Decision-making to improve operational performance

35.2 Operational decisions and competitiveness

In the market for aircraft, there are a series of key factors to consider when choosing between Airbus and Boeig:

• Function: combo of size and range
• Design: attractive planes have higher ticket prices which means manufacturers can charge a higher price
• Economy: the most important element is fuel economy, as fuel accounts for 30% of all operating costs. Aircraft maintenance is also a big item, accounting for 12% of costs
• Reliability: high quality standards
• Availability: increasing capacity for over 10 planes per month.

To boost its competitiveness the European manufacturer needs to tackle one or more of these issues. It it were able to boost the fuel economy of its aircraft, that operational step forward should help boost market share.

35.3 Operational decisions and the other business functions

Build a factory extension to increase production capacity:

• Marketing must provide the confirmation from a forecast of future sales; finance must provide the capital and HR must plan the workforce flow. 

Outsource a component of production to an outside supplier:

• HR will need to consult with staff on whether to make redundancies or redeploy; finance will have to fund the exercise - possibly high short-term cash outflows on redundancy payments. 

To move to a JIT production strategy:

• Finance will benefit from improved cash flow; HR will have to plan for more frequent deliveries and more erratic production schedules. 

35.4 Impact on operations of market conditions and competition

In the period 1995-2007, the extremely low labour costs in China made it easy for UK competitors to see the attractions of outsourcing to Chinese suppliers, or even building factories in the Far East. Since then the dramatic rise in industrial wages in China plus, a strengthening of the Chinese currency, have altered the cost equation. Wages in China today are still much lower than in the West, but they now represent a significant cost. When transport costs and different productivity levels are factored in, the Chinese advantage is less clear-cut. 

Other market and competition factors affecting operations:

• August 2014 - Sony announced that PS4 sales had passed the 10 milion mark, while Xbox One had sold half that figure. Although the higher demand for the Sony product was obvious, both consoles were still being held back by supply problems, nine months after launch. Competition for the highest quality suppliers and suppliers is important in high technology markets. 
• Market demand and variabilty is another important factor. Some products have highly unpredictable demand. Operations managers have got to understand their product well enough to choose the right balance between capital-intensive…