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PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

TABLE OF CONTENT

INTRODUCTION....2 BACKGROUND ...3 FIFTEEN OPERATIONAL DIFFERENCES....8 POLAR DIAGRAM ANALSIS16 FOUR Vs...19 BIBILOGRAPHY AND REFERENCES23

Mr. Abhishek Gokhale, London SAM (ST0006096)

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PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

INTRODUCTION In this case study I am discussing how the functions of the operation are carried out in IKEA and ACME. It was interesting to know how the two extremely different companys one a very large firm with big brand name I.e. IKEA and another one ACME very old historic British company caring the values and culture till date. I have also explain how IKEA and ACME carry out their supply chain what are the major differences operation wise within the company. It was very interesting to do the case study and it points out how the operation differences in the company actually is and how both the companies operationally are different from each other. I am also thankful to Prof Adrian G for his continuous support and guidance which was a great help in this case study. Background of IKEA and ACME IKEA Background in brief IKEA is a franchise-based chain of household furnishings' stores, first opened in Sweden. The owner and franchiser of the IKEA system is based in the Netherlands, and there are stores in 25 countries The IKEA Group has 154 stores in 25 countries (as of August 2002). Last year 286 million people visited the IKEA Groups stores around the world. The IKEA catalogue was printed in 118 million copies in 45 editions (23 languages). The IKEA Group is the largest franchisee of Inter IKEA Systems B.V. which owns the IKEA Concept. IKEA has since expanded to worldwide sales of more than $3 billion from 119 outlets in 24 countries (see Table 1). In fact, the second store that IKEA built was in Oslo, Norway. Today, IKEA operates large warehouse showrooms in Sweden, Norway, Denmark, Holland, France, Belgium, Germany, Switzerland, Austria, Canada, the United States, Saudi Arabia, and the United Kingdom. It has smaller stores Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

in Kuwait, Australia, Hong Kong, Singapore, the Canary Islands, and Iceland. A store near Budapest opened in 1990. Organization Operational Strategy The companys Strategy is mainly to increase their retail outlets and expand its operations in as much countries as they can in order to increase their market share and profits. The strategy of the company also is to lower its operational cost and expenditure of the company. IKEA also works on to increase the profit for the shareholder and investors. Their strategy is also to give cost effective and quality products to the customer's. Products Strategy IKEA product range is developed to be extensive enough to have something that appeals to everyone and to cover all functions in the home. The products are modern not trendy so they are practical enough for everyday use. The products are also designed to be assembled by the customer's rather than being sold pre- assembled. Since IKEA is a Swedish company and in Sweden the culture of the people staying is basically to use light colored furniture. IKEA has also adopted the same style and has introduced light colored furnitures in the market. Pricing Strategy Even though IKEA household products and furniture are designed in Sweden, they are largely manufactured in developing countries to keep down costs. Price is the most crucial factor for IKEA who seek to make a better everyday life available to the many not just to the few. IKEA believe a low price is linked to the happiness of finding just what you need for your home. In addition, the joy of being able to own it without having to forsake everything else. Page1 Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Marketing and Communications Strategy Marketing and communication of IKEA plays a vital role in companys success. The statements which are used by IKEA for its Vision, business idea and market position provides an idea of how IKEA marketing communication is worldwide. Vision statement for IKEA is To create a better everyday life for the many people." Our business idea is "To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them." Our market positioning statement is "Your partner in better living. We do our part, you do yours. Together we save money." IKEA communicates these statements through its advertisement and encourages the customers to experience thee IKEA concept; we are building the IKEA brand. The IKEA brand is the sum total of the emotional and rational values that consumers associate with the IKEA trademark and the reputation of our company. The brand image is the result of over 50 years work by IKEA coworkers at all levels all over the world. Distribution Strategy IKEA has a decentralized distribution system in which 25 different countries which it operates. With suppliers in 50 countries, roughly 2/3 of purchasing is from Europe with about 1/3 from Asia. A small amount of products are produced in North America. Comparatively little production actually takes place in Sweden, though it still remains the fourth-largest supplier country (behind China, Poland and Italy). China accounts for about 2.5 times as much supply as Sweden. For most of its products, the final assembly is performed by the end-user (consumer). Page1

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Functional Structure of the organization The IKEA corporate structure is divided into two main parts: operations and franchising. Most of IKEA's operations, including the management of the majority of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by INGKA Holding, a private, for-profit Dutch company. Of the IKEA stores in 36 countries, 235 are run by the INGKA Holding. The remaining 30 stores are run by franchisees outside of the INGKA Holding ACME Background in brief Acme whistles is known to be the one of the largest whistles manufacturing company is the world. Whistles where originated or we can say they discovery of the whistle was done by ACME. Talking about variety ACME has more than 93 authentic and genuine Acme Whistles including many worlds first. The company was initially started by Joseph Hudson a farm worker in Derbyshire who moved to the city of Birmingham as it was the industrial revolution and he was a trained toolmaker. The company started at his back house and the business was very small until he got his first every large scale of business from The London Metropolitan Police to replace the police rattle a means of communication used for patrolling. In the next 135 years Acme manufactured and patented over 93 different whistle designs. The below mentioned are some of the first few companies which ACME started its whistle manufacturing for:

The Metropolitan Police Whistle The Acme Siren Page1 The Acme Thundered

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES


Operations Management

Silent Dog Whistle Scout Whistle Life Jacket Water safe Whistle The Tornado

By the end of the year 2000 sales had reached huge numbers. The famous Acme Thundered whistle alone had sold over 200 million with the many other whistles of the range adding dramatically to its total. Today the modern whistles of ACME such as Tornado 2000 and the Cyclone are used in top class sporting events around the globe. Here are just a few of the sporting bodies, safety organisations and security organisations who use Acme whistles: NATO forces Royal Life Saving Society International Mountain Rescue Council Boy Scouts of U.S.A Singapore Police Canadian Hockey Hong Kong Lifeguards Association N.F.L N.C.A.A. FIFA UN FIMBRA FINA

Whistle development never stops at Acme and the new sports whistle, a new dog whistle and a new animal sound effect are under development for launch during 2005 2006. The new SportzWiz of ACME is an electronic signaller with many applications. A state of the art Page1 attention grabber.

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Over recent years Acme has increased its export turnover to include 119 countries. Acme produces six million whistles in 83 varieties - exporting them to 119 countries around the world accounts for 85% of its 9 million annual turnover Sales may now be in millions to every corner of the globe but some things never change. Joseph Hudson used to insist on blowing every whistle himself personally before it left the factory. Today we have a machine that fulfils this task. EVERY ACME WHISTLE IS INDIVIDUALLY TESTED AND GUARANTEED. Organizational Strategy Here I am discussing the organizational strategy in terms of Operations. Organizational strategy of ACME is mainly focused on satisfying the customer needs and customizing the product according to their needs. Since Acme is a very small company, the companys strategy is innovation and creativity. Acme strategy is since they are a very small company they need to be creative in order to survive into the market. Pricing Strategy ACME products are priced according to the sound the whistle makes, how hard or easy it is to blow and the frequency of the sound. Marketing and communications Strategy ACME doesnt have a retail out unlike IKEA hence its customers are mostly corporate customer like for example NATO forces, Royal life saving society, International Mountain Rescue Council, FIFA, Canadian Hockey. Marketing of ACME is very different than that of IKEA customers they can buy it from ACME websites. Marketing is mainly targeted on corporate clients and communication is based accordingly. Mr. Abhishek Gokhale, London SAM (ST0006096) Page1 mainly because of its customer base and it doesnt have any retail outlet second for individual

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Distribution Strategy ACME has a centralized distribution system. Its factory is located in Birmingham and it is its only manufacturing factory, ACME manufactures and distributes its products to its customers around the world from UK. Functional structure of the organisation The functional structure of ACME is very informal and unstructured. It has a very basic functional structure which has a few changes since it started mass production. As in case of any organization each department is functionally divided based on the functions which they are doing in the organization.

FIFTEEN OPERATIONAL STRATEGIC DIFFFERENCES BETWEEN IKEA AND ACME 1. Manufacturing Difference In a company manufacturing is defined as a process in which the Inputs are transformed into output; the process takes place in 3 step process which is Input, transformation and output. In case of IKEA it is a large company as compare to ACME so the manufacturing process in on a wider scale and the raw materials for manufacturing is mainly wood as IKEA is one of largest retail furniture outlet which is transformed into furniture which then the customer has to assemble at their home its more of a self assembling kind of furniture where as in case of ACME the raw material used is mainly plastic and fiber but the only change is that the final product in ACME i.e. the output is ready to use and is the final product in the hands of the customer. IKEA on the other hand gives pieces of furniture which needs to be assembled by the customer in the home. Page1

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

2. Organizational Structure Structure of the organization in case of IKEA and ACME both is functionally divided. IKEA employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This leads to operational efficiencies within that group. As a whole, a functional organization is best suited for IKEA as it is a producer of standardized goods and services at large volume and at low cost. Where as in case of ACME coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, in ACME start making the components it requires for production of its products instead of procuring it from an external organization. It is not only beneficial for organization but also for employees faiths. Summarizing this point we can say that IKEA and ACME organization is functionally divided still IKEA functions are very much structured and each and every functions role and responsibilities is properly demarcated unlike ACME it is more unstructured and employees are more flexible and an employee attends more than one functions or responsibilities in the company. 3. Creativity of the Employee In this section I am talking about the creativity of the employee's of IKEA and ACME. IKEA is more kind of autocratic kind of and organization in which mostly the decision taken is by the management and employee's creativity is not taken into consideration. In case of ACME it is entirely opposite the employee's are free to share their ideas and put it forward to the management. ACME encourages employees creativity and motivates them for their creativity. ACME also reward the employee's for their creativity. Since ACME is a very small company they need to be creative in order to survive in the current market condition. Page1

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

4. Market Visibility Talking about the market visibility of IKEA and ACME., IKEA as a brand has a bigger market visibility than that of ACME because of the main reason that IKEA has retail outlet and their customers are mostly retail who come to the stores of IKEA to shop for the products. In case of ACME their main customer's are corporate clients so the market visibility of ACME is very less as compared to IKEA. 5. Mode of Business Operation Operation plays a major role in any companys success as operational fictional are important to make or break down a company. In case of IKEA. Business operation is the ongoing activity involve in the running of a business for the purpose of producing value for the stakeholders. In case of IKEA mode of business operation is mainly very large as compare to ACME as IKEA is acquiring assets for its retail outlet which are really huge and all over the world so the overall share price of IKEA is more and return to the shareholder and investor is more, so the mode of operation for IKEA is harvesting of value from asset owned by a business. As in case of ACME it has only one manufacturing outlet which is in UK and the mode of business operation for ACME is based on production and increases the total production and gets new clients for its product. 6. Innovation in the organization ACME is a very innovative company as compare to IKEA in IKEA mostly all the furnitures made by them are customized and in comparison to the current furniture market trends. In case of ACME the company is very innovative and always tries to customize its products according to the customer needs. IKEA also depends on customer feedback but very less and mostly make the furnitures according to the latest style and trends. 7. Total Quality Management or TQM of IKEA and ACME Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

TQM implementation is very crucial for any company and implementation of TQM takes a very long time in any given organization. There are five different approaches for TQM, we now look how IKEA and ACME has applied this approaches in their day to day operational functions The transcendent approach views quality as synonymous with innate excellence. Using this approach, quality is being defined as the absolute the best possible, in terms of the products or services specification. This kind of approach is mainly used by IKEA as it is a bigger brand and need to build its brand image among the customer's. IKEA is using this kind of approaches in order to gain the maximum market share and get a competitive advantage over its competitors. ACME is not using this approach as its customer's are mostly corporate. The manufacturing-based approach It is concerned with making products or providing Services that are free of errors and that conform precisely to their design specification, is defined as a quality product provided it has been built or delivered precisely to its design specification. ACME is mainly using this kind of approach as it is a small company and it gives customized products to its customers. The user-based approach is concerned with making sure that the product or service is fit for its purpose. This definition demonstrates concern not only for its adherence to specification. But also for the appropriateness of that specification for the customer. This quality specification may not be appropriate, however, for the customer whose main need is a good sleep. In case of IKEA the product is fit for its purpose but way the products are being sold is not all using this approach it is sold separately and the customer's need to assemble it at home for its final use. Where as in case of ACME the final product is fit for its purpose duly tested and can be used directly by the its clients. The product-based approach views quality as a precise (and Page1

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

measurable) set of the characteristics which will satisfy customers. This kind of approach is used by both the companies as the furniture which IKEA manufactures and the whistles which ACME manufactures both are designed to satisfy the customer's need properly. The value-based approach takes the manufacturing definition a stage further and defines quality in terms of cost and price. This approach contends that quality should be perceived in relation to price. A customer may well be willing to accept something of a lower specification quality, if the price is low. In case of IKEA the product are design for the lowest cost in the market with a high quality this is also one of the approaches that IKEA uses. ACME on the other hand products are not that cost effective and it doesnt use value based approach in case of their manufacturing of whistles. 8. Technology Technology wise IKEA is far more ahead of ACME. IKEA is a global organization with operation around more than 25 different countries so the Information Technology of IKEA has to be world class. IKEA has a major focus on its Information Technology which supports its operational function and intern responsible for IKEA's growth. IKEA has a dedicated IT department which takes care of all its IT related requirements like software, opportunities to streamline its process and improve its old processes. ACME doesnt have a dedicated IT department like IKEA but has an IT has a major role to play in ACME as well. ACME has just one production unit and is not depended so much on IT or creating new softwares for its purpose most of the IT functions in ACME are outsourced. IT also helps IKEA in designing softwares which intern help in easy of shopping for the customer's. In the case of ACME the old tradition of blowing the whistle from the mouth has changes and now they have machines that blow the whistle to check whether it working properly or now. ACME as a company is very less depended on IT. 9. R&D Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

ACME invests lot of money in its research and development department unlike IKEA. Since ACME is a smaller company it needs to spend lot of its money and efforts in research and development. IKEA products are mainly design looking at latest trend and which are very cheaper. Selling the good at a cheaper cost is the main motive for IKEA. R & D has been a constant feature of life at Acme as we constantly strive to improve the performance of even our most powerful whistles. Standing still is not an option, customers requirements are constantly changing and we are always happy to look at special needs. This test rig was specially designed to check operating pressures on whistles and limits for overflowing. You can just see the Acme 477/58.5 Thundered and below an industrial whistle being tested. 10. Risk Factor ACME has a larger risk of closing down unlike IKEA as ACME is a very small company and their core business and the clients are also very less as compare to IKEA. IKEA on the other hand has risk management team which calculates the risk involve in any decision taken by the management for the organization and then the final decision is taken after evaluating the risk involve. ACME since it is a smaller company risk department is not there in the organization and most of the decision taken by them are taking the consensus of the important people involve in the management which is not at all is a calculated risk, this is very risk for an organization. 11. Product Opportunity Today's IKEA range consists of 9,500 home furnishing articles, designed to be functional and good looking but at a low price. Each item is developed by IKEA of Sweden, which is also responsible for giving each product its unique name, such as BILLY and KLIPPAN. ACME has a huge range of products it has around 93 different whistles but the opportunity for the product is very less as in case of IKEA the range of products is high and the opportunity for each and every product of it is very high. ACME is able to customize its product according to its customers need but that is not there in the case of Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

IKEA. IKEA has a retail outlet where all its products are being showcased but in ACME an individual customer can purchase its whistles online. IKEA stores are very big with children play area and lots or direction on how to use the store and how to shop. IKEA stores are self serviced stores and customer has to do shop and there is self checkout system where the customer's pay using the machine for the products they have bought. 12. Location IKEA has operation in more than 25 different countries this means IKEA is a global company and its location is worldwide the top five countries where IKEA operation is and the amount of sales it is generating is Germany 16%, USA 11%, France 10%, UK 7% and Italy 7%. IKEA has 28 distribution centers and 11 customer distribution centers in 16 countries. Using flat packs, transporting goods where possible by rail and sea, and utilizing fuel-saving techniques allows us to be cost-effective and environmentally friendly. ACME on the other hand has only one factory outlet and no retail store so location wise ACME is only located in Birmingham UK. 13. Inventory Inventory of ACME again is only in Birmingham and it doesnt have any other inventory so the in ACME it is an centralized inventory system from where ACME distributes all its products to all its clients across the country. As in case of IKEA the inventory system is almost opposite I.e. the inventory is decentralized and it has inventory all across the country. There is an another group of IKEA I.e. Wedgwood group which is part of IKEA takes care of its inventories The Wedgwood Group is an industrial group of IKEA. The Wedgwood Group is the IKEA industrial group. Wedgwood produces wood-based furniture and wooden components in 46 production units in 10 countries. Wedgwoods primary task is to ensure production capacity for IKEA. This is accomplished by establishing and operating sawmills component and furniture production units strategically located relative markets and/or raw materials supply. Wedgwood has nearly 50 production units and offices in 12 countries in three continents. Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

14. Economies of Scale Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. As in case of ACME the expansion of the company is very less so the economies of scale for the company is very less as in case of IKEA the economies of scale is very large as the company is on continuous expansion. 15. Time Management Time management plays a vital role in IKEA growth and time is give the top most priority in case of IKEA as in case of ACME time is not given so much importance. Different Contrasting market requirements of IKEA and ACME. The market requirements of both IKEA and ACME is very different from each other as one company customer's are retail customer's and has retail outlet where as ACME supplies its products on large scale to its corporate clients. Customer differences of IKEA and ACME The customer's of both IKEA and ACME has huge differences, IKEA has more retail customer's as compare to ACME which has retail customers. As I have discussed in earlier topics ACME customers are mostly large organization that mainly uses whistles like for examples FIFA, London Metropolitan Police etc these order bulk whistles from ACME. Where as in case of IKEA customers comes to IKEA retail shops to buy IKEA's furniture so as you can see there is a huge difference in both the customer's of IKEA and ACME. Operational Functional Differences Operation wise also both the companies differ from each other function wise if you see there are Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

19 different functions in IKEA consisting of all the various kinds of department like for example bathroom, bedroom, cooking, living room etc. the employee's also are functionally divided and each employee has its own functional role and responsibilities in IKEA which fixed and it doesnt changes until he gets promoted or management decides to change it for some reason. In case of ACME even though the department is functionally divided the employee's are flexible and move between different functions as when there is requirement. Organizational Cultural and Structural Differences Culturally if you see both the organization are totally different ACME has and old history and it carries its values, cultural and traditions from more than 100 years. IKEA is a much modernized company with very modern culture and the company is just recently started. If we talk about the structure of the company IKEA has a taller organization structure where as ACME has a flatter structure but in both the cases role and responsibilities of employee's in IKEA is well defined where as in case of ACME it is not. Fictional Responsibilities and processes necessary within IKEA and ACME Functional responsibilities are basically are based on the function which an employee's is carrying out in an organization for egg if the department of an employee's is customer service then the employee has to deal with customer complains POLAR DIAGRAM ANALYSIS OF IKEA AND ACME and how it can be improved. Description of a Polar Diagram It basically describes the operating performance objectives specially relates to satisfying customer requirements and market demand to improve the organizational organizational competitiveness in the market. The performance objectives for any operation can be measured with the following parameters: Quality, speed, Dependability, flexibility and cost. Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Quality Quality basically prevents errors causing wasted time and effort, therefore saving cost. IKEA Talking about the quality for IKEA is to make its furniture durable, easy to assemble as the assembly is mostly done by the customers at home, all parts are made to specification, Stores should be kept clean and tidy, and most important the layout of the store should be in a way that customers Speed Meaning of speed is different for different organization. The basic definition is time passed between a customer asking for a product or service and getting it in a satisfactory manner. Speed is a major parameter for measuring a companys performance. It reduces the need to manage transformed resources as they pass through the operation and therefore reduces inventory, minimize risk saving cost. IKEA In case of IKEA speed is not a major factor as it IKEA is a company where they want the customer to relax and have a good time while roaming around the store to feel it more like a leisure stroll. So the time taken for the total transaction of going to the store, making the purchases and returning is quite a bit of time on an average customers spent 2 hours in an IKEA store. IKEA also ensure the immediate availability of goods and also try to minimize the time to find out the parts from the shop floor after choosing a particular product. ACME Here also in the case of ACME speed is not the key factor as they are big organization so they are depend on more whole sale than on retail so the focus on the time between clients requesting a consignment of a particular specification and receiving it kept to a minimum. Page1 can easily find the parts of the furniture they are looking out for. ACME Quality for ACME should be that the look of whistle should be attractive and the performance also should be efficient enough for the user.

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Dependability This factor explains the customer's dependability on the company. It prevents lateness causing disruption and wasted time and effort gives stability and therefore reduces cost. IKEA Not a major factor in case of IKEA but like the opening hours is very important for IKEA, constant availability of parking, or buy car roof rack to take your product home easily and also keeping reasonable time to finds parts of the product from the shop Flexibility In an operations scenario flexibility means an ability to change the products and services it brings to the market. IKEA IKEA has different flexibility; service flexibility for IKEA is the introduction of new designs and products, Mix flexibility of IKEA that it has a wide range available. Volume flexibility is the ability to adjust the number of customers served. Delivery flexibility the ability to obtain out-of-stock items (very occasionally) Cost The cost of producing products and services is obviously influenced by many factors such as input costs, but two important sets are The 4 Vs: volume, variety, variation, visibility and the internal performance of the operation in terms of quality, speed, dependability, flexibility. Mr. Abhishek Gokhale, London SAM (ST0006096) Page1 ACME Product and service flexibility in case of ACME is the introduction of new design or promotions. Mix flexibility that it has wide range of goods stocked in respect of its industry. Volume flexibility is the ability to adjust the volume of production. Delivery flexibility is the ability to reschedule manufacturing priorities. floor or ensure help if customers cannot find it by themselves. ACME ACME dependability depends on timely delivery of the consignment to the clients and on-time delivery to individual customers in case of is online sells.

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Polar Diagram Polar diagrams are used to indicate the relative importance of each performance objective to an operation or process. They can also be used to indicate the difference between different products and services produced by an operation or process.
Quality Speed

Cost 40 30 20 10 0

Dependa bility

IKEA ACME

Flexibility

Polar diagram IKEA vs. ACME A brief discussion on the implications that each Operations Characteristic might have on The Company Performance when a change happens in: (A) Volume and Variety in IKEA and ACME outputs and (B) The Variation and Visibility in the customer demands and Outputs, respectively. Although all operations are similar in that they all transform input resources into output products and services, Operations differ in four important aspects: 1. The volume of their output 2. The variety of their output 3. The variation in the demand for their output 4. The level of visibility which customers have of the production of the product/service (i.e. the degree of customer contact) The Volume Dimension: HIGH VOLUME: IKEA As IKEA is operating just like a warehouse, it produces a high volume of furniture and products that could be self-assembled. The fact that IKEA can also be found in other Mr. Abhishek Gokhale, London SAM (ST0006096) Page1

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

countries allow for economies of scale and hence, IKEA is able to bring costs down with its high-volume production. Tasks are repeated frequently. It makes sense to specialize: One specialist person is assigned to one job. This leads to the systemization of the work where the standard procedures are set down in a manual, with instruction on how each part of the job should be carried out. It gives low unit cost; the fixed costs of the operation are spread over a large number of products or services. LOW VOLUME: ACME WHISTLES The degree of repetition will be low. The number of staff will be low (possibly only one person). Individual staff is likely to perform a wider range of tasks. It is less open to systemization. Less feasible to invest in specialized equipment For all of these reasons, the cost per unit product/service is Likely to be higher (even if the price is comparable) The Variety Dimension High-Variety: IKEA The 'Swedish' design emphasizes bold colors, styles and functionality. The company promotes products to be modular, allowing different variations of the same basic product to be customized to produce greater variety. This allows IKEA to provide greater variety for its products without holding large amounts of stock. It must be relatively flexible. High requirement on the knowledge and skill of its staff. The variety on offer by the service allows it to match its services closely to its customers needs. Page1 A high unit cost will be incurred IKEA's furniture is 'value for money' with a wide range of choice. It is designed to be

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

stored and sold as a 'flat pack' but is capable of easy assembly by the customer. IKEA's philosophy is not to 'hassle' customers but rather let them make their shopping decisions in their own time. Only if a customer wants advice will the staff offer to help and guide them around the showroom. Low-Variety: ACME WHISTLES Little flexibility is required from the operation All is standardized and regular. The lack of change and disruption in the day-to-day running for the operation results in relatively low costs.

The Variation Dimensions High variation: IKEA

A marked variation in demand levels is that the operation must change its capaci-

ty in some way. For example, Hire extra staff. Predict the level of demand it is likely to receive All these have an effect of increasing the cost of products. Low variation in demand: ACME WHISTLES Demand is relatively in level. The organization can plan its activities well in advance. Staff can be scheduled; products and services can be provided in a regular and prePage1 dictable manner. This results in a high utilization of resources and thus relatively low costs.

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

The Visibility Dimension Visibility means how much of the operations activities are exposed to its customers. Customers processing operations have more of their activities visible to their customers than most material processing operations. Highvisibility operation: IKEA In the case of IKEA, though it adopts the self-service concept in their stores, it actually maintains a high level of contact with their customers. To facilitate shopping, IKEA provides catalogues, tape measures, shopping lists and pencils for writing notes and measurements. Its customers experience most of its `value-adding` activities. Customers in this type of operation have a relatively short waiting tolerance. It requires staff with good customer contact skill. Customers are actually in the operation they can ask what they like. It is not easy to achieve high productivity of resources, and tend to relatively high-cost operations. Lowvisibility operation: ACME WHISTLES Its customers experience less of its activities, and operations. Most of the process is more factories like. It does not requires staff with good customer contact skill Since its low contact nature, the variation in demand is lower than those with highcontact nature, and will have lower costs in operations. based customers having visibilities. Page1 It does not have stores resulting in very less visibility; it sells online so only internet

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

BIBILOGRAPHY AND REFERENCES BOOKS Prof Nigel Slack , Dec 2004, 4th Edition, Dr Stuart Chambers, Robert Johnston, Operations Management, UK. WEBSITES IKEA History, Organization Strategy, Functional structure, Dated 20th April 2010 www.ikea.co.uk ACME History, organization strategy, Functional structure, Dated 20th April 2010 www.acmewhistles.co.uk Quality of ACME : http://www.cheathouse.com/essay/case-study-acmewhistles#ixzz0m5JJruSg Dated 23rd April 2010.

JOURNALS Michael Bourne, John Mills, Norman Faull, 2009, Emerald International Journal of Operations & Production Management, Issue 9, pp 944-946, viewed 24 April 2010, http://www.emeraldinsight.com/ M. Rungtusanatham, F. Salvador, C. Forza, T.Y. Choi, 2009, Supply-chain linkages an Page1 operational performance: A resource-based-view perspective, Issue 9, pp 1084-1099

Mr. Abhishek Gokhale, London SAM (ST0006096)

PRIFYSGOL CYMRU UNIVERSITY OF WALES

Operations Management

Shannon W. Anderson, L. Scott Baggett, and Sally K. Widener, The Impact of Service Operations Failures on Customer Satisfaction: Evidence on How Failures and Their Source Affect What Matters to Customers MANUFACTURING & SERVICE OPERATIONS MANAGEMENT 2009 11: 52-69, published online before print January 4, 2008, DOI: 10.1287/msom.1070.0193

Mr. Abhishek Gokhale, London SAM (ST0006096)

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