHOICE OF OPERATIONS STRATEGY

TO FOLLOW 26

2.4 THE NEED FOR A CULTURE OF LEARNING WITHIN THE

ORGANISATION 32

2.5 REQUIREMENTS FOR SUCCESSFUL IMPLEMENTATION OF AN

OPERATIONS STRATEGY 36

2.6 SUMMARY 37

CHAPTER THREE

THE EMPIRICAL STUDY

3.1 INTRODUCTION 39

3.2 THE EMPIRICAL STUDY 39

3.3 THE QUESTIONNAIRE 41

3.4 TYPES OF QUESTIONS 41

3.4.1 Quality 42

3.4.2 Price 43

3.4.3 Delivery lead-time 43

3.4.4 Reliability 44

3.4.5 Volume 44

3.4.6 General topics 45

3.5 ADMINISTERING THE QUESTIONNAIRE 45

3.6 FIELD STUDY AND CAUSAL-COMPARATIVE METHOD 46

3.6.1 Quality 46

3.6.2 Price 47

3.6.5 Volume 48

3.7 VALIDITY AND RELIABILITY 49

3.7.1 Validity 49

3.8 SUMMARY 51

CHAPTER FOUR

RESULTS OF THE EMPIRICAL STUDY

ANALYSIS OF THE RESULTS OF THE DESCRIPTIVE SURVEY

METHOD 52

4.1.1 Quality 53

4.1.2 Price 57

4.1.5 Volume 69

4.1.6 General 72

ANALYSIS OF THE FIELD STUDY AND CAUSAL-COMPARATIVE

METHOD 73

4.2.1 Quality 74

4.2.1.1 Incoming leather inspection 74

4.2.1.2 Pre-cutting leather inspection 75

4.2.1.3 Pre-packaging leather panel inspection 76

4.2.1.4 Internal reject rates 77

4.2.1.5 External reject rates 78

4.2.2 Price 79

4.2.2.1 Size of the leather hide 80

4.2.2.2 Defects within the leather hide 81

4.2.2.3 Placing of the cutting knives 81

4.2.2.4 Rate of production 82

4.2.3.1 Initial order placement 84

4.2.3.2 Confirmation of orders 84

4.2.3.3 Finished stock levels 85

4.2.3.4 Customs clearance requirements 85

4.2.3.5 Flight times and customs clearance in Germany 86

4.2.3.6 Delivery 87

4.2.4.1 Finished stock levels 88

4.2.4.2 Confirmation of order 88

4.2.4.3 Inspection of packaged items 89

4.2.4.4 Inspection of order fulfilment 89

4.2.5 Volume 90

4.2.5.1 Resource inventory levels 90

4.2.5.2 Finished product inventory levels 91

SUMMARY 93

CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION 95

5.2 QUALITY COMPETENCY 96

5.3 PRICE COMPETENCY 98

5.4 DELIVERY LEAD-TIME COMPETENCY 100

5.5 RELIABILITY COMPETENCY 101

5.6 VOLUME COMPETENCY 102

5.7 CONCLUSION 103

REFERENCE LIST 106

LIST OF APPENDICES

Appendix A: Covering letter for questionnaire 109

Appendix B: Questionnaire 110

LIST OF FIGURES PAGE

Figure 2.1 a nine-point scale of importance 22

Figure 2.2 A nine-point scale of performance 23

Figure 2.3 Priority zones in the Importance-Performance Matrix 24

Figure 2.4 The productivity process 27

Figure 4.1 Graphical representation of the results of statement A1 53

Figure 4.6 Graphical representation of the results of statement B1 58

Figure 4.9 Graphical representation of the results of statement C1 60

Figure 4.13 Graphical representation of the results of statement D1 64

Figure 4.18 Graphical representation of the results of statement E1 69

CHAPTER ONE

INTRODUCTION, PROBLEM STATEMENT AND DEFINITION OF

KEY CONCEPTS

1.1 INTRODUCTION

With global competition becoming a key concept in the majority of companies

worldwide, it is necessary for organisations to develop operations strategies that

enable them to meet their customers needs.

organisation.

According to Krajewski and Ritzman (1990: 23), operations strategy specifies

how operations can reach the organisation’s overall goals, within the framework

of corporate strategy. Operational shortcomings are determined by comparing

the corporate strategy requirements with the production systems capabilities.

The operations available resources and competencies are then used to

overcome the shortcomings.

According to Slack, Chambers, Harland, Harrison and Johnston (1998: 77),

operations strategy is the decisions and actions that set the role, objectives and

activities of the operation, such that they can support the organisation’s

business strategy.

Slack et al (1998: 77) further indicate that when companies develop operations

strategies, they must concentrate on the content and process of the strategy.

Content deals with strategies that govern the day-to-day decision making in the

operation, such as policies, plans and behaviours that the operation pursues.

The process of operations strategy refers to the procedures used to formulate

the operations strategies that the organisation should adopt.

Slack et al (1998: 78) mention that the organisation can only determine the

content of its operations strategy, once it has decided on the priority of its

performance objectives. The importance of performance objectives depends on

the needs of the customer groups, competitor activities and the product

lifecycle.

1.2 MAIN PROBLEM

The South African (SA) market provides many attractive incentives to

organisations intending to export finished goods to foreign countries in Europe

and the United States of America (USA). This is especially so in the automotive-

related industry.

The Department of Trade and Industry has numerous export incentives for

South African firms, such as rebates on SA import duties and reduction of

company taxes. Along with relatively low labour costs, low local material costs

and low currency value, profit margins for exporting firms are enticing.

However, effective operating strategies and correct business processes need to

be followed in order to achieve such profits.

According to Johnson and Scholes (1999: 13), operations strategies are

concerned with how the resources, processes, people and skills of the

organisation, deliver the corporate and business-level strategic direction.

Successful business strategies depend on decisions and activities that occur at

the operational level. The integration of operational decisions and strategy is

therefore important.

According to Christopher (1992: 5), survey after survey indicates that the most

important factor influencing the purchase decision is the expectation of the total

quality that surrounds the offer. When relating this to price, organisations can

afford to charge a higher price if they are perceived to offer higher quality and

service. Without the customer, the organisation has no reason to exist.

The success and sustained profitability of Eissmann South Africa therefore

depends on its ability to meet customer requirements.

This leads to the main problem addressed by this research:

WHAT OPERATIONS STRATEGY MUST BE FORMULATED BY EISSMANN

SOUTH AFRICA IN ORDER TO ACCOMMODATE THE CHANGES IN THE

MARKET REQUIREMENTS, AND MEET THE NEEDS OF ITS CUSTOMERS?

1.3 SUBPROBLEMS

In order to develop a research strategy to solve the main problem, the following

subproblems need to be resolved:

What are the specific requirements of ESA’s customers?

Does ESA’s operation performance enable it to fulfil the customer

requirements?

How can the performance gap between customer requirements and operations

performance be bridged?

1.4 DELIMITATION OF THE RESEARCH

In order to ensure that the research topic remains manageable, it will be limited

to the following aspects.

1.4.1 Geographical Demarcation

The Eissmann Group has production facilities in Germany, Hungary,

Czechoslovakia and South Africa. The research of this study will be limited to

the production facility of Eissmann South Africa (ESA), situated in Port

Elizabeth.

1.4.2 Customers to be surveyed

ESA supplies its finished products directly to its mother company, Eissmann

Germany (EGS). EGS depicts all specifications, standards and quality levels

that must be achieved by ESA, in order for ESA to qualify as a supplier. For the

purpose of this research, the customers to be surveyed will be limited to

Eissmann Germany.

1.4.3 Products to be surveyed

This research will be limited to examining the production of two types of leather

door-panels, namely the B6 and C5 panels.

1.4.4 Operations Competencies

The research to be conducted within ESA will be limited to the following five

areas:

Delivery lead-time;

Reliability;

Quality;

Volume; and

Price.

1.5 DEFINITION OF KEY CONCEPTS

1.5.1 Operations Strategy

According to Krajewski and Ritzman (1990: 23) operations strategy specifies

how operations can achieve the organisation’s overall goals, within the

framework of the corporate strategy.

Slack et al (1998: 77) describe operations strategy as, “the total pattern of

decisions and actions which set the role, objectives and activities of the

operations so that they contribute to and support the organisation’s business

strategy.”

1.5.2 Business Strategy

According to Johnson and Scholes (1999: 12), business strategy is about how

to compete successfully in a particular market. It concerns how the business

can gain advantage over competitors, what new opportunities can be identified,

which products should be developed in which markets, and the extent to which

these meet customer needs so that the objectives of the organisation are met.

1.5.3 Performance Objectives

According to Slack et al (1998: 51), there are five performance objectives that

need to be achieved by operations functions in order to develop an advantage.

These performance objectives are:

1.5.3.1 Quality objective

By improving the quality inside the operation, the organisation will reduce costs,

through making fewer mistakes, and develop products that ensure customer

satisfaction.

1.5.3.2 Speed objective

This objective is concerned with how long customers have to wait for delivery of

products. Speed inside the operation reduces inventory levels and reduces the

risk of forecasting. By forecasting for shorter periods, the forecasts are more

accurate.

1.5.3.3 Dependability objective

This objective is concerned with providing customers with their products within

the time promised. Inside the operation, dependability saves money and creates

stability as all departments can depend on each other.

1.5.3.4 Flexibility objective

This objective is concerned with being able to change the operation in some

way. This can include changing the products produced, adding additional

products, changing the volumes produced and changing the timing of delivery of

products. Developing flexibility enables the operation to give customers fast

service, save time and maintain dependability.

1.5.3.5 Cost objective

The lower the cost of producing the products, the lower can be the price offered

to the customer. Costs of operations are incurred through staffing, facilities,

technology, equipment and material costs, as well as through the other four

performance objectives.

1.5.4 Benchmarking

According to Hellriegel, Jackson and Slocum (1999: 301), “benchmarking is the

continuous process of comparing an organisation’s strategies, products or

processes with those of best-in-class organisations.”

Benchmarking identifies best practice that is occurring elsewhere, and helps

organisations develop their own strategies and processes to reach a best

practice level.

According to Hellriegel et al (1999: 301), the benchmarking process consists of

seven steps.

Step one consists of a study of the organisation’s own products and processes

that are to be compared to benchmark products and processes.

Step two involves identifying the best performers for each product and process

to be benchmarked.

Step three involves collecting and analysing data to identify gaps between the

products and processes being evaluated and those of the best-in-class

organisation.

Step four involves setting improvement goals, and step five involves developing

and implementing plans to close gaps.

Step six involves evaluating results, and step seven involves repeating the

evaluations as necessary.

1.5.5 Critical success factors

According to Johnson and Scholes (1999: 192), critical success factors are

those components of strategy in which the organisation must excel in order to

outperform competitors. These factors need to be underpinned by core

competencies to ensure success.

1.5.6 Order-winning factors

These are factors which customers regard as key reasons for purchasing a

product. It therefore forms an important part of the way an organisation

determines its competitive approach.

According to Slack et al (1998: 81), raising the performance of an order-winning

factor will result in more business, or improve the chances of gaining more

business.

1.5.7 Qualifying factors

These are the aspects of competitiveness where the operations performance

must be above a certain level in order to be considered by the customer. Below

such performance levels, the organisation will not be considered. Above such a

level, customers will consider the organisation’s products only on its order-

winning factors.

1.5.8 Platts-Gregory procedure

According to Slack et al (1998: 96), Ken Platts (1990) and Professor Mike

Gregory (1990) of Cambridge University developed the Platts-Gregory

procedure. It comprises three stages.

Stage one involves developing an understanding of the market position of the

organisation, by identifying the factors that are required by the market, and

comparing these to the level of achieved performance.

Stage two involves assessing the capabilities of the operation, and the extent to

which these capabilities help achieve the type of performance indicated as

being important in stage one.

Stage three involves reviewing the various strategies available to the

organisation, and selecting those strategies which best satisfy the criteria

identified in stages one and two.

1.6 IMPORTANCE OF THE RESEARCH

In the global automotive-related industry, competition for supply contracts is

extremely high, and hence profit margins are relatively low.

In order for an organisation to sustain its business, it must remain competitive

on a continual basis. This can only be achieved through ensuring that its

customers remain interested in its products.

This research will identify exactly what ESA’s customers require, what ESA’s

current operations can provide for its customers, and what gaps occur between

the service provided and the service required.

By identifying the gaps present, remedial strategies can be formulated, aimed at

closing the gaps and aligning the operations strategy to meet customer

requirements. In this way ESA’s customers will continue to be interested in its

products, allowing ESA to remain competitive in terms of customer attraction.

1.7 LITERATURE REVIEW

According to Schonberger and Knod (1998: 13), operations strategy depends

on a firm’s business strategy. Business strategies deal with issues that

influence the entire organisation, such as employees, markets, customers,

competitors and brand image. Operations strategy is consistent with the

business strategy, but is not so broadly focussed. Operations strategy is

concerned with a narrower focus on resources, products, processes, quality,

cost and flexibility.

1.7.1 Customer influence on performance objectives

According to Slack et al (1998: 78), customer influence on performance

objectives is of the utmost importance.

Should customers value low priced products, the operation will focus on cost

performance. If customers require error-free products, emphasis will be placed

on quality performance. Customer emphasis on fast delivery requires speed

performance from the operations, whilst customers requiring reliable delivery

make dependability performance important. Some customers require innovative

products, resulting in operations focussing on flexibility performance.

By focussing on such performance objectives, the operations fulfill customer

needs and improve competitiveness.

Slack et al (1998: 81) indicate that a useful method of determining the

importance of competitive factors is to distinguish between order-winning and

qualifying factors.

Order-winning factors show a significant increase in their contribution to

competitiveness as the operation improves in providing them. Qualifying

objectives only contribute to competitiveness when the operation raises its

performance to the qualifying level.

Operations that produce products for more than one customer group must

determine the order-winning and qualifying competitive factors of each group,

as each customer group has varying requirements.

Customers needs are continually changing, and customers will respond to

whatever products and services are available. For this reason, operations must

continually analyse the order-winning and qualifying factors required by its

customers.

1.7.2 Competitor influence on performance objectives

Operations are influenced by what their competitors are doing. Operations must

therefore identify what their competitors are doing in order to plan ways of

competing more effectively.

According to Slack et al (1998: 85), organisations may wish to distinguish

themselves from their competitors by competing differently from their rivals.

Changing the way it competes will require the organisation to revise the priority

of its performance objectives.

1.7.3 Product life cycle influence on performance objetives

Slack et al (1998: 86) state that, “one way of generalizing the behaviour of both

customers and competitors is to link it to the life cycle of the products or

services which the operation is producing.”

According to Hellriegel et al (1999: 241), strategic planning for each category of

product is influenced by its life cycle, and the phase of the life cycle the product

is in. The emphasis on strategies and functional areas needs to be revised for

different phases of the product life cycle.

Slack et al (1998: 88) mention that in the introduction phase, the needs of the

customers are not perfectly understood, resulting in the need for frequent

changes to the design of the product. Operations can therefore contribute to

competitiveness in order to cope with such design changes.

In the growth phase, customers begin to accept the value of the product, and

sale volumes increase. Rapid and dependable response to demand is required,

and operations must therefore concentrate on speed and dependable

performance. Competitors will also be entering the market, which requires

operations to focus on quality performance in order to stay ahead of the new

entrants.

In the maturity stage, demand begins to level off as most customers have been

supplied. Competition will therefore emphasize price or value for money.

Operations must therefore concentrate on cost performance and dependability

of supply to its customers.

In the decline stage, demand for the product reduces, and sales decline. Price

competition will be dominant, and operations must concentrate on cost

performance.

1.7.4 Formulating operations strategies

According to Slack et al (1998: 94), there are several ways of formulating

operations strategies, which firms should adopt.

The Hill Methodology and the Platts-Gregory procedure, as mentioned by Slack

et al (1998: 95), both give an indication of how operations strategies are

formulated in practice.

Slack et al (1998: 95) mention that the Hill Methodology follows the approach of

providing a connection between different levels of strategy making, through

implementing a five-step procedure. This procedure identifies the corporate

objectives in place, and the product markets which the operations strategy must

satisfy. From this the order-winning and qualifying factors are determined.

These factors enable the operations to identify what processes and

infrastructure are required in order to achieve the order-winning and qualifying

factors required by the market.

Slack et al (1998: 96) mention that the Platts-Gregory procedure follows a

three-stage approach whereby market requirements and operations

performances are determined. The gaps between the requirements and

performance are then identified, and strategies developed to reduce the gaps.

According to Slack et al (1998: 96), both the formulation procedures mentioned

above are representative of the procedures used in practice. Many of the

formulation processes include the following elements:

• A process that links the organisation’s strategic objectives to resource

level objectives;

• The use of competitive factors as the translation device between

business strategy and operations strategy;

• Judging the importance of competitive factors in terms of customer

preferences;

• Assessing current achieved performance, usually against competitor

performance levels;

• Emphasis on operations strategy formulation as an iterative process.

1.8 KEY ASSUMPTIONS

According to Leedy (1997: 60), assumptions are so basic, that without them the

problem itself could not exist.

The products manufactured by Eissmann South Africa (ESA) pass through

various suppliers (middle-men) and are eventually installed into Audi

automobiles. However, in this research, it will be assumed that Eissmann

Germany (EGS) is the customer of ESA, as ESA sell their products to EGS, and

are controlled by EGS specifications. For this research, all information

regarding the market requirements and perceived quality of ESA products and

services will be obtained from EGS.

1.9 RESEARCH DESIGN

The broad research method to be adopted in this study is the Platts-Gregory

procedure. The research will take the form of a three-phased approach that will

be composed of identifying market requirements, achieved performance of the

operations, and gap reduction in five areas. These five areas are:

• Delivery lead time;

• Reliability of service;

• Quality;

• Volume of demand and production; and

• Price of product.

1.9.1 Market requirements

This phase will be used to identify the exact requirements of ESA’s customers.

It will make use of a questionnaire for gathering data from EGS management,

whereby customers’ requirements regarding the above five areas will be

identified.

Once these requirements are identified, a profile of market requirements for

each of the five areas will be generated.

1.9.2 Achieved performance

This phase will be used to assess the capabilities of the operation. It will be

used to identify the operations practices existing in terms of the five areas listed

above, such that a profile of achieved performance can be generated.

It will be necessary to identify which competitive factors, such as order-winning

factors, qualifying factors and critical success factors, are being used by the

operations.

1.9.3 Gap reduction

This phase will be used to generate new operations strategies such that existing

gaps in operations performance can be reduced.

The profiles generated for market requirements and achieved performance, will

be overlaid to identify areas where the operations is exceeding market

requirements, and where it is lagging behind market requirements. In this way,

the gaps in required performance will be identified.

A complete review of the operations strategy will be required in order to identify

what changes need to take place in order to meet the market requirements, and

whether exceeding these requirements will benefit the organisation or not.

According to Slack et al (1998: 98), the question that should be asked by the

operations management at this phase is, “if you were starting from scratch on a

green-field site, how, ideally, would you design your operation to meet the

needs of the market?”

1.10 SUMMARY

The aim of this chapter was to identify the main and subproblems of the

research, to delimit the research and to state the importance of the research. It

was also used to define key concepts such as operations strategy, business

strategy, performance objectives and order-winning factors. The key

assumptions made in the research were stated, and the research method to be

adopted was explained.

The following chapter discusses the concept of an operations strategy.

CHAPTER TWO

THE CONCEPT OF AN OPERATIONS STRATEGY

2.1 INTRODUCTION

According to Schonberger and Knod (1998: 13), an operations strategy

depends on a firm’s business strategy. Business strategies deal with issues that

influence the entire organisation, such as employees, markets, customers,

competitors and brand image. Operations strategy is consistent with the

business strategy, but not as broadly focussed. Operations strategy is

concerned with a narrower focus on resources, products, quality, cost and

flexibility. The operations strategy’s main objective is to focus on these factors

in such a way that they support and contribute to the organisation’s business

strategy.

The aim of this chapter is to identify the reasons why an operations strategy is

required, the factors that influence the choice of operations strategy to follow,

the culture required within an organisation in order to successfully benefit from

an operations strategy, and what is needed in order to achieve successful

implementation of an operations strategy.

2.2 REASONS WHY AN OPERATIONS STRATEGY IS REQUIRED

According to Slack et al (1998: 686), the fundamental purpose of operations is

to create goods and services that meet the needs of the customer. What

customers find important should be important to the operations.

An operations strategy must therefore be used to identify what the customer

finds important, and how the operation needs to be aligned in order to meet with

such customer requirements.

Slack et al (1998: 686) identify three categories of competitive factors that need

to be identified in order to judge the importance of the operations to the

customer. These three factors are:

• Order-winning competitive factors which win business for the operation;

• Qualifying competitive factors, which are factors that need to be met in

order for the operations to be considered by a customer. If the

operation’s performance falls below a certain qualifying level, it will lose

business;

• Less important competitive factors that are relatively unimportant to the

customer.

Each of these three categories of factors can be subdivided into three further

categories namely strong, medium and weak, in order to more accurately judge

the importance of its competitive factors to its customers. This is indicated in

Figure 2.1, which shows a nine-point scale of importance (Slack et al, 1998:

By identifying what is of crucial importance to its customers and what is not, the

operation can focus on improving the crucially important factors, and avoid

spending time and money on focussing on non-crucial factors.

Figure 2.1. A nine-point scale of importance

Order winning

Strong 1 Provides a crucial advantage

Medium 2 Provides an important advantage

Weak 3 Provides a useful advantage

Qualifier

Strong 4 Needs to be up to good industry standard

Medium 5 Needs to be up to median industry standard

Weak 6 Needs to be within close range of rest of the

industry

Less important

Strong 7 Not usually of importance, but may become

more so

Medium 8 Very rarely considered by customers

Weak 9 Never considered by customers

Source: Slack et al, 1998: 686

Spring and Boaden (1997: 770) mention that the target for order qualifiers is

industry standard. Performance above this standard will not add much

competitive benefit. Order winners, however, are set by individual competitors,

and by increasing performance beyond that of the best of the competition, will

add competitive benefit to the operations.

Competitors must be used as a comparison against which the operation can

judge its performance. Both importance and performance must be brought

together before any judgement can be made as to the priorities for

improvement.

Slack et al (1998: 688) identify three performance standards used to judge how

the performance of an operation compares with that of its competitors. These

three factors are:

• Achieved performance is better than competitors’;

• Achieved performance is the same as competitors’;

• Achieved performance is worse than competitors’.

Each of these three factors can be subdivided into three further categories,

namely: strong, medium and weak, in order to more accurately judge the

importance of its performance factors against its competitors. This is indicated

in Figure 2.2. A nine-point scale of performance:

Better than the

competitors

Strong 1 Considerably better than the

competitors

Medium 2 Clearly better than the competitors

Weak 3 Marginally better than the competitors Same as the

competitors

Strong 4 Sometimes slightly better than

competitors

Medium 5 About the same as the competitors

Weak 6 Slightly lower than the average Worse than the

competitors

Strong 7 Marginally worse than most

competitors

Medium 8 Usually worse than the competitors

Weak 9 Consistently worse than the

Figure 2.2. A nine-point scale for performance

Source: Slack et al, 1998: 688

Slack et al (1998: 689) combine the importance to customers and performance

against competitors factors in order to identify the priority for improvement for

each factor. This is achieved through identifying the priority zones by using the

Importance-Performance Matrix (Slack et al, 1998: 689) as illustrated in Figure

2.3 below.

Figure 2.3. Priority zones in the Importance-Performance Matrix

Source: Slack et al (1998: 689)

As indicated in Figure 2.3, the Importance-Performance Matrix is divided into

four zones with the most important division of zones being the, ‘Lower Bound of

Acceptability‘ between appropriate performance and inappropriate performance.

Below this minimum bound of acceptability, there is a need for improvement,

whilst above this bound, there is no immediate need for improvement.

Excess Appropriate

Improve Urgent attention

Lower bound of acceptability

Performance against competitors

Better

Less important Qualifying Order winning

Importance for customer

The four zones that the matrix is divided into are:

• The Appropriate Zone which is the area that all operations strive to

perform in. Competitive factors that fall into this zone are deemed

satisfactory in the short term. In the long term, however, most

organisations should strive to improve performance toward the upper

boundary of the zone;

• The Improve Zone which is situated below the boundary of acceptability.

Competitive factors that fall into this zone require improvement, but not

always as a first priority.

• The Urgent Action Zone, which is situated below the Improve Zone, is

the most critical zone of the Importance-Performance Matrix. Competitive

factors that fall into this zone must be improved, and their performance

raised to the Improve Zone (in the short term) and then the Appropriate

Zone (medium term). Competitive factors in this zone must receive

priority.

• The Excess Zone which is situated above the Appropriate Zone. The

competitive factors in this zone have a performance that is greater than

the customer requires, or is needed to compete against rival

organisations. It is necessary for the operations to identify whether any of

the resources being used to achieve such a performance could be used

to improve the competitive factors that are in the Improve and Urgent

Action Zones.

• As is indicated above, an operations strategy involves identifying what

the market requires, and what is available from the operations. Through

this procedure, it is possible to develop a strategy that enables the

operations to directly meet with customer requirements and competitor

challenges, ensuring continual success of the organisation. This is the

reason why an operations strategy is required by an organisation.

2.3 FACTORS INFLUENCING THE CHOICE OF OPERATIONS STRATEGY

TO FOLLOW

According to Gupta and Campbell (1995: 43), there are two types of operations

strategies that an organisation can chose to follow, namely Cost Leadership or

Product Differentiation.

In order to compete in the global workplace, an organisation must either cut

costs and become a low cost producer (whilst remaining within specifications

and quality standards required by the market), or differentiate its products and

add more value for its customers. All activities within the organisation must

therefore revolve around the strategy that is chosen.

Gupta and Campbell (1995: 47) further mention that in order to follow a cost-

leadership strategy, a firm must have the ability to manufacture low-cost

products. This requires a low cost of resources (materials, labour, plant and

location), a reduced cost of quality, high levels of productivity and resource

utilisation, and the removal of non-value adding processes.

A cost leadership strategy also requires a strong focus on productivity.

According to Hellriegel et al (1999:715), productivity is viewed as the ratio of the

total outputs (amount of goods and service produced) to the total inputs

(quantities of labour, capital and materials used). The National Productivity

Institute (NPI), (2001: 28) mentions that there are three basic inputs in any

organisation, namely capital, labour and materials. When these three inputs are

transformed into goods and services, the efficiency and utilisation in the

transformation process are the major determinants of productivity. This is

illustrated below in Figure 2.4.

Source: NPI (2001: 30).

The NPI further mention that the main hindrance to productivity is the lack of a

proper productivity measurement system. Without productivity measurement,

the organisation does not have control. By starting to measure productivity,

norms are established as a benchmark for continual improvement. When

focussing on improving productivity, organisations must implement a balanced

approach across the activities of the organisation. The NPI (2001: 29) states

that it is often found that organisations focus on one particular area in the

productivity process (such as quality control or production processes) and

neglect other areas in the productivity process. Organisations must therefore

focus on the efficiency and the utilisation of all resources.

According to the NPI (2001: 30), the factor that is important to the success of

the productivity improvement process is a continuously driving effort from all

parties involved. Organisations often embark on improvement initiatives, but the

process often loses impetus over time. This is generally due to a lack of top

INPUT CONVERSION

PROCESS

OUTPUT MARKETS

CAPITAL

MATERIALS

PRODUCTS

SERVICES

MARKET, CONSUMER OR

CUSTOMER NEEDS

EFFICIENCY

UTILISATION

EFFECTIVENESS

management commitment, productivity not being measured, a lack of

information, employees not being involved in decision-making, a lack of

individual responsibility, and a lack of properly coordinated and implemented

strategies and plans. These factors all have a negative impact on the

continuous improvement of productivity.

According to Slack et al (1998: 693), continuous improvement follows the

approach of improving performance through small, incremental improvement

steps. It is not the rate of improvement that is important, rather the momentum

of improvement that has the major effect, through involving everyone from line

managers to workers. For such improvements to gain momentum, it is

necessary to use accumulated experience within the organisation, necessitating

an approach towards a learning organisation. According to Gordon (1996: 479),

a learning organisation is one that goes through a continuous cycle of

experience. It uses experience to re-evaluate its objectives and basic values,

and modify its culture. The method followed by the learning organisation is as

follows:

• Experience occurs;

• The organisation examines the experience and collects data;

• The organisation formulates hypotheses about the experience through

analysing the data collected;

• The organisation experiments by testing and discussing the hypotheses;

• Experience occurs, and so the continuous cycle of learning continues.

According to Gordon (1996: 480), continuous learning by individuals, teams

and the organisation provides a competitive advantage.

According to Sawaya (1993: 18), when production workers are trained in the

workings of managerial support systems (inventory and quality control and

production planning), the fear of the system is reduced, as the workers

understand the process. They are able to identify the advantages of the

systems, and become motivated to providing accurate information on scrap and

rejects. They are also more willing to discuss problems and recommend

solutions to supervisors and managers. This further lends itself to the notion of

an approach towards a learning organisation.

Gupta and Campbell’s (1995: 48) view on product differentiation is that the

organisation must focus on adding value to its products in order to deliver

greater added value to its customers. In such cases the cost factor is

secondary, because higher quality products can demand higher prices.

However, in any competitive market, a differentiated product can be copied, and

hence the cost of quality needs to be controlled. In order to achieve such

control, the differentiated products must be made correctly the first time. Gupta

and Campbell (1995: 48) further mention that reduced cycle times and zero

defects are immense advantages to organisations which differentiate on the

basis of dependability, whilst fewer set-ups and a streamlined process mean

greater flexibility. Furthermore, the elimination of non-value adding processes

results in complete resource channelling into customer-focussed activities.

According to Kotler (2000: 80), firms pursuing an overall cost leadership must

be good at engineering, manufacturing, purchasing and physical distribution.

The problem with this strategy is that other firms can generate even lower costs,

and hurt the firm that has rested its whole future on being low-cost.

Kotler (2000: 80) mentions that organisations which concentrate on a

differentiation strategy, concentrate on achieving superior performance in an

important customer benefit area, valued by a large part of the market. The firm

therefore needs to cultivate those strengths that will contribute to the intended

differentiation.

Kotler (2000: 288) identifies a number of variables for product differentiation,

namely:

• Form (differentiate the size, shape and structure of the product);

• Features (characteristics that add value to the product);

• Performance quality (must design a performance level that is appropriate

to the target market);

• Conformance quality (degree to which all products are produced identical

and within product specifications);

• Durability (expected operating life under natural or stressful conditions);

• Reliability (probability that a product will not fail within a specified time

period);

• Reparability (ease with which the product can be repaired);

• Style (how the products look and feel to the client).

In some cases, it is not possible to differentiate the product, and competitive

success must be achieved through improving the quality of valued services.

This is known as service differentiation.

According to Kotler (2000: 292), service differentiation can be achieved through

various means, namely:

• Ordering ease (making it easy for the customer to place an order with the

company);

• Delivery (how well the product or service is delivered to the customer,

and includes factors such as speed, accuracy and feedback);

• Installation (the work done to make a product operational in its intended

location);

• Customer training (training the customer’s employees to use the vendor’s

equipment properly and efficiently).

2.4 THE NEED FOR A CULTURE OF LEARNING WITHIN THE

ORGANISATION

According to Kreitner et al (1999: 599), a learning organisation is one that

proactively creates, acquires and transfers knowledge, and changes its

behaviour and approach to running the organisation based on this new

knowledge and insight.

Organisations achieve this by constantly scanning their environments, hiring

new talents and expertise when required, and assigning sufficient resources to

train and develop the employees.

The necessity for an approach towards a learning organisation is reinforced by

Powell (1996: 76), who believes that training and professional development

must become part of work ethics, with a new focus being placed on a

commitment to training and corporate investment in training.

Powell (1996: 79) further mentions that the direct benefits of a learning

organisation are that techniques can be implemented to give employees

feedback on productivity. Tactics and methods can be taught and shared on

how to motivate and reinforce employees. Methods for improving below par

performance can be taught to employees, and reporting procedures for

monitoring the performance improvements can be discussed and taught to

employees, furthering their motivation and awareness of performance

improvement requirements.

Kreitner et al (1999: 599) add that new knowledge needs to be transferred

throughout the organisation. To achieve this requires a reduction in structural,

process and interpersonal barriers that inhibit the sharing of information and

ideas. This new knowledge must be used to change the behaviour of

employees to that of a results-oriented behaviour, within an environment where

employees are encouraged to use new behaviours and operational processes

in order to achieve corporate goals.

Hellriegel et al (1999: 430) view a learning organisation as having both the drive

and capabilities to continuously improve its performance based on experience.

In order for this to be realised, requires continuous learning. According to

Hellriegel et al (1999: 430), when the environment is complex, learning may

require exploration and experimentation, whilst a stable environment requires

learning to be based on a systematic process of testing alternative approaches.

Hellriegel et al (1999: 431) further mention that in order to develop a learning

organisation, five characteristics must be met, namely:

• Shared leadership whereby all employees share some sort of leadership

responsibility, and are encouraged to find ways of improving products

and services. The sharing of decision-making and leadership develops

an environment and culture that completely supports the goals of a

learning organisation;

• A culture of trust and respect for one another, where employees are

empowered in order to allow then to experiment with new methods and

ideas. Empowering employees to make their own decisions places

responsibility on those employees to solve problems and develop fresh

ideas and techniques;

• The strategies that are implemented within the organisation must all

address customer focus (through satisfying current customers and

gaining new customers), long-term perspectives (the process of learning

and change takes time, and a long-term perspective is therefore

required), and internal alignment (aligning the business strategy to the

design of the systems within the organisation, such as human resources

and logistics, such that the system enhances the learning that occurs

and improves success).

• Organisational design that makes an allowance for working teams,

whereby team members take responsibility for training, safety,

scheduling and purchasing. A flat team structure is required in order to

facilitate a broad range of activities and working with others. This

improves the transfer of knowledge and information.

• Use of information within the organisation. Information is the lifeblood of

a learning organisation, and must be disseminated to all relevant parties

within the organisation. The sourcing of information must be obtained

from continuously scanning both the internal and external environments.

This information includes new trends or changes, customer

requirements, competitor’s actions, employee motivation and levels of

conflict within the organisation.

According to Hellriegel et al (1999: 432), in order to judge the improvements

made through implementing a learning culture, the organisation needs to

measure performance through customer satisfaction, profits and losses, market

share, employee commitment and competitor strategies from period to period.

This is much the same as the importance factors to customers and the

performance factors against competitors mentioned previously.

As benefits of a learning organisation occur slowly, no major changes can be

expected to take place from one period to another. However, changes should

be monitored over a collection of periods.

According to Kreitner et al (1999: 602), organisations naturally resist learning

and change. This is due to three reasons, namely:

• Organisations generally focus on fragmentation rather than systems,

whereby people are separated into independent groups (departments);

this reduces learning, sharing and collaboration across the organisation;

• Competition is dominant over collaboration whereby employees compete

with those with whom they need to be collaborating for success. This

further reduces the sharing of information.

• People generally only change when they really need to because life is

less stressful when you stay within your comfort zone. This results in a

reactive approach, rather than a creative and proactive approach. The

drive to learn is fuelled by personal interest, curiosity, imagination,

experimentation and risk taking, all requiring a creative and proactive

approach.

2.5 REQUIREMENTS FOR SUCCESSFUL IMPLEMENTATION OF AN

OPERATIONS STRATEGY

Implementing an operations strategy is similar to that of dealing with change

within an organisation. The strategy that is to be implemented will require

certain changes to be incorporated into the systems and procedures that were

previously in place.

According to Kotter (1995: 59), organisational change normally fails because

senior management commits one or more of the following errors, namely:

• Failure to establish a sense of urgency about the need for change;

• Failure to create a powerful enough guiding force, responsible for leading

and managing the change process;

• Failure to establish a vision to guide the change process;

• Failure to communicate the new vision;

• Failure to systematically plan for and create short-term gains, which

allows for recognition of achievement, and;

• Failure to anchor the changes into the organisation’s culture.

Slack et al (1998: 816) identifies various key elements that need to be

considered when implementing an operations strategy. These are:

• The operations strategy is used to improve the competitiveness of the

organisation. Thus the organisation’s overall competitive imperatives

must be linked to the entire operations strategy programme;

• Change strategies that are implemented must not focus on one aspect,

but rather integrate improvement strategies so that they support one

another;

• Support and involvement of top management in the coordination and

allocation of resources is fundamental to success. This is especially

important for continuous improvement processes which require top

management to emphasise and support a long-term continuing

expectation of improvement;

• In order to be effective, an operations strategy must be understood and

supported by all employees and managers within the organisation;

• Clear, explicit objectives result in effectively implemented strategies. If

staff know what is expected of them, it is easier for them to work towards

a goal, and easier to succeed.

Operations strategy involves cross-functional change, and hence the need for

clear, precise communication of the overall purpose becomes vital to the

successful implementation of the strategy.

2.6 SUMMARY

The aim of this chapter was to identify the reasons why an operations strategy

is required, and the factors that influence the choice of operations strategy to

follow.

The main reason why an operations strategy is required by an organisation is to

enable it to align its performance with the requirements of its customers. The

specific requirements of the customers and the capabilities of the organisation’s

operations directly influence the choice of operations strategy to follow.

The following chapter identifies the specific requirements of ESA’s customer

and the operations performance of ESA.

CHAPTER THREE

THE EMPIRICAL STUDY

3.1 INTRODUCTION

The aim of this chapter is to identify the specific requirements of the market that

ESA serves, and hence solve the first subproblem (what are the specific

requirements of ESA’s customers?).

In order to achieve this, a questionnaire was formulated that focussed on the

five operations competencies, namely: quality, price, delivery lead-time,

reliability and volume. This questionnaire was distributed amongst the

management of ESA’s customer EGS, and the feedback used to identify EGS’s

specific requirements in terms of the five operations competencies.

A method of personal observation was used by the researcher in observing the

production methods and procedures followed by the operations department of

ESA. The operations performance of ESA was then compared with the specific

requirements of EGS, and in this way the second subproblem (does ESA’s

operation performance enable it to fulfil the customer requirements?) was

approached.

3.2 THE EMPIRICAL STUDY

According to Leedy (1997: 117), numerous research methodologies can be

used, depending on the research objective. These methodologies include:

• Descriptive Survey Method which uses the technique of observation as

the principal method of collecting data;

• Experimental Method which uses a cause and effect phenomenon within

a system of controlled conditions;

• Historical Data Method which makes use of past and present events as a

source of research;

• Causal – Comparitive Method, which is used to observe existing

conditions and searches back through the data for plausible causal

factors. It is the “detective method” in which the crime is discovered and

then the cause or motivation for the crime is sought;

• Case and Field Study Method, which is a type of qualitative research in

which data are gathered directly from individuals, social or community

groups in their natural environment for the purpose of studying

interactions, attitudes or characteristics of the individuals or groups.

In this study, the Descriptive Survey Method, Case and Field Study Method,

and the Causal-Comparative Methods were used.

With the Descriptive Survey Method, a questionnaire was developed and

distributed amongst the managers of EGS. Only ten questionnaires were

distributed. These were to the managers within the purchasing, logistics and

operations departments of EGS. Due to the small sample number, a statistical

analysis was not carried out. This method of data collection was used to solve

the first subproblem (what are the specific requirements of ESA’s customers?).

With the Case and Field Study Method and the Causal-Comparative Methods,

the researcher worked within the operations department, and personally

observed the production methods and procedures followed by the management

and staff within the department. Personal discussions were held with the

Managing Director, the Operations Manager and Team Leaders of ESA. This

method of data collection was used to solve the second subproblem (does

ESA’s operation performance enable it to fulfil its customer’s requirements?).

3.3 THE QUESTIONNAIRE

According to Leedy (1997: 191), the questionnaire is a commonplace

instrument for observing data beyond the reach of the observer.

Leedy (1997: 192) goes on to mention that a questionnaire must be designed to

fulfil a specific research objective. In this research, the objective was to solve

the first subproblem. For this reason, the questionnaire was based around the

five operational competencies of quality, price, delivery lead-time, reliability and

volume.

3.4 TYPES OF QUESTIONS

The questions were put forward to the EGS managers through a series of

positively worded statements. The respondents were requested to indicate their

level of agreement with the statements, ranging from strong agreement to

strong disagreement.

In order to obtain uniformity throughout the questionnaire, a five-point Likert

system was used, with the following grading:

1 – Strongly disagree;

2 – Disagree;

3 – Normal;

4 – Agree;

5 – Strongly agree.

The questionnaire comprised twenty-one questions, which covered the five

operational competencies of quality, price, delivery lead-time, reliability and

volume.

All ten of the managers who were approached to complete the questionnaire

returned the completed forms within ten days of the questionnaire being sent

out to them.

The questions used in this research are shown below, subdivided into the five

operational competencies:

3.4.1 Quality

• The products supplied to EGS by ESA, meet the quality specifications

set out in the supply contract;

• Compared with other suppliers, the quality of ESA products is high;

• The quality inspection procedure is consistent with each inspection;

• The quality inspection procedures and criteria used by EGS are used by

• Quality is the most important aspect considered when evaluating a

supplier.

The purpose of these questions was to identify the level of importance of quality

to EGS, the level of quality supplied by ESA in comparison to its competitors,

and the level of conformity between EGS and ESA with respect to quality

evaluation procedures.

3.4.2 Price

• EGS always obtains prices from various suppliers prior to awarding

contracts;

• Compared to other suppliers, ESA has the lowest prices;

• Price is the most important aspect considered when evaluating a

supplier.

The purpose of these questions was to determine the importance of the price of

the products to EGS, and the comparison of ESA’s prices to those of its

competitors.

3.4.3 Delivery lead-time

• The delivery lead-time of ESA directly benefits our inventory costs;

We would like ESA to reduce their delivery lead-time;

• Compared to other suppliers, ESA has a short delivery lead-time;

• Delivery lead-time is the most important aspect considered when

evaluating a supplier;

The purpose of these questions was to determine whether the delivery lead-

time of ESA provides EGS with any cost benefits, the comparison of the

delivery lead-times between ESA and its competitors, and the importance of

delivery lead-time to EGS.

3.4.4 Reliability

• ESA’s delivery of product quantity is always correct;

• ESA’s delivery of product type is always correct;

• The reliability of supply of ESA allows us to reduce our inventory levels;

• Compared with other suppliers, ESA is the most reliable;

• Reliability is the most important aspect considered when evaluating a

supplier.

The purpose of these questions was to determine the reliability of ESA’s

delivery, the comparison between ESA’s reliability and that of its competitors,

whether the reliability of ESA’s delivery provides EGS with any cost benefit, and

the importance of reliable delivery to EGS.

3.4.5 Volume

• The volume of our demand is highly variable (more than 10% per order);

• Compared with other suppliers, ESA meets our varying demand the best;

• The ability of a supplier to deliver varying volumes of product is the most

important aspect considered when evaluating a supplier.

The purpose of these questions was to identify whether EGS’s demand was

variable by more than 10% per month, whether ESA was more capable than its

competitors at meeting the variable demand, and the importance of suppliers

meeting variable demand to EGS.

3.4.6 General topics

• On a scale of one to five (1 = least important, 5 = most important), which

of the following five factors are most important to you when selecting a

supplier: 1. Quality;

2. Price;

3. Delivery lead-time;

4. Reliability;

5. Volume.

The purpose of this question was to identify the relative importance of each

operations competency.

3.5 ADMINISTERING THE QUESTIONNAIRE

The names of the ten managers within the various EGS departments were

obtained from ESA. The questionnaire, along with a covering letter, was

individually posted to each manager.

The covering letter explained the purpose of the questionnaire (to identify what

EGS’s requirements were) and the benefits that completion of the questionnaire

would provide for EGS.

As such a small data source was used, the managers were asked not to

discuss the questionnaire with each other, but rather with the employees within

their respective departments. In this way it was hoped to avoid receiving one

general response from all the managers.

3.6 FIELD STUDY AND CAUSAL-COMPARATIVE METHOD

By following this method of data collection, the researcher gathered data

directly from the ESA Operations department, through interaction, discussions

and working with the employees of ESA. The existing production methods and

procedures used within the operations department were observed and

recorded, and used to identify causes of operations advantage or disadvantage.

In keeping with the aim of solving the second subproblem, focus was placed on

the five operational competencies being researched. The focus placed on each

of these competencies is listed below:

3.6.1 Quality

The quality factors that were observed within the operations department of ESA

• Incoming leather hide inspections;

• Pre-cutting hide inspections;

• Pre-packaging leather panel inspections;

• Internal reject rates;

• External reject rates.

3.6.2 Price

The direct factors influencing the price of ESA’s products vary tremendously.

For the purpose of this study, only the factors within the operations department,

that influence the price of the products, were researched. These factors were

directly related to the utilisation of the resources within the operations

department, and are listed below:

• Size of the leather hide;

• Defects within the hide, such as holes, scratches, tick bite marks and

colour variations;

• Placing of the cutting knives on the hides;

• Rate of production.

The time taken from the initial order placement by the client, to the delivery of

the product to the client, required the researcher to study both the operations

department and the sales department of ESA. The procedures followed and

times taken during the order to delivery cycle were observed, with focus placed

on the following factors:

• Initial order placement method;

• Confirmation of orders;

• Finished product stock levels;

• Customs clearance requirements and times (domestic);

• Flight times and clearance requirements (foreign);

• Delivery procedures (foreign).

3.6.4 Reliability

The methods used by ESA to ensure the delivery of the correct product types,

and quantities within the specified times, required the researcher to study both

the operations department and the sales department of ESA. The procedures

followed and times taken during the order to delivery cycle were observed, with

focus placed on the following factors:

• Finished product stock levels;

• Confirmation of order (Client);

• Inspection of order fulfilment;

• Inspection of packaged items.

3.6.5 Volume

The factors within the operations department of ESA that affect the ability to

provide specific volumes of product to the Client were researched. These

factors are:

• Resource inventory levels;

• Finished product inventory levels;

• Production run set-up time;

• Production time;

• Resource order time.

The data that was gathered from the research carried out on these factors was

analysed and used to solve the second subproblem. The results of the research

are discussed in the following chapter.

3.7 VALIDITY AND RELIABILITY

According to Leedy (1997: 32), validity and reliability are two words that are

used primarily in connection with measurement instruments.

3.7.1 Validity

Leedy (1997: 32) states that validity is concerned with the soundness and

effectiveness of the measurement instrument.

According to Leedy (1997: 32), validity is used to assist the researcher to

identify whether what is supposed to be measured is being measured, and how

accurately it is being measured.

Leedy (1997: 33) states that there are various types of validity. The six most

common types are:

• Face validity, which relies on the subjective judgement of the researcher.

The researcher must judge whether the instrument is measuring what is

supposed to be measured. The researcher must ensure that the

questions are relative to the subject being investigated;

• Criterion validity, which is determined by relating performance on one

measure to the performance on another measure. The data of the

measuring instrument should correlate highly with equivalent data;

• Content validity, which is the accuracy with which an instrument

measures the factors being studied;

• Construct validity, which is a concept such as honesty that cannot be

observed. This type of validity is therefore concerned with the degree to

which the construct is measured;

• Internal validity, which is the freedom from bias in forming conclusions in

view of the data;

• External validity, which is concerned with whether the conclusions

reached in the study can be generalised in other cases.

The various validity types used in this research were face validity, criterion

validity and content validity.

In order to ensure validity, each question that was used in the questionnaire

was judged as to whether it was measuring the specific requirements of EGS,

and the performance of ESA in meeting these requirements. This ensured that

face validity was achieved.

The use of the Likert Scale provided sufficient accuracy of measurement. This

ensured that content validity was achieved.

3.7.2 Reliability

According to Leedy (1997: 35), reliability is the consistency with which a

measuring instrument performs. To be reliable, each instrument must

consistently and accurately measure the factors for which it was designed.

According to Leedy (1997: 35), there are a number of methods used to

establish reliability, namely the test-retest method, Cronbach’s Alpha

Coefficient, and a third method that seeks to establish interrater reliability.

It was initially decided to use the test-retest method to establish the reliability of

the results from the questionnaire. However, due to the consistency of the

responses received, the researcher was of the opinion that the results were

sufficiently consistent and accurately measured for the purpose of the research.

The test-retest method was therefore not used.

3.8 SUMMARY

The aim of this chapter was to develop a plan to follow in order to identify the

specific requirements of the market that ESA serves, and hence solve the first

subproblem (what are the specific requirements of ESA’s customers).

The following chapter focuses on the analysis of the data obtained from both

the Descriptive Survey Method and the Causal-Comparative and Case and

Field Study Methods.

CHAPTER FOUR

RESULTS OF THE EMPIRICAL STUDY

The aim of this chapter is to analyse the results of the Descriptive Survey

Method and the Field Study and Causal-comparative Methods.

By analysing and interpreting the data of these surveys, it will be possible to

identify the customer requirements and operations performance of ESA, and

hence determine whether a performance gap exists.

The surveys that were conducted both focussed on the operations

competencies of ESA, and hence the analysis of the survey data focusses on

these operations competencies.

4.1 ANALYSIS OF THE RESULTS OF THE DESCRIPTIVE SURVEY

METHOD

All ten questionnaires issued to EGS were returned to the researcher. The

responses to the positively phrased statements in the questionnaire were

analysed within the respective operational competency categories.

An analysis of the number and type of responses received was performed. An

analysis of the content of each statement was also carried out and the results of

this analysis are discussed further under the operational competency

categories.

4.1.1 Quality

Statement A1: The products supplied to EGS by ESA, meet the quality

specifications set out in the supply contract.

Fig. 4.1. Graphical representation of the results of Statement A1

50% of the respondents agreed that the products supplied by ESA met with the

quality specifications set out in the supply contract. 40% of the respondents

were neutral to the statement, and 10% of respondents disagreed with the

statement. No respondents strongly agreed or strongly disagreed with the

statement.

The analysis of the responses indicates that ESA does meet with the quality

specifications. However, a lack of respondents strongly agreeing with the

statement indicates that ESA’s products are not of the highest quality.

Statement A2: Compared with other suppliers, the quality of ESA products

is high.

As can be seen in Fig. 4.2 20% of respondents agreed with the statement that

compared with other suppliers, the quality of ESA products is high. 70% of

StronglyDisagree

Disagree Neutral Agree StronglyAgree

respondents were neutral to the statement, and 10% of respondents disagreed

with the statement.

The analysis of the reponses indicates that ESA products are of the same

quality as the products supplied to EGS by their competitors. This implies that

ESA should improve the level of its quality performance in order to achieve a

stronger market positioning compared to that of its competitors.

Statement A3: The quality inspection procedures used by EGS are

consistent with each inspection.

50% of respondents strongly agreed with the statement that the quality

inspection procedures used by EGS are consistent with each inspection. 40% of

the respondents agreed with the statement, and 10% of respondents were

neutral to the statement.

The analysis of the reponses indicates that the quality inspection procedures

used within EGS are consistent with each inspection.

StronglyDisagree

This should result in the same standard of quality evaluation by EGS for each

product that ESA supplies to EGS.

Statement A4: The quality inspection procedures and criteria used by EGS

are also used by ESA.

StronglyDisagree

50% of respondents disagreed with the statement that the quality inspection

procedures and criteria used by EGS are also used by ESA. 30 % of

respondents were neutral to the statement, 10 % of repsondents agreed with

the statement and 10% of respondents strongly disagreed with the statement.

The analysis of the responses indicates that the quality inspection procedures

and criteria used by EGS are different from those used by ESA. This implies

that the products supplied to EGS by ESA are being evaluated on two different

levels, and will result in EGS not approving products that ESA have approved.

Statement A5: Quality is the most important aspect considered by EGS

when evaluating a supplier.

60% of respondents strongly agreed with the statement that quality is the most

important aspect considered by EGS when evaluatiing a supplier. 40% of

respondents agreed with the statement.

The analysis of the responses indicates that quality is a highly important aspect

to EGS when they evaluate a supplier. This implies that ESA must focus on

0% 0% 0%

StronglyDisagree

providing exceptionally high levels of quality in order to obtain a competitive

advantage and obtain future supply contracts from EGS.

Based on the responses gathered under the quality competency category, EGS

require high levels of quality from their suppliers. Compared with other

suppliers, ESA products have an average level of quality.

As discussed in Chapter One, an order-winning factor is one which customers

regard as a key reason for purchasing a product from a specific supplier. From

the responses gathered under this category, it is evident that EGS perceive

quality to be an order-winning factor.

4.1.2 Price

Statement B1: EGS obtains prices from various suppliers prior to the

awarding of contracts.

50% of the repondents strongly agreed with the statement that EGS obtains

prices from various suppliers prior to the awarding of contracts. 50% of the

repondents agreed with the statement.

The analysis of the responses indicates that the price of the products supplied

to EGS is important, and that EGS attempts to obtain lower prices for products

through various suppliers.

Fig. 4.6. Graphical representation of the results of Statement B1

ESA therefore needs to focus on being able to provide EGS with low prices in

order to gain a competitive advantage over its competitors.

Statement B2: Compared with other suppliers, ESA has the lowest prices.

50 % of respondents agreed with the statement that compared with other

suppliers, ESA had the lowest prices. 40% of respondents strongly agreed with

the statement, and 10% of respondents were neutral to the statement.

StronglyDisagree

0% 0% 0%

50% 50%

StronglyDisagree

The analysis on the responses indicates that ESA have prices that are lower

than those of their competitors. This implies that ESA already has a competitive

advantage in this competency. ESA should focus on protecting this advantage.

Statement B3: Price is the most important aspect considered when

evaluating a supplier.

70% of the repondents agreed with the statement that price is the most

important aspect considered when evaluating a supplier. 20% of the repondents

strongly agreed with the statement, and 10% of respondents disagreed with the

statement. The 10% of respondents who disagreed with the statement may

have misinterpreted the statement, or may be strongly involved with other

operations competencies that they perceive to be more important.

From the analysis of the reponses, it is evident that price is a highly important

aspect to EGS when evaluating a supplier. This implies that ESA must focus on

continuing to provide EGS with prices that are lower than those of its

competitors.

StronglyDisagree

Based on the responses gathered under the price competency category, it is

evident that EGS place a strong emphasis on the prices of the products offered

by suppliers. Compared with its competitors, ESA has the lowest price.

As discussed in Chapter One, an order-winning factor is one which customers

regard as a key reason for purchasing a product from a specific supplier. From

the responses gathered under this category, it is evident that EGS perceive

price to be an order-winning factor.

Statement C1: The delivery lead-time of ESA creates a reduction in our

inventory costs.

Fig. 4.9. Graphical representation of the results of Statement C1

60% of respondents agreed with the statement that the delivery lead-time of

ESA creates a reduction in EGS’s inventory costs. 20% of respondents were

neutral to the statement and 20% of respondents disagreed with the statement.

The analysis of the reponses indicates that the delivery lead-time provided by

ESA enables EGS to reduce its inventory costs. This provides EGS with an

added benefit.

20% 20%

StronglyDisagree

Statement C2: We would like ESA to reduce their delivery lead-time.

Fig 4.10. Graphical representation of the results of Statement C2

80% of respondents agreed with the statement that EGS would like ESA to

reduce their delivery lead-time. 20% of respondents strongly agreed with the

statement.

The analysis of the reponses indicates that there is a strong desire at EGS to

have the delivery lead-time of ESA reduced. This is an indication of the fact that

a short delivery lead-time provides EGS with a benefit.

Statement C3: Compared to its competitors, ESA has the shortest delivery

lead-time.

0% 0% 0%

StronglyDisagree

60% of respondents disagreed with the statement that, compared with its

competitors, ESA has the shortest delivery lead-time. 30% of respondents were

neutral to the statement, and 10% of respondents strongly disagreed with the

statement.

The analysis of the reponses indicates that the respondents believed that,

compared with its competitors, ESA does not have the shortest delivery lead-

time. This is directly due to ESA’s location compared to that of its competitors in

central Europe. ESA must identify methods that will result in a reduction to their

delivery lead-time.

Statement C4: Delivery lead-time is the most important aspect considered

when evaluating a supplier.

0% 0%0%

StronglyDisagree

70% of respondents were neutral to the statement that delivery lead-time is the

most important aspect considered when evaluating a supplier. 20% of

respondents disagreed with the statement, and 10% of respondents agreed with

the statement.

The analysis of the responses indicates that delivery lead-time is not the most

important factor considered when evaluating a supplier. However, the fact that

the majority of respondents did not disagree with the statement, indicates that

delivery lead-time does form part of the evaluation of suppliers.

Based on the reponses gathered under the delivery lead-time competency

category, it is evident that the delivery lead-time of ESA enables EGS to have

lower inventory costs, due to the fact that they can afford to hold smaller

volumes of stock due to the short time that it takes to receive an order. A

reduction in the delivery lead-time of ESA would benefit EGS, and hence EGS

would prefer the delivery lead-time to be reduced. Compared with its

competitors, ESA does not have the shortest delivery lead-time.

StronglyDisagree

As discussed in Chapter One, a qualifying factor is one where the operations

performance of a supplier must be above a certain level in order to be

considered by a customer. From the responses gathered, it is evident that

delivery lead-time is a qualifying factor. ESA do not have the shortest delivery

lead-time, but its performance is above the required performance level, such

that it is considered for supplying products to EGS.

4.1.4 Reliability

Statement D1: ESA’s delivery of product quantity is always correct.

Fig. 4.13. Graphical representation of the results of Statement D1

60% of the respondents agreed with the statement that the delivery of product

quantity is always correct. 30% of respondents were neutral to the statement,

and 10% of respondents strongly agreed with the statement.

The analysis of the responses indicates that ESA delivers the correct quantities

of products, as ordered by EGS. This implies that ESA makes use of suffcient

procedures to check their orders prior to shipment.

StronglyDisagree

Statement D2: ESA’s delivery of product type is always correct.

50% of respondents strongly agreed with the statement that the delivery of

product type is always correct. 20% of respondents strongly agreed with the

statement, 20% of the respondents were neutral to the statement, and 10% of

respondents disagreed with the statement.

The analysis of the responses indicates that ESA delivers the correct type of

product, as ordered by EGS. This implies that ESA makes use of suffcient

procedures to check their orders prior to shipment.

StronglyDisagree

Statement D3: The reliability of supply from ESA allows EGS to reduce its

inventory.

90% of respondents were neutral to the statement that the reliability of supply

from ESA allows EGS to reduce its inventory levels. 10% of respondents

agreed with the statement.

The analysis of the responses indicates that the reliability of the supply of ESA

does not have an effect on the levels of EGS’s inventory. This implies that EGS

do not store large quantities of inventory, and hence have low inventory holding

costs. The supply of incorrect product quantities and types of products to EGS

will therefore detrimentally affect EGS’s production.

Statement D4: Compared with its competitors, ESA is the most reliable

StronglyDisagree

60% of the respondents agreed with the statement that compared with its

competitors, ESA is the most reliable supplier. 30% of respondents strongly

agreed with the statement and 10% of respondents were neutral to the

statement.

The analysis of the responses indicates that ESA is more reliable at supplying

the correct product quantities and product types than its competitors. This

implies that ESA have a competitive advantage with respect to the reliability of

their supply.

Statement D5: Reliability is the most important aspect considered when

evaluating a supplier.

StronglyDisagree

60% of the respondents were neutral to the statement that reliability is the most

important aspect considered when evaluating a supplier. 30% of respondents

disagreed with the statement, and 10% of respondents agreed with the

statement.

The analysis of the responses indicates that reliability is not the most important

aspect considered by EGS when evaluating a supplier. However, the fact that

the majority of respondents did not disagree with the statement, indicates that

reliability does form part of the evaluation of suppliers.

Based on the responses gathered under the reliability competency category, it

is evident that ESA’s reliability is of a high standard, and is superior to that of its

competitors. This reliability does not provide EGS with a direct benefit, but is still

an aspect considered when evaluating a supplier.

considered by a customer. From the responses gathered, it is evident that

reliability is a qualifying factor.

StronglyDisagree

4.1.5 Volume

Statement E1: The volume of EGS’s demand varies by more than 10% on a

monthly basis.

Fig. 4.18. Graphical representation of the results of Statement E1

50% of respondents were neutral to the statement that the volume of EGS’s

demand varies by more than 10% on a monthly basis. 40% of respondents

disagreed with the statement, and 10% of respondents agreed with the

statement.

The analysis of the responses indicates that the volume of EGS’s demand does

not vary by more than 10% per month. This implies that strong performance

with respect to this operations competency is not critically essential to EGS.

Statement E2: Compared with its competitors, ESA supplies varying

volumes of product the best.

StronglyDisagree

80% of respondents were neutral to the statement that compared with its

competitors, ESA supplies varying volumes of product the best. 20% of

respondents agreed with the statement.

The analysis of the responses indicates that ESA supplies varying volumes of

products just as well as its competitors do. This implies that ESA has little or no

competitive advantage with respect to this operations competency.

Statement E3: The ability of a supplier to deliver varying volumes of

product, is the most important aspect considered when evaluating a

supplier.

50% of respondents were neutral to the statement that the ability of a supplier to

deliver varying volumes of product, is the most important aspect considered

when evaluating a supplier. 40% of respondents disagreed with the statement,

and 10% of the respondents agreed with the statement.

StronglyDisagree

The analysis of the responses indicates that the ability of a supplier to deliver

varying volumes of product, is the not the most important aspect considered by

EGS when evaluating a supplier. However, the fact that the majority of

respondents did not disagree with the statement, indicates that reliability does

form part of the evaluation of suppliers.

Based on the responses gathered under the volume competency category, it is

evident that the demand of EGS does not vary by more than 10% per month,

and that the ability of a supplier to deliver varying volumes of product to EGS is

not the most important aspect considered by EGS when evaluating a supplier.

When compared with its competitors, ESA supply varying volumes of product

with the same competence.

considered by a customer. From the responses gathered, it is evident that the

ability of a supplier to deliver varying volumes of product is a qualifying factor.

StronglyDisagree

4.1.6 General

Statement 1: On a scale of 1 to 5 (where 1= least important and 5= most

important), which of the following five factors are most important to you

when selecting a supplier: Quality, Price, Delivery lead-time, Reliabiltiy

and Volume?

In order to constructively evaluate the ranking of these operations

competencies, a weighting system was used. The scale of one to five that was

used for allocating the least important to most important factors, was also used

as the weighting system. An operations competency that was ranked as the

least important factor by a respondent, was allocated one point, whilst a factor

that was ranked as most important was allocated five points. The more points

that were scored by an operations competency, the higher its ranking. The

higher the ranking of the operations competency, the greater its importance to

The resultant points scored and subsequent rankings per operations

competency are indicated below.

Operations Competency Points Scored Ranking

Quality 46 1

Price 41 2

Delivery lead-time 27 3

Reliability 21 4

Volume 13 5

The analysis of the weighted responses indicates that quality and price are the

most important factors considered by EGS when selecting a supplier. Delivery

lead-time and reliability are not as important selection criteria as quality and

price. Volume is the least important selection criterion of the five operations

competencies.

4.2 ANALYSIS OF THE FIELD STUDY AND CAUSAL-COMPARATIVE

METHOD

The researcher gathered the data directly from the operations department of

ESA, through interaction, discussions and working with the employees of ESA.

The existing production methods and procedures used within the operations

department were observed and recorded, and used to identify the causes of

operations advantage and disadvantage.

During the collection of the data, focus was placed on the five operational

competencies of ESA that are being researched. The analysis of the data

collected, with respect to these competencies is listed below.

4.2.1 Quality

4.2.1.1 Incoming leather inspection

Each batch of leather hides that is received by ESA from its supplier is

inspected for major defects on delivery. Each hide is laid on a work bench and

visually inspected to ensure that the colour of the hide is consistent over its area

and that there is no moisture damage to the hide.

This visual inspection is a demanding operation, and fatigue of the inspectors’

results in colour defects not being identified. This was evident during the

research. Effective colour deviation identification also requires sufficient levels

of lighting to be present. The operations manager at ESA ensures that this is

the case, by measuring the light levels with a light meter, at the start of every

shift.

ESA has a policy in place that requires every leather inspector to have an eye

test on entry to the organisation, and every six months thereafter. This is done

to ensure that their eyesight is of a sufficient standard in order to be able to

detect the colour deviations present in some leather hides. This can benefit both

ESA and the employee in the event of a dispute arising over the topic of

working conditions affecting eyesight.

The quality manager of ESA takes a single leather sample from each batch of

hides received from the supplier. This sample is then put through various quality

tests to ensure that the leather being used in the manufacturing process meets

with the quality specifications as set out by EGS. These tests are performed

within the quality laboratory at ESA, and include stretch tests, colour tests, burn

tests, rub tests and thickness tests. The tests are carried out under strict

conformance to EGS specifications. EGS representatives inspect the laboratory

and testing procedures every six months to ensure conformance to its

specifications. In the event of a test sample failing the required quality tests, the

entire batch of leather is returned to the supplier.

By following such a rigorous inspection of the leather, poor quality materials are

removed from the production process at very little cost to ESA.

4.2.1.2 Pre-cutting leather inspection

After the incoming leather inspection, the hides are moved through to the

production lines. Here the hides go through another inspection process,

whereby all surface defects are identified. These surface defects include holes,

scratches, tickbite marks, cuts and pattern defects.

As a leather hide is from a living animal, scratches and tickbites are inevitable.

In order to set a standard for what marks are acceptable and what are not, EGS

developed a catalogue of photographs and leather samples, depicting

acceptable and unacceptable defects. The leather inspectors at ESA are trained

to ientify and mark the unacceptable defects.

As with the incoming leather inspection, fatigue of inspectors affects the

identification of unacceptable defects on the hide. This was evident during the

research.

Once the unacceptable defects have been marked, the leather hide is sent

through to the cutting press. The leather hide is then laid on the cutting table.

The cutters place their cutting knives onto the hides, ensuring that the

unacceptable defects that have been marked are not within the cutting area of

the individual knives.

Unacceptable defects that are not identified by the inspectors, will fall within the

cutting area, and will then form part of the cut leather panel. These panels

cannot be sold to EGS, and are scrapped. During the research period,

numerous panels had to be scrapped due to this reason.

4.2.1.3 Pre-packaging leather panel inspection

The cut leather panels are transferred to the pre-packaging inspection area.

Here each panel is inspected to identify whether any unacceptable defects are

present. The defects that are found are marked with a yellow sticker. The

quality manager inspects all reject panels in order to ascertain whether the

defect is unacceptable or not.

Those panels with unacceptable rejects are reject panels, and are scrapped.

The panels with acceptable rejects are returned to the packaging area for

inclusion in the next order.

All panels that are rejected at this stage are recorded on the specific job cards.

The type of defect and the number of defects per batch are recorded. As was

evident during the research, the types of defects found were not always

recorded. This lack of defect identification on the job cards, restricts the quality

manager identifying the types of defects occuring, and therefore restricts

effective corrective action from taking place.

As was evident from the research, another restriction to corrective action taking

place is the fact that defective panels cannot be traced back to a specific pre-

cutting inspector. Hides that are inspected at the pre-cutting stage are randomly

transferred to the cutting presses. During the research period, many defective

panels were the result of inadequate inspection at the pre-cutting inspection

tables. The quality manager was unable to identify which inspectors were not

identifying all the defects.

Not being able to identify exactly which inspector is responsible for the defects

resulted in a lack of responsibility and control within the production facility.

4.2.1.4 Internal reject rates

During the research period, the researcher monitored the levels of internal

rejects. During this time, the internal reject scrap rate was 0,54% of the panels

produced on the B6-line, and 1,10% of the panels produced on the C5-line. The

acceptable reject rate as determined by the industry standard is 1000 parts per

million, or 0,10% of the panels produced.

Thus the internal reject scrap rate for the B6-line is five times more than the

industry standard, and that of the C5-line eleven times more than the industry

standard. These levels are therefore much higher than the industry standard,

and need to be reduced.

4.2.1.5 External reject rates

Despite the thorough inspections carried out at the pre-cutting inspection, the

pre-packaging inspection and the quality manager inspection, EGS frequently

return shipments of panels that are deemed to be rejects.

During the research period, the researcher monitored the levels of external

rejects. An entire shipment of C5 panels was returned to ESA by EGS due to

excessive reject panels. Each of these panels was inspected by ESA’s quality

manager and the researcher.

The templates provided by EGS for the identification of acceptable and

unacceptable defects were used in the inspection. The outcome of this

inspection was that 45% of the panels returned by EGS were deemed as being

rejects, whilst 55% of the panels were deemed as being acceptable.

It was evident from this research that the inspection standards used by EGS

were too critical, compared to those set out in the supply contract.

A summary of the field study results affecting the quality competence of ESA

are listed below:

Visual inspection of the leather hides leads to fatigue;

Sufficient levels of lighting are required for leather inspections;

A single leather sample is tested from each batch of leather received;

Leather inspectors have their eyes tested on entry into ESA, and every six

months thereafter;

A defects catalogue was supplied to ESA by EGS for identification of

acceptable and unacceptable leather defects;

The quality manager inspected all rejected panels to ensure that they

possessed unacceptable defects;

Unacceptable defects that were found in cut panels, caused the entire panel to

be rejected and scrapped;

Numerous defects that were found in cut panels, were not recorded on the job

sheets;

Reject panels were not traceable back to a specific inspector;

It was evident that there was a lack of responsibility and control within the

production facility;

Internal reject rates for B6 panels were 0,54% and for C5 panels 1,10%;

Acceptable reject rates as per industry standards were 0,10%;

Employees were not aware of the quality levels that they were achieving, or

were required to achieve;

It was evident that the inspection standards used by EGS were too critical,

compared to the standards set out in the supply contract.

4.2.2 Price

For the purpose of this study, only the factors that influence the price of the

products within the operations department were researched.

The main resource of production is the leather used to make the door panels.

Hence, the leather makes up the majority of the costs of the product. Utilisation

of this resource directly influences the cost of the product to ESA, and to its

client EGS.

ESA prices its products based on a set mark-up of the cost to produce. For the

B6 and C5 panels, the cost to produce is based on a leather utilisation of 65%.

This means that 65% of the leather must become acceptable panels. An

allowance for the scrapping of 35% of the area of the hide is made, in order to

cover the cost of defects in the leather and parts of the hide that cannot be used

to produce a complete panel due to the irregular shape of the hide. Any

utilisation below 65% results in a loss of profit for ESA. Any utilisation above

65% results in a gain in profit for ESA.

During the research period, the utilisations of the leather cut on the B6 and C5

lines were recorded. The utilisation achieved on the B6-line was 62,3%, and on

the C5-line 64,8%. These figures were slightly inflated as they did not include

external rejects due to the fact that the panels were not supplied to EGS during

the research period. Had the external reject figures been included, the

utilisations achieved on both the B6 and C5-lines would have been less. It was

evident from the utilisations calculated (excluding external rejects) that the

levels of utilisation achieved on the B6 and C5-lines were well below the

required 65% utilisation level.

The factors affecting the price of ESA’s products are discussed further.

4.2.2.1 Size of the leather hide

It was evident from the research that the size of the leather hide that is cut,

directly influences the levels of utilisation achieved.

During the cutting process, the area of each hide is recorded, and the number

of panels cut from that specific hide is also recorded. This enables the

researcher to calculate the utilisation of each hide. During the research period,

the utilisations achieved from each hide were recorded, and compared to the

size of the hide. It was evident from this research, that the larger the size of the

hide, the greater the utilisation achieved. Hides that were greater than 4,0m2 in

area, consistently provided utilisations above 65%.

4.2.2.2 Defects within the leather hides

It was evident from the research that the number of defects within the leather

hides directly influences the utilisations achieved.

A defect that is marked on the hide cannot be placed within the cutting area of

the panel template. The cutters therefore have to position their cutting knives

such that the leather defects are outside the cutting area. The greater the

number of defects in the hide results in a reduction of the area of acceptable

leather within which the cutting knives can be placed, and lowers the utilisation

of the hide.

It was evident from the research that hides with numerous defects were being

cut, and utilisation levels as low as 40% were being achieved from such hides.

4.2.2.3 Placing of the cutting knives

It was evident from the research that the positioning of the cutting knives on the

leather hides directly influenced the utilisation.

Due to the irregular shape and size of the leather hide, the irregular shape of

the cutting knives, and the presence of defects within the hide, there is no set

positioning of the cutting knives that will produce the highest possible utilisation

from each hide. The cutters are required to place their knives differently for

each hide.

The panels that are produced for the front doors of vehicles are different in size

and shape to those panels produced for the rear doors of the vehicle. This adds

further difficulty for the cutters when placing their knives for maximum utilisation.

It was evident from the research that the employees responsible for positioning

the knives (the cutters) on the hides, were not aware of the utilisation levels that

they were achieving. They were merely placing the knives in such a way as to

avoid the defects that were marked on the hides.

During the research period, the researcher worked with the cutters to attempt to

identify the best combinations of front and rear panel-cutting knives for

achieving maximum utilisation. It was evident that placing only front, or only rear

panel cutting knives, onto a hide, achieved a higher utilisation of the hide. This

was due to the fact that the identical shapes of the panels fit more closely to

one another and hence produced greater utilisations.

4.2.2.4 Rate of production

It was evident that the rate of production has a relatively low impact on the cost

of the leather panels. This was due to the fact that the cost of 1m2 of leather

was twenty times more expensive than the hourly wage rate of the employees

on the B6 and C5 production lines. To put this into perspective, the leather cost

of one panel was equivalent to three labour hours on the B6 and C5 production

lines.

It was evident from the research that it would be more financially benficial to

ESA to focus more on the utilisation of the leather than on the rate of

production, as long as the rate of production is still sufficient enough to meet the

supply requirements.

A summary of the field study results affecting the price competence of ESA are

listed below:

• ESA prices are based on cost plus a set markup percentage;

• Utilisation of leather below 65% results in a loss of profit;

• Utilisation levels achieved during the research period were 62,3% on the

B6 production line, and 64,8% on the C5 production line;

• Leather hides with an area greater than 4,0m2 consistently provided

utilisation levels above 65%;

• The greater the number of defects found in the leather hide, the lower the

utilisation of that hide;

• Leather cutters were not aware of the utilisation levels that they were

achieving;

• By placing only front or only rear panel cutting knives on the hides,

greater utilisation levels were achieved;

• The leather cost of one panel was equivalent to three labour hours.

The time taken from the initial order placement by EGS, to the delivery of the

product to EGS, required the researcher to study both the operations

department and the sales department of ESA. The procedures followed and the

times taken during the order-to-delivery cycle were analysed.

4.2.3.1 Initial order placement

All orders placed by EGS are done via electronic mail. EGS provides ESA with

an eight week forecast of its demand quantities. EGS were allowed to revise

these quantities closer to the order fulfillment date.

From the research it was evident that this method of providing a demand

forecast benefitted ESA, as it gave them an indication of the quantities to expect

during the eight week period, enabling them to plan their production and

resource acquisition effectively.

4.2.3.2 Confirmation of orders

EGS are required to provide confirmation of their order quantity and type, two

weeks prior to the shipment of their order. This confirmation however, does not

fix the quantity ordered, but rather fixes the minimum quantity of the order.

Once this confirmation has been received by ESA, EGS are still entitled to

increase the quantity of the order, provided that this is done more than 48 hours

prior to shipment.

It was evident from the research that this method of order confirmation greatly

benefitted EGS. It allowed them to increase their demand at a late stage of the

order process, and hence transferred the inventory holding costs to ESA.

4.2.3.3 Finished stock levels

As part of the supply contract, ESA are required to keep two weeks’ production

worth of finished stock in its premises at all times. This enables EGS to increase

its order quantity within the two weeks’ confirmation period, and still be ensured

of receiving the correct quantity of product ordered.

It was evident from the research that the levels of finished stock that ESA was

required to hold, greatly benefitted EGS by transferring the inventory holding

cost to ESA. During the research period, the researcher identified that the

required levels of finished stock were not always adhered to by ESA. This was

due to the fact that ESA were attempting to keep their inventory holding costs

as low as possible. This could have disastrous consequences should EGS

greatly increase their order demand 48 hours prior to shipment.

4.2.3.4 Customs clearance requirements

All orders leave ESA on Friday afternoons. As the products are exported, ESA

are required to have their products and shipment documentation cleared by

South African Customs Officials prior to shipment.

Customs officials inspect the ordered products and shipment documentation on

Thursday afternoons, prior to the following day’s shipment. All boxes that are to

be shipped to EGS, must be sealed, marked with identification of order

quantities and types, and placed within the customs holding area at ESA. These

products then remain within the customs holding area, and cannot be touched

until loading for shipment on Friday afternoons.

This procedure makes it necessary for all products and documentation for the

order, to be completed by Thursday afternoon, prior to the arrival of the customs

officials. Failure to meet this deadline will result in the shipment of the order

being delayed.

The orders that are cleared by the customs officials, are transported to the

Airports Company of South Africa (ACSA) Cargo Depot on Friday afternoons.

The orders are packed into containers and transported to Johannesburg on

Friday nights. The containers are then flown to Frankfurt, Germany on Saturday

nights.

It was evident from the research, that the procedure followed by ESA in

obtaining customs clearance of their orders is a rushed and pressurised

procedure. Conflict between ESA employees is a common event, prior to the

arrival of the customs officials.

4.2.3.5 Flight times and Customs Clearance in Germany

The products ordered by EGS are flown to Frankfurt, Germany on Saturday

nights. Provided that all documentation is correct, the products are cleared from

the German customs on Tuesday mornings.

It was evident from the research that this method of transport of product is a fast

and reliable way of delivering products to EGS. Delays by German customs,

due to incorrect documentation, have not occurred.

4.2.3.6 Delivery

Products that are cleared from the German Customs are transported to EGS in

Stuttgart via a door-to-door delivery service, and arrive at EGS on Wednesday

mornings.

It was evident from the research that the method of door-to-door delivery of the

orders is quick and efficient and greatly reduces the delivery lead-time.

The time period from final confirmation of fixed quantity, to the delivery of the

order at EGS in Stuttgart is one week. The delivery lead-time of ESA’s

competitors is slightly shorter than one week. This is due to their location in

central Europe, which reduces their transport times and customs clearance

times.

A summary of the field study results affecting the delivery lead-time competence

of ESA are listed below:

• All orders that are placed by EGS are done via electronic mail;

• EGS provides ESA with an eight week demand forecast;

• The minimum quantity of an order is fixed two weeks prior to shipment;

• The final quantity of the order is confirmed 48 hours prior to shipment;

• ESA are required to keep two weeks’ production worth of finished

products in stock at all times;

• Customs clearance of orders takes place on Thursday afternoons;

• Orders are delivered to the ACSA Cargo Depot on Friday afternoons;

• Orders arrive in Frankfurt, Germany on Sunday mornings, and are

cleared from German customs on Tuesday mornings;

• Orders are delivered to EGS in Stuttgart on Wednesday mornings.

4.2.4 Reliability

The methods used by ESA to ensure the delivery of the correct product types

and quantities within the specified time required the researcher to study both

the operations department and sales department of ESA.

4.2.4.1 Finished stock levels

As part of their supply contract, ESA are required to keep two weeks’ production

worth of finished stock in its premises at all times. This is done to ensure that

ESA have sufficient stock levels to meet with EGS’s demand.

From the research it was evident that ESA did not adhere to this requirement.

At the time of the research period, the levels of finished products in stock were

only two days’ worth of production. This had been caused by a low rate of

production and increased order quantities in the weeks leading up to the

research period.

4.2.4.2 Confirmation of order

EGS are required to confirm their order two weeks prior to shipment. This

confirmation however, is only a confirmation of minimum order quantity. Final

confirmation of fixed order quantity occurs a minimum of 48 hours prior to

shipment, which is 17h00 on Wednesday afternoons.

It was evident from the research that the final confirmation of fixed quantity

occurs on Wednesday afternoons, enabling ESA suffificent time to organise

packaging, documentation and customs clearance of the orders.

4.2.4.3 Inspection of packaged items

Prior to the finished products being packed into boxes, the panels are sorted

into batches of 70 panels, all of the same type. These batches are then packed

into the boxes, which are labelled according to batch number, product type and

product quantity.

From the research it was evident that this process is strictly adhered to. Each

panel type has a dedicated sorting table where the panels are counted and

packed into boxes. Each sorting table only deals with one type of panel,

reducing the possible error in box labelling.

4.2.4.4 Inspection of order fulfilment

All boxes of finished products are labelled with information pertaining to batch

numbers, product types and product quantities. Prior to the customs clearance

process, the boxes are checked to ensure ensure that their information labels

correlate with the product quantities and types as stipulated in the order and

customs clearance documentation. Should errors not be identified prior to the

customs inspection, and are identified by the customs officials, the shipment will

be delayed and the reliability of ESA will be damaged.

From the research it was evident that this process is methodically carried out for

every order, and that errors in the order quantities and types are identified prior

to customs clearance.

A summary of the field study results affecting the reliability competence of ESA

are listed below:

products in stock at all times;

• ESA were not adhering to the two weeks’ stock level;

• Final confirmation of order 48 hours prior to shipment allowed ESA

sufficient time to organise packaging, documentation and customs

clearance of the orders;

• All packaged boxes were labelled according to batch number, product

type and product quantity packed into each specific box;

• Box labels were checked for correlation with the order placed and the

customs clearance documentation.

4.2.5 Volume

The factors within the operations department that affect the ability of ESA to

provide specific volumes of product to EGS were researched.

4.2.5.1 Resource inventory levels

Production planning, based on the eight week demand forecast supplied by

EGS, allows for the identification of future resource requirements. As with the

majority of other operations competencies within ESA, the leather is the major

resource required. The production planning department carry out a monthly

stock-take and compare the inventory levels to the forthcoming month’s

production requirements.

The process followed is such that at all times there is two weeks’ production

worth of leather and other relevant resources. From the research undertaken, it

was evident that this rule is strictly adhered to by the purchasing

department. The two weeks’

production worth of leather and relevant resources ensures that there is never a

shortage of resources for production.

ESA makes use of a skills development programme whereby employees are

taught the skills of more than one job within the production facility. in this way,

employees are competent to carry out other employees jobs within the

operations department. In the event of an employee being absent from work,

another employee who is skilled in the absent employees job can be drafted

into that position. This ensures that the rate of production is not drastically

affected, and enables ESA to keep a constant volume of finished product being

produced.

From the research it was evident that the majority of the employees are skilled

in more than one job, and can competently carry out another employees

responsibilities.

4.2.5.2 Finished product inventory levels

Based on the weekly production plan, ESA are required by EGS to ensure that

the have two weeks’ production worth of finished product in stock. This enables

EGS to increase the volume of its weekly order at any time.

It was evident from the research that the two weeks’ production worth of

finished goods in stock was not being adhered to by ESA. This had been

caused by a lower rate of production and increased order quantities by EGS in

the weeks leading up to the research period.

During the research period, overtime was worked by the B6 and C5 production

lines in order to increase the finished goods inventory levels to the require two

weeks’ worth of production.

It was evident from the research, that little concern for the finished stock levels

had been shown by the production team leaders on the B6 and C5 production

lines. It was necessary to work overtime in order to meet the week’s order

volume.

A summary of the field study results affecting the volume competence of ESA

are listed below:

• ESA’s production planning is based on the eight week forecast supplied

by EGS;

• ESA carries out a monthly stock take of raw materials;

• Correlation of stock levels and demand forecasts enables ESA to identify

the raw materials required for production;

• Two weeks’ production worth of raw materials is in stock at ESA at all

times;

• ESA makes use of a Skills Development Programme whereby the

production facility employees are taught the skills of other jobs within the

production facility;

• No rotation of multi-skilled employees occurs within ESA;

product in stock at all times;

• ESA were not adhering to the required two weeks’ of finished stock.

4.3 SUMMARY

The aim of this chapter was to analyse the data gathered from the Descriptive

Survey Method and the Field Study and Causal-comparative Methods.

By analysing and interpreting the data from these surveys, it was possible to

identify the customer requirements and operations performances of ESA, and

hence determine whether a performance gap existed.

The surveys that were conducted, both focussed on the operations

competencies of ESA, and hence the analysis of the survey data focussed on

these operations competencies.

From the Descriptive Survey Method, it was evident that EGS view delivery

lead-time, reliability and volume as order qualifying factors, and quality and

price as order winning factors.

From the Field Study and Causal-comparative Methods, it was evident that the

performance of ESA with respect to delivery lead-time, reliability and volume

was high. Performance with respect to quality and price were not at optimum

levels and needed improvement. This indicated that ESA were performing

highly with respect to order qualifying factors, but not performing highly with

respect to order-winning factors.

A performance gap between EGS requirements and ESA performance exists

with respect to the quality competency of ESA. The price competency of ESA

compares favourably to that of its competitors. Reduction in the production

costs of ESA products will improve the price of its products, and greatly improve

its performance with respect to this order-winning factor.

CHAPTER 5

CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

The aim of this chapter is to make recommendations based on the analysis of

the empirical study, that will solve the main problem (what operations strategy

must be formulated by Eissmann South Africa in order to accommodate the

changes in the market requirements, and meet the needs of its customers). This

was achieved by solving the three subproblems namely:

1. What are the specific requirements of ESA’s customer?

2. Does ESA’s operations performance enable it to fulfil the customer

requirements?

3. How can the performance gap between customer requirements and

operations performance be bridged?

The performance of ESA with respect to the five operations competencies

discussed in this research will be compared to the requirements of EGS. The

levels of performance will be discussed, with recommendations made as to the

methods of improvement required where the performances are below the

requirements of EGS.

5.2 QUALITY COMPETENCY

As discussed in Chapter 4, quality is the most important aspect considered by

EGS when selecting a supplier. Compared to its competitors, ESA provides

similar levels of quality to EGS.

The internal reject levels at ESA are much higher than the industry standards,

which is detrimental to ESA’s quality competency. It was evident from the

research carried out that discrepancies between the inspection criteria used by

ESA and EGS occur. Such discrepancies need to be resolved in order to

ensure that identical levels of quality are produced by ESA and required by

From the results of the analysis of the data collected during the research, it was

evident that EGS view quality as an order-winning factor. ESA’s quality levels

are similar to those of their competitors. In order to ensure that ESA

accommodates possible future changes in market requirements, and produces

quality levels higher than those of their competitors, they need to improve their

performance with respect to quality.

In order for ESA’s quality competency to be improved, the following

recommendations need to be implemented:

1. All leather inspectors must be rotated every four hours. Inspecting

leather hides in excess of 3m2 in area is a demanding responsibility, and

places strain on the inspector’s eyes. This causes fatigue and leads to

defects in the leather not being identified. Inspecting cut panels is less

straining than inspecting full hides, but the monotony of inspecting seven

to eight hundred panels per day leads to a lack of concentration. This

results in unacceptable defects not being identified. Multi-skilling of

employees currently occurs at ESA, but no rotation of the employees

takes place. By rotating both pre-cutting and pre-packaging inspectors

with cutters and packers, the rate of fatigue will be reduced, and the

number of unacceptable defects not identified by inspectors reduced.

Team leaders on the B6 and C5 production lines must be responsible for

the rotation of the inspectors.

2. The quality of the leather supplied to ESA is often unacceptable. Pre-

cutting inspectors must not allow hides with excessive defects to be cut.

These hides must be returned to the supplier, at the supplier’s cost, such

that they can become aware of the poor quality of their products. The

catalogue supplied to ESA by EGS, indicating acceptable and

unacceptable leather defects, must be provided to ESA’s leather

supplier. This will allow the supplier to have a direct indication of the

quality of the leather required.

3. A report-back system must be formulated whereby the number and type

of quality rejects identified internally and externally is provided to the

employees on the B6 and C5 production lines. The results of the

previous week’s quality rejects must be placed on a notice board within

the production facility, and updated at the beginning of every week. Not

knowing the problem, the employees cannot identify what needs to be

improved. The report-back system will solve this.

4. Inspectors from EGS must visit the ESA production plant every six

months, to ensure that both EGS and ESA are using identical quality

control criteria. The EGS inspectors, ESA inspectors and the ESA quality

manager must form an agreement as to acceptable and unacceptable

defects. This will ensure that both parties continuously evaluate the

panels on the same level.

5. The flow of the leather through the production line must be revised in

order to allow for the identification of all points of error. At present, the

hides from the pre-cutting inspection tables are randomly sent through to

the cutting tables. The revised flow of leather must ensure that the hide

from one inspection table is transferred to a specific cutting table. The cut

panels from each specific cutting table must then be transferred to a

specific pre-packaging inspection table. In this way, any unacceptable

defects that are found in cut panels can be traced back to a specific pre-

cutting inspector, and remedial action taken to improve the inspector’s

ability to detect unacceptable defects.

The five recommendations listed above will provide ESA with the opportunity to

reduce its internal and external reject rates. In this way ESA’s quality

performance will be superior to that of its competitors, and will enable ESA to

achieve excellence in an order-winning factor.

5.3 PRICE COMPETENCY

As discussed in Chapter 4, price is the second most important aspect

considered by EGS when selecting a supplier. Compared to its competitors,

ESA provides lower prices to EGS. ESA’s performance with respect to price

competence is high.

However, other suppliers can copy this low-cost strategy, causing ESA to lose

their advantage with respect to this order-winning factor. It is therefore important

for ESA to accommodate possible future changes in the market requirements

and reduce its operating costs. This reduction will improve ESA’s current profits

and provide them with the opportunity to reduce their current prices in order to

gain an advantage over other low-cost producers. A reduction in operating costs

can be achieved through higher leather utilisation levels.

In order for ESA to achieve this, the following recommendations need to be

implemented:

1. Pre-cutting inspectors must reject hides with excessive defects. As

discussed in Chapter 4, excessive defects produce low utilisation and a

loss of profit.

2. Hides that are smaller than 4,0m2 in area must not be used for producing

B6 and C5 panels. As was evident from the research, hides with larger

areas (4,0m2 and larger) produced utilisations greater than 65%.

3. A utilisation template must be provided to the cutters on the B6 and C5

production lines. This template must indicate the number of panels that

need to be cut from various hide sizes in order to achieve utilisations

above 65%.

4. Rear panels must be cut on one cutting table, and front panels cut on the

other cutting table. As discussed in Chapter 4, by using only front or only

rear panel cutting knives on a hide, a higher utilisation of the hide was

achieved.

5. A report-back system must be formulated whereby the utilisations from

the previous day’s production are provided to the employees on the B6

and C5 production lines. A notice board must be installed in the

production facility, and the utilisations achieved written on the board

every morning. Not knowing the levels of utilisation that they are

achieving, the employees will not know how they are performing. The

report-back system will solve this.

The five recommendation listed above will provide ESA with the opportunity to

improve its utilisation, increase its profits and gain an advantage over other low

cost producers.

5.4 DELIVERY LEAD-TIME COMPETENCY

As discussed in Chapter 4, delivery lead-time is not as important to EGS as

quality and price are. However, it is still regarded as a qualifying factor and

therefore requires ESA to deliver a competent performance in this regard.

From the data gathered in the research, ESA provides a delivery lead-time that

is longer than that of their competitors. This is directly as a result of ESA’s

locality compared to that of its competitors. These competitors are all located in

Eastern and Central Europe, providing them with the ability to have lower

delivery lead-times due to their proximity to Germany.

As discussed in Chapter 4, the delivery procedures followed by ESA are

currently streamlined as much as possible. The direct flight from Johannesburg

to Frankfurt, and the door-to-door delivery from Frankfurt to EGS in Stuttgart is

the quickest commercial route available to ESA. Any further reductions in time

to the confirmation of order, packaging and documentation procedures will

jeopardise the customs clearance of the order and therefore jeopardise the

timely delivery of the product to EGS in Stuttgart.

The only recommendation that needs to be implemented by ESA in order to

improve its delivery lead-time competence, is to ensure that the levels of its

finished products in stock complies with the minimum level of two weeks’ worth

of production. As EGS can increase their order quantity in the last week before

shipment of the order, the reliability of ESA to meet the demand of EGS lies

directly in the stock levels of its finished products.

Overall the delivery lead-time competence of ESA is high. Although a reduction

to the delivery lead-time would result in ESA outperforming its competitors, this

reduction is not possible. By ensuring that the stock level of its finished products

remains above two weeks’ worth of production, ESA will not fall below the

current requirement levels of EGS.

5.5 RELIABILITY COMPETENCY

As discussed in Chapter 4, reliability is not as important to EGS as quality and

price are. However, it is still regarded as a qualifying factor and therefore

requires ESA to deliver a competent performance in this regard.

Results from the empirical study indicated that ESA’s performance with respect

to reliability was high. Compared to its competitors, ESA had the most reliable

supply of products to EGS.

The procedures followed for inspecting packaged products and inspecting order

fulfilment are thorough and are the main reason why ESA possesses such a

high reliability competence.

The only recommendation that needs to be implemented by ESA in order to

improve its reliability competence is to ensure that the stock level of its finished

products remains above two weeks’ worth of production. By adhering to this

supply contract requirement, ESA will always have the quantity and type of

product ordered by EGS in stock. This will prevent ESA from delivering an order

that does not have the correct quantity or type of products.

Overall the reliability competence of ESA is high, and superior to that of its

competitors. ESA’s competence with respect to this qualifying factor meets with

the requirements of EGS.

5.6 VOLUME COMPETENCY

As discussed in Chapter 4, volume is not as important to EGS as quality and

price are. However, it is still regarded as a qualifying factor and therefore

requires ESA to deliver a competent performance in this regard.

It was evident from the data gathered from the research, that ESA’s

performance with respect to volume was equal to that of its competitors.

The purchasing department of ESA ensures that there is always sufficient raw

materials and resources available for two weeks’ worth of production. In this

way there is no reason for insufficient volumes of finished products to be

available.

In order to improve the level of its volume competence and perform more

favourably than its competitors, ESA needs to implement the following

recommendations:

1. As with the recommendations made for the improvement to the delivery

lead-time and reliability competencies, ESA must ensure that the stock

levels of its finished products never falls below two weeks’ worth of

production.

2. ESA must implement a job rotation schedule to ensure that employees

develop and maintain skills of numerous tasks within the operations

facility. ESA currently makes use of a multi-skilling programme whereby

employees are taught various tasks within the production facility.

Unfortunately no rotation of employees occurs, causing them to forget

the various skills that they have learnt but do not use.

By developing and implementing a job rotation schedule, ESA will empower its

employees to confidently carry out the tasks of other employees, and ensure

continued levels of production in the absence of certain employees. In this way

the volume of EGS’s order will always be able to be fulfilled.

Overall, the volume competence of ESA is high, and on the same level as that

of its competitors. ESA’s competence with respect to this qualifying factor meets

with the requirements of EGS.

5.7 CONCLUSION

organisation.

The aim of this research was to identify what operations strategy was required

by Eissmann South Africa in order to accommodate changes in the market

requirements and meet the needs of its customers.

In order to achieve this, three subproblems were identified namely:

1. What are the specific requirements of ESA’s customers?

2. Does ESA’s operations performance enable it to fulfil the customer

requirements?

3. How can the performance gap between customer requirements and

operations performance be bridged?

Chapters 1 and 2 were used to identify the main and subproblems of the

research, to delimit the research and to provide literature background to

operations strategies and related operations topics.

The empirical study in Chapter 3 was used to gather information pertaining to

the specific requirements of ESA’s customers, and the operations performance

of ESA.

Chapter 4 was used to analyse the data gathered from the empirical study.

From this analysis it was possible for the researcher to identify the specific

requirements of ESA’s customer and the operations performance of ESA. In this

way the first two subproblems were solved.

This chapter was used to make recommendations to bridge the performance

gap between the customer requirements and the operations performance of

It was evident from the research carried out that the operations performance of

ESA meets with the requirements of its customer with respect to price, delivery

lead-time, reliability and volume competencies. The recommendations made in

this chapter will improve the current performance levels of these four operations

competencies.

The performance of ESA with respect to its quality competence was below the

requirements of its customer. The recommendations made in this chapter will

improve the current quality performance levels of ESA and hence bridge the

performance gap.

By effectively implementing all of the recommendations made in this chapter,

the third subproblem will be solved. ESA will be able to improve its operation

performance and meet the specific requirements of its market and its customer.

REFERENCE LIST

Christopher, M. 1992. The Customer Service Planner. Oxford: Butterworth-

Heinemann.

Gordon, J. 1996. Organisational Behaviour (5th ed.). Upper Saddle River, New

Jersey: Prentice-Hall.

Gupta, M. & Campbell, V. 1995. The cost of quality. Production and Inventory

Management Journal. 3rd quarter, 43-49.

Hellriegel, D. Jackson, S.E. & Slocum, J.W. 1999. Management (8th ed.).

Cincinnati, Ohio: International Thomson Publishing.

Johnson, G. & Scholes, K. 1999. Exploring Corporate Strategy (5th ed.).

Edinburgh Gate, Essex: Prentice-Hall.

Kotler, P. 2000. Marketing Management (Millennium ed.). Upper Saddle River,

New Jersey: Prentice-Hall.

Kotter, J. 1995. Leading change: why transformation efforts fail. Harvard

Business Review. 17 (2), 59-67.

Krajewski, L.J. & Ritzman, L.P. 1990. Operations Management: Strategy and

Analysis (2nd ed.). Ohio: Addison-Wesley Publishing Company.

Kreitner, R. Kinicki, A. & Beulens, M. 1999. Organisational Behaviour (1st

European ed.). Berkshire: McGraw-Hill International.

Leedy, P.D. 1997. Practical Research: Planning and Design (6th ed.). Upper

Saddle River, New Jersey: Prentice-Hall.

National Productivity Institute. 2001. So how do we improve productivity?

Productivity Journal. June/July, 28-31.

Powell, C.J. 1996. Meeting the challenges of operations management by

employee training and professional development. Productivity and Inventory

Management Journal. 2nd quarter, 76-79.

Sawaya, W. 1993. Improving company performance through operations

management training for production workers. Productivity and Inventory

Management Journal. 2nd quarter, 18-21.

Schonberger, R.J. & Knod, E.M. 1998. Operations Management: Serving the

customer (3rd ed.). Illinois: Business Publications.

Slack, N. Chambers, S. Harland, C. Harrison, A. & Johnston, R. 1998.

Operations Management (2nd ed.). Edinburgh Gate, Essex: Prentice-Hall.

Spring, M. & Boaden, R. 1997. “One more time: how do you win orders?”: a

critical reappraisal of the Hill manufacturing strategy framework. International

Journal of Operations and Production Management. 17 (8), 757-779.

P.O. Box 272

Port Elizabeth

19 August 2002

Eissmann GmbH

Bad Urach

Stuttgart

Germany

ATT: TO WHOM IT MAY CONCERN

RE: EISSMANN SOUTH AFRICA QUESTIONNAIRE

Sir Attached please find a copy of the questionnaire referred to above.

This questionnaire has been compiled with the aim of improving the current

levels of service of Eissmann South Africa (ESA). Your completion of this

questionnaire will provide ESA with the opportunity to identify performance

areas that require improvement, and hence deliver a better product and level of

service to yourselves.

May we request that you refrain from discussing this questionnaire with other

departments within your company, as this may influence their responses to the

statements of the questionnaire. However, please feel free to discuss it

amongst the employees in your department.

Should you have any queries, please contact the undersigned on the e-mail address scottri@bks.co.za. Your completion by 13 September 2002 will be appreciated.

Yours faithfully,

S.T. RICHARDS

EISSMANN SOUTH AFRICA

CLIENT QUESTIONNAIRE

The following questions are divided into various operational categories.

Each question is in the form of a statement. Please respond to each statement

by placing an ’x’ in one of the five relevant response boxes.

The five relevant response boxes are:

CATEGORY A: QUALITY

1= I strongly disagree

2=I disagree

3= Neutral

4= I agree

5= I strongly agree

A1 The products supplied to EGS by ESA, meet the quality specifications

set out in the supply contract

A2 Compared to other suppliers, the quality of ESA products is high

A3 The quality inspection procedure used by EGS is consistent with each

inspection

A4 The quality inspection procedures and criteria used by EGS are

also used by ESA

A5 Quality is the most important aspect considered when evaluating a

supplier

CATEGORY B: PRICE

B1 EGS obtains prices from various suppliers prior to the awarding of

contracts

B2 Compared to other suppliers, ESA has the lowest prices

B3 Price is the most important aspect considered when evaluating a

supplier

CATEGORY C: DELIVERY LEAD-TIME

C1 The delivery lead-time of ESA creates a reduction in our inventory costs

C2 We would like ESA to reduce their delivery lead-time

C3 Compared to it’s competitors, ESA has the shortest delivery lead-time

C4 Delivery lead-time is the most important aspect considered when

evaluating a supplier

CATEGORY D: RELIABILITY

D1 ESA’s delivery of product quantity is always correct

D2 ESA’s delivery of product type is always correct

D3 The reliability of supply from ESA allows EGS to reduce its inventory

levels

D4 Compared to its competitors, ESA is the most reliable

D5 Reliability is the most important aspect considered when evaluating a

supplier

CATEGORY E: VOLUME

E1 The volume of EGS’s demand varies by more than 10% on a monthly

E2 Compared to its competitors, ESA supplies varying volumes of product

the best

E3 The ability of a supplier to deliver varying volumes of product, is the

most important aspect considered when evaluating a supplier

CATEGORY F: GENERAL

On a scale of 1 to 5 (where 1= least important and 5= most important), which of the following five factors are

most important to you when selecting a supplier:

RANK 1 to 5

A: QUALITY

B: PRICE

C: DELIVERY LEAD-TIME

D: RELIABILITY

E: VOLUME

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