Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
1
THE DEVELOPMENT OF AN OPERATIONS STRATEGY FOR EISSMANN
SOUTH AFRICA THAT ADDRESSES MARKET REQUIREMENTS AND THE
NEEDS OF ITS CUSTOMERS
BY
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
2
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
3
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
4
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.
5
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.
6
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
ESA.
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.
7
CONTENTS
PAGE
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
8
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
9
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
3.6.3 Delivery lead-time 47
3.6.4 Reliability 48
3.6.5 Volume 48
3.7 VALIDITY AND RELIABILITY 49
3.7.1 Validity 49
3.7.2 Reliability 51
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
4.1.3 Delivery lead-time 60
4.1.4 Reliability 64
4.1.5 Volume 69
4.1.6 General 72
10
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 Delivery lead-time 83
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 Reliability 88
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
11
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
12
LIST OF APPENDICES
PAGE
Appendix A: Covering letter for questionnaire 109
Appendix B: Questionnaire 110
13
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 4.2 Graphical representation of the results of statement A2 54
Figure 4.3 Graphical representation of the results of statement A3 55
Figure 4.4 Graphical representation of the results of statement A4 55
Figure 4.5 Graphical representation of the results of statement A5 56
Figure 4.6 Graphical representation of the results of statement B1 58
Figure 4.7 Graphical representation of the results of statement B2 58
Figure 4.8 Graphical representation of the results of statement B3 59
Figure 4.9 Graphical representation of the results of statement C1 60
Figure 4.10 Graphical representation of the results of statement C2 61
Figure 4.11 Graphical representation of the results of statement C3 62
Figure 4.12 Graphical representation of the results of statement C4 63
Figure 4.13 Graphical representation of the results of statement D1 64
Figure 4.14 Graphical representation of the results of statement D2 65
Figure 4.15 Graphical representation of the results of statement D3 66
Figure 4.16 Graphical representation of the results of statement D4 67
Figure 4.17 Graphical representation of the results of statement D5 68
Figure 4.18 Graphical representation of the results of statement E1 69
Figure 4.19 Graphical representation of the results of statement E2 70
Figure 4.20 Graphical representation of the results of statement E3 71
14
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.
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.
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.
15
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
16
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.
17
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.
18
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.
19
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.”
20
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.
21
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.
22
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.
23
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.
24
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.
25
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:
26
• 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
27
• 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.
28
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.
29
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:
30
• 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:
686).
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
31
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
32
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
than
Same
as
Worse
than
Less important Qualifying Order winning
Importance for customer
33
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.
34
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.
35
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
HUMAN
CAPITAL
MATERIALS
PRODUCTS
SERVICES
MARKET, CONSUMER OR
CUSTOMER NEEDS
EFFICIENCY
UTILISATION
EFFECTIVENESS
36
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
37
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);
38
• 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.
39
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
40
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.
41
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.
42
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;
43
• 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.
44
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;
45
• 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
46
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;
47
• 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
ESA;
• 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;
48
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.
49
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
50
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
were:
• 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.
3.6.3 Delivery lead-time
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
51
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.
52
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;
53
• 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.
54
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.
55
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.
56
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
0%
10%
40%
50%
0%0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
57
respondents were neutral to the statement, and 10% of respondents disagreed
with the statement.
Fig. 4.2. Graphical representation of the results of Statement A2
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.
0%
10%
70%
20%
0%0%
10%
20%
30%
40%
50%
60%
70%
80%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
58
Fig. 4.3. Graphical representation of the results of Statement A3
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.
Fig. 4.4. Graphical representation of the results of Statement A4
0% 0%
10%
40%
50%
0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
10%
50%
30%
10%
0%0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
59
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.
Fig. 4.5. Graphical representation of the results of Statement A5
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%
40%
60%
0%
10%
20%
30%
40%
50%
60%
70%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
60
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.
61
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.
Fig. 4.7. Graphical representation of the results of Statement B2
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.
0% 0%
10%
50%
40%
0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
0% 0% 0%
50% 50%
0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
62
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.
Fig. 4.8. Graphical representation of the results of Statement B3
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.
0%
10%
0%
70%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
63
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.
4.1.3 Delivery lead-time
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.
0%
20% 20%
60%
0%0%
10%
20%
30%
40%
50%
60%
70%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
64
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%
80%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
65
Fig. 4.11. Graphical representation of the results of Statement C3
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.
10%
60%
30%
0% 0%0%
10%
20%
30%
40%
50%
60%
70%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
66
Fig. 4.12. Graphical representation of the results of Statement C4
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.
0%
20%
70%
10%
0%0%
10%
20%
30%
40%
50%
60%
70%
80%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
67
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.
0% 0%
30%
60%
10%
0%
10%
20%
30%
40%
50%
60%
70%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
68
Statement D2: ESA’s delivery of product type is always correct.
Fig. 4.14. Graphical representation of the results of Statement D2
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.
0%
10%
20%
50%
20%
0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
69
Statement D3: The reliability of supply from ESA allows EGS to reduce its
inventory.
Fig. 4.15. Graphical representation of the results of Statement D3
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
0% 0%
90%
10%
0%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
70
Fig. 4.16. Graphical representation of the results of Statement D4
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.
0% 0%
10%
60%
30%
0%
10%
20%
30%
40%
50%
60%
70%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
71
Fig. 4.17. Graphical representation of the results of Statement D5
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.
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
reliability is a qualifying factor.
0%
30%
60%
10%
0%0%
10%
20%
30%
40%
50%
60%
70%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
72
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.
0%
40%
50%
10%
0%0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
73
Fig. 4.19. Graphical representation of the results of Statement E2
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.
0% 0%
80%
20%
0%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
74
Fig. 4.20. Graphical representation of the results of Statement E3
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.
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 the
ability of a supplier to deliver varying volumes of product is a qualifying factor.
0%
40%
50%
10%
0%0%
10%
20%
30%
40%
50%
60%
StronglyDisagree
Disagree Neutral Agree StronglyAgree
75
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
EGS.
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.
76
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.
77
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.
78
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
79
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.
80
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.
81
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.
82
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.
83
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
84
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.
4.2.3 Delivery lead-time
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.
85
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
86
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.
87
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;
88
• 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.
89
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:
• ESA are required to keep two weeks’ production worth of finished
products in stock at all times;
• ESA were not adhering to the two weeks’ stock level;
90
• 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,
91
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;
92
• 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;
• ESA are required to keep two weeks’ production worth of finished
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
93
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.
94
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
95
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
EGS.
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
96
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
97
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.
98
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
99
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.
100
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.
101
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
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.
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?
102
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
ESA.
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.
103
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.
104
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.
105
P.O. Box 272
Port Elizabeth
6001
R.S.A
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 [email protected]. Your completion by 13 September 2002 will be appreciated.
Yours faithfully,
S.T. RICHARDS
1
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
1=
I str
on
gly
dis
agre
e
2=
I d
isag
ree
3=
Neu
tral
4 =
I ag
ree
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
2
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
3
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
basis
4
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