Operational Management in W L Gore & Associates - Case Study Example

? Operational Management in W L Gore & Associates Table of Contents Table of Contents 2 Introduction 4 W L Gore & Associates 4 Operations Tasks 4 Market Requirement and Operational Resource Analysis 6 Customers, Market Position and Competitors 6 Resources, Capabilities and Processes 7 Operations Objectives 8 Operational Process Strategies and Procedures 9 Design and Conceptualization 10 Manufacturing 11 Recommendation and Conclusion 12 Reference List 15 Appendices 17 Appendix 1: Gore-Tex Market Positioning 17 Appendix 2: Materials used in Operational Process of Gore-Tex Manufacturing 18 Introduction In this report, the researcher has selected W L Gore & Associates as the sample organization in order to understand operational strategic perspectives which help the company to achieve marketing objectives successfully. The researcher is working in the consumer product designing division of the company and product design division play vital role in helping the company to design innovative merchandises which can satisfy demand of customers (Gore, 2013a). For example, the researcher as part of the product designing division works range of consumer items like outerwear, Protective Fabrics, bike wear, fibre strings, running wear and filters and more than 50% of the revenue of the company comes from the above mentioned products (Gore, 2013a). Therefore, it can be surmised that the researcher as part of consumer product designing team put significant contribution in achieving top and bottom line growth for W L Gore & Associates. Before going to the main discussion, the essay will briefly describe the business operation of W L Gore & Associates. W L Gore & Associates W. L. Gore & Associates, Inc was established in 1958 by Genevieve (Vieve) Gore and Wilbert L. (Bill) (Gore, 2013b). The company is headquartered at Newark, Delaware while employee base of the company is more than 10,000. The company specializes in offering industrial products like fluoropolymer, polytetrafluoroethylene (PTFE), versatile polymer etc which are being used for medical implants, fabric laminates, signal transmission etc (Gore, 2013c). In case of consumer products, W. L. Gore & Associates offers fabrics and polymer items which can be used by customers for leisure activities, clothing and protective measures during adventure sports. As the research is working on consumer product designing division, therefore, the study will only focus on consumer items of W. L. Gore & Associates in order to address the research problems in focused and precise manner. Operations Tasks Consideration of the research works of Slack (2004) and Slack and Lewis (2008) reveals that marketing and operation management are closely related and both the aspects complement each other. According to Slack (2004) and Slack and Lewis (2008), marketing function works well when it comes to identifying the needs of customers but a firm needs to implement operational strategy in order to provide the required products or services and resources which can satisfy the need of identified need of customers. In case of W L Gore & Associates, four dimensions of operational strategy designed for offering consumer items like outerwear, Protective Fabrics, bike wear, fibre strings, running wear and filters can be defined in the following manner. Figure 1: Four Dimensions of Operational Strategy (Source: Slack and Lewis, 2008) In Top Down approach, top management of W L Gore & Associates suggests the product engineering team to design products which can fit functional strategy of the company, in Market Requirement, task of the operational team is to design items as per requirement of customers identified by marketing department of W L Gore & Associates, in Bottom up approach, operational team of W L Gore & Associates needs to optimize cost and resource allocation from their daily operational experience while working on product designing and in Operational Resource, operational team of W L Gore & Associates needs to conduct resource audit in order to understand existing financial and non financial resource capabilities which can help them to fulfil operational objectives. In such context, the conjunction between target customers for W L Gore & Associates can be defined in the following manner. Market Requirement and Operational Resource Analysis Hill (2005), Tang (2010) and Hsu and Chen (2004) argued that strategic interface management in terms of using resource capabilities to meet customer demand play vital role in helping organizations to not only satisfy marketing objectives but also improve business performance in sustainable manner. The report will use market requirement model proposed by Slack and Lewis (2008) to identify internal and external customers for W L Gore & Associates. Figure 2: Operational Strategy Model (Source: Slack and Lewis, 2008) [Note: Slack and Lewis (2008) used the example of lighting company in order to prepare the mentioned framework but in this report, the researcher will use the same model in context to consumer product segment of W L Gore & Associates] Customers, Market Position and Competitors For consumer products, externals stakeholders for W L Gore & Associates include customers and even competitors while internal stakeholders for the company include suppliers of the materials and raw material and associates (employees are known as associate in W L Gore & Associates). According to Franco et al. (2003), W L Gore & Associates serves four different markets such as industrial and electronic (20% of revenue come from this segment), medical instruments (40% of revenue come from this segment) and fabrics as consumer item (40% of revenue come from this segment). Therefore, it can be said that consumer garment manufacturing is one of the prime target segment for W L Gore & Associates (Franco et al. 2003). In case of consumer products offering, W L Gore & Associates further segmented the market in terms of application of the garments such as backpacking, hunting, cycling, motorcycling, skiing, backpacking, water sports, cycling and snowboarding. While working as team member in the consumer product designing division in W L Gore & Associates, the researcher has found that prime target market for the offered products of the company are young people in the age of 15 years to 30 years who like to take part in sporting and adventure activities (Franco et al., 2003). Prior 1993, W L Gore & Associates was the market leader when it comes to waterproof membrane and polymer sportswear. However, currently the leadership position of the company is being perturbed by emergence of competitors like Sympatex, BHA Technologies and low cost Chinese suppliers who offer more flexible and breathable waterproof-windproof polymer membrane as against polymer sportswear of W L Gore & Associates. Market competitors like Sympatex and BHA Technologies started using eVENT Protection technology in order to decrease the weight of ePTFE technical fabrics. W L Gore & Associates is also facing the pressure from low cost Chinese suppliers who are offer polymer and polytetrafluoroethylene (PTFE) at 20%-30% lower price. Due to availability of low cost alternatives and ongoing economic crisis, customers have also become price sensitive and these factors are pushing W L Gore & Associates to compete with Sympatex and BHA Technologies in terms of price (Franco et al., 2003). Resources, Capabilities and Processes For each division, W L Gore & Associates use 150 to 160 capable associates while in case of product designing, team of 50 designers and engineers work on product concepts. On resource context, the company has achieved double digit top line growth in last few years and it has adequate liquidity to finance strategic initiatives. For example, recently the company has established partnership with one global financial institute to smooth the fund acquisition activities while intellectual property rights, talented human resource pool and brand name can be considered as intangible asset for the company (Gore, 2013a and 2013b). Gore is 75% owned by the Gore family while remaining 25% is being hold by Gore associates or employees and the company has achieved sales revenue of $3 billion in the 2012 (Gore, 2013b). Such flexible capital structure will help the company to finance its strategic initiatives or investment in product development activities. Operations Objectives It is evident from the resource capability and market requirement analysis, demand for sportswear offered by W L Gore & Associates is increasing but the market potential has been dampened by entry of low cost rival and changing consumer trend regarding Sport Styles, wellness, safety protection, health, outdoor sports, extreme adventure sports and comforts (Franco et al., 2003). According to Slack (2004) and Slack and Lewis (2008), performance objectives for any operational strategy depends on five dimensions like 1- quality of the offering, 2- speed of fulfilling customer requirement, 3- dependability of the process deployed for product manufacturing, 4- flexibility in changing the operational process as per change in customer demand and 5- optimizing the cost of operation in order to achieve desired profit margin. In case of consumer product designing division of W L Gore & Associates, operations objectives can be adjusted as, 1- decreasing the weight of the fluoropolymer and polytetrafluoroethylene (PTFE) based fibre membrane that can offer 100% water proof and wind proof benefits to customers, 2- decreasing the lead time in designing and manufacturing consumer outwear, 3- increase the reusability and environment sustainability of the sportswear by using green supply chain concept, 4- change the styling and design of the offered fibre cloths as per latest fashion trend and preferred ergonomics of customers and 5- decrease fixed cost and variable cost associated with manufacturing of the consumer sports cloths so that the product can satisfy demand of price sensitive customers (Franco et al., 2003). According to Slack, Chambers and Johnston (2007), there can be five types of process types for manufacturing process such as project, jobbing, batch, mass production and continuous process. Figure 3: Process Types (Source: Slack, Chambers and Johnston, 2007) According to Franco et al. (2003), although individual associate team members of W L Gore & Associates work in particular project but degree of individuality and customization for manufacturing consumer outwears doesn’t need integration of jobbing processes which deals with producing high variety product in low volume. In such context, W L Gore & Associates should use Batch processes in order to repeat the process of manufacturing after certain period of time while the ‘batch’ is being processed through mechanism (Slack, Chambers and Johnston, 2007; Swamidass, Baines and Darlow, 2001). Franco et al. (2003) also reported that W L Gore & Associates use mix of upstream and downstream activities in order to prepare the clothing fibre through PTFE to ePTFE membrane integration. Therefore, using Batch processes would help the company to use the supply in production process in accordance with batch requirements. Operational Process Strategies and Procedures Consideration of research works of Silveira and Slack (2001) and Sharma and Laplaca (2005) reveals the fact manufacturing, supply sourcing play vital role when it comes to integrating operation management and marketing requirement in the same plane. Swink and Song (2007) and O’Leary-Kelly and Flores (2002) argued that it very difficult for operation management team to fulfil all the marketing requirements of the company such as designing new product as per customer requirement and optimize cost of production without compromising quality due to three reasons such as lack of technological capability and resources to meet exact product specifications, lack of financial resource and improper cost assumption. As part of the product designing team, the researcher has found following operational procedures being used by W L Gore & Associates to meet customer requirements regarding waterproof, light and wind proof sportswear. Design and Conceptualization Although, Oliva and Watson (2011) and Paiva (2010) argued that product designing part should not be viewed as core operational part but in case of W L Gore & Associates, product designing team work with supply chain partners and marketing professional in order to conceptualize the required product design. Third party vendor and local suppliers provide supply of fluoropolymer and polytetrafluoroethylene (PTFE) to the product engineering team in order to manufacture the out wear as per requirement of customers. Computer-aided design (CAD) being used to design and conceptualize final look of the product. 3D imaging of the layer and matrix of the fabrics is being used in order to get the optimal shape and look of the final product (Gore, 2013c). However, extent of engineering specification varies along with the nature of the output and complexity of the operational process. Such cross product-process variation can be depicted in the following manner. Figure 4: Product Driven Operational Process in W L Gore & Associates (Franco et al., 2003) It is evident from the above diagram, basic design blocks go through high degree of customization for items like ePTFE materials used for sports and adventure wear. In case of surf boats, medical equipments and military items, intervention of technological and process mechanism is less for the company. Manufacturing After gathering the supply from suppliers, automated robotic system of the company uses batch processes to manufacture the final output for W L Gore & Associates. Notable fact is that, the operational team uses composites base matrix for ePTFE, cryogenic applications, Liquid crystal technology and photovoltaic applications for manufacturing the final output. However, to cover such complex production process is beyond the scope of this report hence the report has not covered cryogenic applications, Liquid crystal technology and photovoltaic applications in detail manner. Figure 5: Competitive Position of the Operational Process in W L Gore & Associates (Franco et al., 2003) It is evident from the above diagram that existing operational process in consumer product designing division in W L Gore & Associates works in well balanced manner for fulfilling customer requirements in comparison to other competitors like eVent, Sympatex BHA Technologies due to two reasons, 1- operational process of W L Gore & Associates focuses on 2 Layer protection mechanism which gives 100% waterproofing benefits to sportswear as against less durable Aqua dry or Outlast technology of competitors and 2- products offered through the designed operational process of W L Gore & Associates are more flexible as against competitors product (Franco et al., 2003). However, Franco et al. (2003) pointed out that cost of the sportswear and adventure wear having W L Gore & Associates layer cost 50% more than its competitors which is creating problem for the company to attract price sensitive customers. Therefore, it can be said that excessive cost of operation regarding product designing and manufacturing is creating problem for W L Gore & Associates to meet customer requirements in 100% efficient manner (Krishnan and Ulrich, 2001; Malhotra and Sharma, 2002). Recommendation and Conclusion Having analyzed the operational process in W L Gore & Associates, the study has found excessive cost of operation as the most probable threat for the company. In such context, Marko?czy (2001) stated that operational strategy should be in line with marketing requirement of the company in order to help the firm to achieve sustainable competitive advantage. Present value chain of the company should be analyzed in order to provide strategic recommendation to the company. Value chain of W L Gore & Associates can be divided into two parts such as Upstream Positioning Strategy and Downstream Expansions. In case of Upstream Positioning Strategy, external polymer suppliers supply PTFE powder and production team of the company converts PTFE to ePTFE membrane that works as the basis for Gore-Tex (Franco et al., 2003). Operational team of W L Gore & Associates only go for downstream activities in case they are not certain about the exact requirement of customers. For consumer products, Gore emphasizes on downstream garment manufacturing because they are not only sure about current customer base for Gore-Tex fabrics but also they do not want to compete with other upstream products. Figure 6: Value Chain of W L Gore & Associates (Franco et al., 2003) As a recommendation, it can be said that the company should decrease the length of the value chain by outsourcing cost intensive activities like ePTFE membrane manufacturing and Gore-text laminating. In such context, following Platts-Gregory Procedure can be used by W L Gore & Associates to optimize cost of operation. Figure 7: Platts-Gregory Procedure (Source: Slack and Lewis, 2008) As part of cost benefit analysis, variable cost and fixed cost associated with product designing should be compared with the revenue earned by the final product. Following table can be used as part of cost benefit analysis. Table 1: Cost- Benefit Analysis Cost Benefits Material cost, wages, inventory holding cost, rent of the ware house and salaries to employees. Decrease in cost of value chain after outsourcing ePTFE membrane manufacturing and Gore-text laminating and increase in revenue In conclusion, it can be said that W L Gore & Associates has the strategic opportunity to compete with low cost rivals and fulfil requirements of price sensitive customers by synchronizing marketing activity, operation management and supply chain network in comprehensive and interlinked manner. 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Operations Strategy. 2nd ed. London: FT Prentice-Hall. Slack, N., 2004. Operations management. London: FT/ Prentice-Hall. Slack, N., Chambers, S. and Johnston, R., 2007. Operations management. 5th ed. London: FT Prentice-Hall. Swamidass, P. M., Baines, T. and Darlow, N., 2001. The role of manufacturing and marketing managers in strategy development: Lessons from three companies. International Journal of Operations & Production Management, 21(7), pp. 933-48. Swink, M. and Song, M., 2007. Effects of marketing-manufacturing integration on new product development time and competitive advantage. Journal of Operations Management, 25(1), pp. 203-17. Tang, C. S., 2010. A review of marketing-operations interface models: From co-existence to coordination and collaboration. International Journal of Production Economics, 125(1), pp. 22-40. Appendices Appendix 1: Gore-Tex Market Positioning (Source: Franco et al., 2003) Appendix 2: Materials used in Operational Process of Gore-Tex Manufacturing (Source: Franco et al., 2003) Read More