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ALTIS MBA 2009

Operations Management
Course Work

Submitted by:
Group 5 Study Group

Leonard Mutebi, Thiago Goncalves De Andrade, Eauel Tessema, Ephraim Okere, Charin Olga
Guerrero Garcia, Ramesh Vasudevan, Fr.Vincent Kisenyi Byansi

Case Studies Analyzed

Dabbawallahs of Mumbai Distribution


The Bama Companies Quality Control
Hewlett Packard Inventory Control
Zappos.com Customer Relationship Management

Keywords: Supply Chain Management, Inventory Control, Distributions, Delivery, CRM,


Value Chain, HP, Dabbawallahs, Zappos, Gama Companies.

Abstract
Various entities in the business world have showcased superior results of a well-managed
supply chain. Following, is a case-by-case analysis of four companies that have shown
exceptional performance across the different areas of the supply chain: from HP’s unique
approach to Inventory control, to the mystic yet efficient distribution and delivery
mechanism of Mumbai’s food distribution network-The Dabbawallahs. Each of the cases
illustrates the unique strengths a business can develop by focusing on a specific area in
building an efficient and effective supply chain, and overall a profitable business.
Case I: The Dabbawallahs of Mumbai
An efficient food distribution Network: Building success around an efficient delivery system

1.0 Brief Company's Profile


Dabbawallahs of Mumbai or better call them the Mumbai’s “tiffinwallahs” is an efficient
organization in India that has acquired its name through the dabbawallah meal delivery
network and cited internationally by management scholars and industry executives as an
exemplar supply chain and service management.

The dabbawallah service had an informal and very humble beginning in 1890 in Mumbai.
In 1954, the dabbawallah had united into a rudimentary co-operative and registered this
umbrella organization in 1956. In 1983, it changed into the Trust and adopted an owner
partner system. By 2003, it has registered 5,000 dabbawallahs and was delivering 175,000
lunches daily in Mumbai covering an area of 75 kilometers of public transport and
generated Rs380 million per annum.

1.1 Achievements
• World record in Best Time Management
• Name in Guinness Book of World Records and Ripley’s “Believe it or not”
• No strike for 116 years
• Six Sigma (99.9999) rating (only one mistake in every 6,000,000 deliveries)
• The Dabbawallahs industry continues to grow at a rate of 5-10% per year
• Uninterrupted services, too precise timing to permit any flexibility even on the days
of severe weather such as Mumbai’s monsoons!
• Unique industry with equal pay ($40-80) per month with only 3 management layers

1.2 Supply Chain Management & Distribution


The Dabbawallahs of Mumbai are the masters of the Supply Chain Management. It is an
118 year-old organization of men (walas) who pick up lunch boxes (dabbas or tiffins) from
the homes of Mumbai’s office workers each working day of the week and deliver them to
their workplaces; then after lunch they pick up the empty dabbas and carry them back to
the homes of the customers. Their distribution network is characterized by a combination
of a “baton relay system” and a “hub and spokes system.”

There are approximately 5000 illiterate and semi-literate men (plus four women) in the
organization; they deal with close to 200,000 tiffins daily; they received ISO 9001
accreditation in Year 2000. For the efficiency of their supply chain it has been claimed that
this virtually achieves a Six Sigma certification from Forbes Magazine in 1998 (i.e.
99.9999% of deliveries are made without error). Masters of supply chain management;
they have also been the subject of case studies in management schools worldwide.
“The Look at this fabulous Supply Chain Management: The first phase was picking up
dabbas from the customers’ homes and transporting them to the train. From here the first
sorting is carried out. It is worth noting that sorting is carried out four times during the
process: at the home train station; at the destination station (downtown); again at the
destination station on the return trip; and again at the home station and it is done within a
few minutes and then. It is also of importance to note that the dabbawallahs have to
compete for space with regular commuters and street vendors carrying their merchandise
but all this is done in flashes of seconds as the trains have just twenty seconds’ break
intervals! Incidentally, each of the tiffins is marked with a unique code consisting of
numbers and letters. The dabbawallahs decipher the home address and the workplace of
the customer from the code. With the downtown sorting complete, the tiffins were loaded
onto push carts or bicycles for delivery to the customers in the offices of Fort. The
dabbawallas are committed to delivering the tiffins to their customers right on time for
lunch at between 12:30 and 13:00 hrs. The return trip – a mirror image of the forward trip –
started after a break of an hour.

From the above, there are generally five (5) distinct reasons that make the Dabbawallah to be
the masters of the supply chain management and these are: Low cost delivery, Delivery
reliability, Decentralization, Perceived equity, Suburban railway network. They are so
successful because of a committed work force, trust, work culture, work ethics,
homogeneous, it is a flat organization whereby power is shared by all, and all are
empowered, all are augmented by the entrepreneurship spirit to excel in service delivery and
satisfy the customer, it is a mindset organization, there is work specification and cohesion in
the organization built on mutual trust, job enrichment. However, many people observe that it
is hard work and sincerity of dabbawallahs are the two main factors to reach such levels of
efficiency with such an untrained work force.

1.3 Inventory Control


Their inventory is work in process of transporting the finished goods which is the warm food
delivery to the customers. It mainly consists of good in transit. The Dabbawallahs know very
well their customers and their requirements from A to Z and as such have a very good
forecast in their hands. Since their main work is to deliver so all is done Just In Time (JIT).

1.4 Customers’ Service


The guiding principle of the Dabbawallah is “work is worship”. This commitment is evidenced
in their rule no. 23 whereby it is categorically stated that: “No customer shall go hungry”. Such
principles have been internalized and this why you see them braving in all conditions. Though
low-tech and lean, they have a website and now allow booking for delivery through SMS and
also, on line poll on the web site ensures that customer feedback is given pride place.
1.5 Quality Control
The Dabbawallahs, the lunch carrier in Mumbai, India delivers lunches to his customers with
exceptionally high quality customer service. The Dabbawallahs are very hardworking and very
sincere people of India. R. Megde said “Many people talk about us, but Prince Charles was
the first famous person who met the dabbawallahs and encouraged them. Hard work and
sincerity of dabbawallahs are the two main factors to reach such levels of efficiency with such
an untrained work force. They got six sigma rating of highest operational efficiency without
using any paper work or computer.

1.6 Conclusion
Despite their ‘traditional’ operational mechanism, the Dabbawallahs of Mumbai have
developed an extremely efficient delivery system. The company’s supply chain distribution
system has attracted international for its efficiency and highly organized structure.
Dabbawallahs overall success in the supply chain lies in its efficient delivery system.
Case II: The Bama Companies
Quality Excellence in the Supply Chain

2.0 The Bama Companies


After the sixties the business started to grow very faster, the company expand the plant in
U.S. and open two plants in Beijing, revenues over $200 million, sales increase 47% when
the market was stable, since 1996 the company do not rise the products prices, has a
costumer relationship with McDonalds over 37 years, with Pizza Hut over 11 years,
achieved 98% on time delivery of products to consumers, the HR system, Leadership
System, Management System, Quality System and Supply Chain Management are
benchmarking all over the world, very high level of start-up efficiency and high level of
turnover (more 13% annually), these are interesting data and difficult to hit, but for the
Bama Companies was not.

2.1 History
The Bama history started in 1927, Texas, doing homemade pies, although the business,
the name and the company born in 1937 in Tulsa, Okla, when Paul and his wife Lilah
Marshall developed and manufacture frozen foods products ready to use for the quick
service, casual dining restaurant business and family dining chains, after to industry
restaurants.

Bama produces, hand-held pies, biscuits, hamburgers, casual food, Mexican food and
pizza crust, furthermore the three main categories are hand-held, biscuits and pizza crust,
accounting for 92% of revenue, called “core line products”.
At the inception two thinks were the main issue to be successful on the business: one, the
product quality and second, that people make the company; with these two conception
create the mission, vision and a guide line.

2.2 Mission & Vision:


At Bama, the mission is simple: “People helping people be successful.” Yet the vision
values of the company to: “Create and delivery loyalty, prosperity and FUN, while
becoming a billion dollar company.”

The guiding principle is “Keep your eye on quality and remember that people make a
company”, so making the employees part of the Bama family and be very carefully with the
products quality, help the Bama, build on a strong reputation between costumers,
employees and consumers, hence a uniqueness position on the market.
2.3 Supply Chain Management System and Key Strength
In the end of nineties and beginning of the XX century The Bama Companies innovate the
Food Service market, first focus on business to business, second developed a long term
partnerships and divided the consumers in five chains:
- Hamburger chain
- Pizza chain
- Mexican chain
- Casual dining chain
- Retailer in the world chain (biscuits and pies)

With this purpose the organization could had a overview of all the supply chain activities
and implement the Six Sigmas model and Balanced Scored Card, simultaneously, with
some internal system like Businesses Opportunity Management Process (BOMP), Key
Value Creation Process, Leadership System, Prometheus Team, Safety and Environment
Team and Employee Learning and Motivating. In fact the Bama has a strength HR
department and a strong Supply Chain Management. These are the unique programmes,
on top of fact that all the programmes are base on five strategic outcomes:

1) People (Mission and Vision)


2) Learning & Innovation
3) Continuous Improvement
4) Be Customer’s first choice
5) Value added growth

Those outcomes are use with short


term plan (1 year and 6 years) to
meet them with Balance Scored
Card, BOMP and Leadership
system (figure 1). Although the
important issue is the Individual
Goals and Development Plan that are linked with all the Strategic Alignment and
Leadership structure and process, the main concern is that “People helping people be
successful.” So the corporate structure can have a support base on confidence and trust,
these reply why they have a higher level of turn over and satisfaction; because the
employees know that they make the company.
Equally important is the Program
Business Opportunity Management
Process (BOMP), focus on get the
product from the idea stage and re-view
all process until market/sell and also
capture every information about clients to
ensure effective development of products
(figure 2).

At the same time that BOMP help the


products and activities innovation, these
program aid the relationship with
customers, costumers and employees,
because like we see on the figure, the suppliers are involve on BOMP, sharing KPI’s (key
Performance Indicators), results and standards to have better to their finish consumers.

2.4 Conclusion
Bama’s long standing achievement in industrial and supply chain quality control has turned
into a strong competitive advantage. In 2004, the company was nominated and won the
prestigious Malcolm Baldrige Quality Award, a National Institute of Standards and
Technology. This highly competitive award is an indicator of the company’s unappreciated
quality control management.
Case III: Hewlett Packard
Controlling Costs through Innovative Inventory Control Management

3.0 Introduction
HP demonstrated that a well managed inventory can make the difference between leading
by market share alone, or by margins. During the 1990s, the PC business slowed. It
increasingly became difficult for HP to turn a dollar, despite demand growing fivefold
between 1990 and 1997. The sheer amount of vendors made differentiation impractical.
HP had resorted to costly measures like price cuts which even plunged margins further.

3.1 The Challenge in the Chain


Notwithstanding the flexibility in HP’s prevailing supply chains, the company struggled to
maintain market share. No matter how hard they endeavored, their supply chains were
simply not economically sustainable. Indeed, when margins were so thin in 1997, some
product-lines had not turned a profit since 1993!

Compounding the problem further was that the different management-accounting


measures in practice had failed to evolve with the supply chains. Besides, the company
kept a complex multilayered manufacturing network composed of different entities. With
this setting, players were unable to predict the overall dollar-impact of their decisions in the
supply chain. For instance, managers endeavored to reduce costs in the local operations
without clearly understanding the impact their decisions had in the other parts of the
supply chain!

3.2 The Bundled Problem- Dissecting the Cost-Structure, a quest for a healthy
bottom line
In order to improve profitability, HP’s Strategic and Planning Modeling (SPaM) group
decided to undertake an exhaustive review of the company’s costs structure.

With the findings of the team, it became clear that inventory driven costs were the main
drivers of PC business costs. Infact, such costs extended beyond the traditional easily
identifiable inventory holding costs ( capital costs plus warehouse, insurance etc) to a host
of other hidden areas, that even proved to have a more disastrous impact on margins.

However, behind, all these costs drivers, SPaM revealed that mismatches between
demand and supply leading to excess inventory was the main cause of hidden costs. In
fact the review uncovered shocking evidence: In 1995 the company’s inventory-related
costs equaled total business’ operating margin!
3.3 Taking action –“Tracking Actions”
Armed with their finds, SPaM proposed two solutions. One was to review inventory policies
with channel partners, and suppliers. For instance, HP adopted a method of just-in-time
purchase of component (microprocessors, CPUs, memory) whose notorious price
devaluation effects compounded the problem.

The other solution advanced by SPaM was re-modeling the company’s supply chain. HP’s
existing supply chain was made of a complex multilayered of entities. Moreover HP, just
like many others, maintained inventory in different places- in factories and distribution
centers, in merge centers and in transit.

Managers in the disparate units could not have a view of the overall dollar impact of their
local decisions. Many decisions would result into compounding costs in the overall supply
chain, even when they seemed to save expenses to local manager.

3.4 The Turnaround-The Dawn of a Breakthrough


In a bid to reverse the situation, SPaM proposed several turnaround decisions; many of
which involved a complete redesign of HP’s supply chain. Infact, the team’s key decisions
tacked each of the key areas with a specific course of action:

However, the most critical one was the proposal for a complete redesign of the supply
chain. Convincing HP executive to drop its multi-layered supply chain model in favor of a
centralized one took SPaM more than mere strategic speculations. The team had to
provide concrete cost structure figures among several competing supply chain
configurations. In the end, based on the Low Cost Option, management approved the
consolidation of the worldwide manufacturing at a single location, from where products
would be shipped directly to customers

3.5 Implementation of the Winning Model


The winning supply chain model, involved clear IDC cost metrics. SPaM had meticulously
developed these through extensive research across the entire HP centers. Infact, with the
new metrics and model, managers would look at an item regardless of its location in the
supply chain and be able to trace all its associated cost details. This meant that managers,
only made decisions that would result into the lowest overall cost on the supply chain.

SPaM began implementing the new inventory cost control strategy at the HP’s Mobile
Computing Division. Prior to this, MCD managers believed the unit could not become
profitable until it consolidated the supply chain in some way-but never knew how!
However, after introducing IDC in 1998, the division reaped instant benefit. For example,
the division reduced inventory driven costs from 18.7% to 12.2% between 1997 and 1998,
to 3.8% of total revenue in 1999. Moreover, the division’s Notebook line broke even in
1998 and turned a profit 1999! Infact this same year, HP overtook IBM to become the
world’s largest PC vendor by revenues.

3.6 Leveraging the Success -IDC Control and the Pay off
Inspired by these successes, HP decided to officially implement the metrics all over its PC
operations. Initially the Commercial Desktop business was the first to adopt IDC control
after the success of the MCD. But now, the focus was on tracking inventory driven costs
across all divisions. The pay offs were an integrated systems that managed the company’s
value chain in a sophisticated manner. This meant that managers now worked towards a
single global IDC target, resulting into a more efficient supply chain. This approach soon
solidified into a strong competitive advantage for the company. Infact, from the time HP
and Compaq merged in 2002, the pushed to adopt IDC moved quite swiftly and today all of
HP has adopted a standard set of inventory-driven cost metrics.

3.7 Conclusion
Inventory affects costs in more ways that you may realize. Without understanding the
costs associated with inventory, any attempts to manage margins and the bottom-line in
companies with low margins, short life cycles, highly perishable, or seasonal products like
HP simply turns out to be a gaze in the dark. HP’s approach proved that: By linking
inventory costs to financial performance, developing an optimal supply chain and
appropriate metrics to manage and evaluate inventory driven costs, firms can turn
significant savings in the supply chain directly into the bottom line. Indeed, the company’s
strength in supply chain inventory control management has been a strong source of
competitive advantage in the PC business since the turn of the century.
Case IV: Zappos.com
A “service company that sells shoes”-Leveraging CRM to create competitive position

4.0 Introduction
Nick Swinmurn, in 1999 identified the need to offer something new in the shoe market,
different from the traditional retailer, with the scope of proposing a huge selection of style,
color, and sizes of shoes by using the internet to address the selection problems faced by
traditional shoe retailers. This was the beginning and foundation of Zappos.

At the inception, he raised $150,000 from family and friends and recruited Fred Mossler a
senior shoe buyer at Nordstrom. He convinced Tony Hsieh and Alfred Lin, founders of
Venture Fogs which funded Internet start-ups who invested $2 million in the project;
subsequently, Sequoia Capital, a premier Silicon Valley venture firm, also invested in the
company.

Zappos began in San Francisco in the second floor of a Victorian house in 1999, but
moved in 2004 to Henderson, Nevada on the outskirts of Las Vegas to accommodate its
call-center. The choice was influenced by the fact that the place was already home to
many call centers and had a extremely good internet connectivity. Though in the early
years of the company’s life, it was difficult to get brands to sign up for online distribution,
Zappos wooed many brands to its side. By 2008 Zappos had in its warehouse, about
1,417 brands and a workforce of 1500 employees, half of them in its Nevada headquarters
and call center, and the another half in its Kentucky fulfillment center.

After investing, Hsieh began to work with Swinmurn becoming co-CEOs in 2000. Lin joined
as CFO in 2005 and by 2006 Swinmurn left Zappos. The company had a strong growth
from its first sales through 2008, when the sales plummeted to $1 billion.

4.1 Supply Chain Management Strengths


The company being mindful of its mission as a service company adopted and implemented
policies that evolved through time, hence they had a Supply Chain Management Evolution
in the following steps:
• The drop-ship model: Company held no inventory managed orders and vendors
sent to customers
• Bringing inventory in-house: started keeping inventory.
• Experimenting with Third-Party Fulfillment: partnership with UPS.
• Developing the Zappos Distribution Center in Kentucky: automated warehouse and
distribution centre, plus few drop-shipments.
• The End of Drop-Shipments: end of drop-shipment and managed all inventory
4.2 The Key to Success
The drivers of success in Zappos include the following:
• Strong focus on customer satisfaction (WOW customers!)
• Dedicated employees with passion for service.
• Optimization of IT and online information
• Flexibility and capacity to manage huge inventory (2.85 million products).
• Rapid delivery and Return policies (expense-free return policy).
• Collaborative strategies, involving suppliers and partners (UPS and Vendors)
• Corporate (service) culture that was imbibed by all workers.
• Efficient in-house call-center (record average response time of 20 seconds).

4.3 Conclusion
Working according to the mission, “Developing a Supply Chain to Deliver
WOW!” Zappos acquired and maintained a strong company culture, developed and
nurtured by management; Hsieh described this culture as: “(…) many different elements.
It’s always looking for new ways to WOW everyone we come in contact with. It’s about
building relationships… It’s about teamwork and having fun (…). It’s about growth, both
personal and professional (…) “We want people who are passionate about what Zappos is
about – service…” p.4

This has been the bedrock of their success. However, there are a lot of challenges ahead.
It has to continue evolving and creating new processes and organizational changes that
will guarantee growth, for it needs to grow to become bigger than a $1 billion business in
terms of sales. The fact that customers’ behavior can change, especially in the current
economic climate; coupled with some other factors, makes it imperative for the company
look always for innovative ways of maintaining and always delivering the WOW
experience through an excellent customer service.